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Operator: Ladies and gentlemen, good day, and thank you for standing by. Welcome to the Linde Fourth Quarter 2025 Earnings Call and Webcast. Please be advised that today's conference is being recorded. After the speakers' presentation, there will be a question and answer session. I would now like to hand the conference over to Mr. Juan Pelaez, Head of Investor Relations. Please go ahead, sir. Juan Pelaez: Thank you, Abby. Morning, everyone, and thank you for attending our 2025 fourth quarter earnings call and webcast. I'm Juan Pelaez, Head of Investor Relations, and I'm joined this morning by Sanjiv Lamba, Chief Executive Officer, and Matthew White, Chief Financial Officer. Today's presentation materials are available on our website at thelinde.com in the Investors section. Please read the forward-looking statement disclosure on Page two of the slides and note that it applies to all statements made during this teleconference. The reconciliations of the adjusted numbers are in the appendix of this presentation. Sanjiv will provide some opening remarks, and then Matthew will give an update on Linde's fourth quarter financial performance and outlook. After which, we'll wrap up with Q&A. Let me turn the call over to Sanjiv. Sanjiv Lamba: Thanks, Juan, and good morning, everyone. The economic environment in 2025 was a study in contrast. On one hand, exuberant investment in AI and digital infrastructure drove unprecedented activity. On the other hand, traditional industrial markets like manufacturing, metals, chemicals, and energy faced continued retrenchment. This divergence was exemplified in both concentration of returns from the S&P 500 and in persistently weak manufacturing indicators. This created a challenging backdrop for many of our customers operating in these sectors. Despite these headwinds, Linde employees once again rose to the challenge, delivering industry-leading results in areas that matter most to our owners. I've highlighted a few of these accomplishments on slide three. Running a global enterprise requires balancing the needs of many stakeholders while delivering against both near and long-term expectations. The four areas you see on this slide—people and communities, environmental stewardship, financial performance, and future growth—represent that balanced approach and remain the foundation for Linde's long-term value creation for our owners. Let me start with people and communities. Our employees are the backbone of Linde's success. In 2025, we once again delivered best-in-class safety performance because nothing is more important than ensuring our employees and contractors return home safely every day. We also continue to build an inclusive culture across the footprint of more than 80 countries. Female representation reached nearly 30%, and we progressed multiple employee initiatives that earned third-party accolades as well. As a local business, we also strive to be a good neighbor. This year, our teams completed almost 900 projects across the world, supporting health, education, and community well-being, many driven by committed Linde volunteers who pitch in to lead and support these projects. In addition to supporting local communities, Linde is also a good citizen to the planet through actions to improve our environmental footprint. In 2025, we made substantial progress on this front. By increasing active low-carbon power sourcing by 23%, we enabled 50% of Linde's annual power consumption to be low carbon. This in turn supported almost 2 million metric ton reduction of absolute CO2 emissions, moving us forward on the ambitious 35% reduction target by 2035. And we've kept a close eye on the future as well, as two-thirds of our backlog supports contracted clean energy projects. In addition to which, we also signed more than 90 new gas application wins, many to help customers further decarbonize their operations. These are just a few of the highlights, and many more can be found in our annual sustainability report, which will be released in the second quarter. Of course, we must deliver on financial performance since management's primary role is a steward of shareholder capital. Despite a weak industrial environment, Linde achieved annual record levels for EPS, operating cash flow, and operating margins. The 24.2% return on capital not only leads the industry but also validates the long-term disciplined capital allocation policy, which enabled the return of more than $7 billion to shareholders. In good times and bad, you can count on Linde to remain laser-focused to deliver shareholder value. Finally, we must position Linde for future growth to remain the long-term compound. From my perspective, this is the strongest strategic position Linde has held during my tenure. Our project backlog stands at a record $10 billion, and this number does not include over half a billion dollars of investment for rocket propellants to contracted space launch customers. In fact, we fully expect continued investment in the sector as we expand our network to support this rapidly growing opportunity. Linde remains the anchor industrial gas supplier for some of the largest and most successful clean energy and advanced electronics fabs in the world. In fact, I'm highly confident that we will announce new signature fab wins in the coming months. We also continue to see a robust M&A pipeline for accretive tuck-in acquisitions that further enhance our supply density. In summary, Linde delivered a resilient performance in a challenging 2025 environment. But looking ahead, I know we can do better. Certain regions of the world are still not showing signs of near-term recovery, and we are taking actions to align our resources accordingly. In other words, growth remains geographically uneven, and we need to adjust our organization to reflect that. Considering this, in the fourth quarter, we initiated additional restructuring actions to better position the company for 2026. These actions will have cash payback levels and timing like prior programs, so I expect the bulk of the benefits to be in the second half of the year. When combining these incremental actions with our existing productivity initiatives and a record backlog of secured growth, I'm confident we will deliver a stronger EPS growth that our owners expect and have enjoyed for many years. I'll now turn the call over to Matt to walk through our financial results. Matthew White: Thanks, Sanjiv. Fourth quarter results can be found on Slide four. Sales of $8.8 billion increased 6% over the prior year and 2% sequentially. Versus the prior year, foreign currency translation provided a 3% tailwind as the US dollar weakened against most currencies, especially the euro. I expect this trend to continue into 2026, which we'll discuss later with guidance. Excluding FX, underlying sales increased 3%, from 2% pricing and 1% volumes. The 2% price increase aligned with globally weighted inflation after considering APAC challenges associated with helium and China deflationary conditions. Volume growth was driven by project startups in the Americas and APAC, as base volume growth in the Americas was more than offset by continued industrial softness in EMEA. Sequentially, volumes were flat as normal seasonal declines were offset by project startups. Operating profit at $2.6 billion was up 4% from the prior year and resulted in a 29.5% margin. The quarter margin dilution attributed to the timing of other income, which was down over $30 million. Note full-year operating margin is up 30 basis points, which is within the range of our long-term margin expansion expectation of about 30 to 50 basis points per year. EPS of $4.20 increased 6%, and the lower share count more than offset the impact of a higher ETR. Note, we stepped up share repurchases in the fourth quarter to $1.4 billion as we saw an attractive buying opportunity from the stock decline. You can see the 17% growth in CapEx led by spending for the record project backlog. This trend, coupled with the increased acquisitions, has led to more capital-intensive growth, which negatively affected ROC. This was anticipated as I expect this metric to remain in the low to mid-20% range for the next few years. Slide five provides more details on capital management. Operating cash flow exceeded $3 billion in the fourth quarter from stronger collections and inventory management. As mentioned in prior calls, operating cash flow is seasonally stronger in the second half of the year due to the timing of tax, incentive, and interest cash payments. The pie chart to the right summarizes full-year allocation of capital. About $6 billion was invested for growth, including half towards secured growth of acquisitions and project backlog contracts. Another $7.4 billion was returned to owners as dividends or share repurchases. This level of distribution requires a focused and disciplined management of both operating and investing cash flows. In fact, sustainable stock repurchase programs are anchored by consistent excess free cash flow after dividend payments, something Linde has demonstrated for several decades. I'll wrap up with guidance on slide six. For the full year, EPS is projected in the range of $17.40 to $17.90, or 6% to 9% above 2025. This range assumes a 1% FX tailwind and 0% base volume change at the midpoint. Consistent with prior guidance, we're not going to make predictions on the macroeconomic climate. Rather, we'll anchor the midpoint at 0% and let investors insert their own views. The 1% currency tailwind is based on early January forward rates. Note that there could be FX upside if current spot rates hold since the US dollar has weakened over the last month. For the first quarter, we took the same baseline volume assumption but set the FX tailwind to 3% since 2025 had the strongest US dollar baseline. Note the 3% quarter assumption still aligns with the 1% full-year assumption, so we don't anticipate as much FX benefit in the second half of the year. As Sanjiv mentioned, we have a strong backlog of projects, productivity, and self-help actions to support 2026 EPS growth. However, we also believe it's still early in the year, and thus wise to remain prudent on the outlook. I've said before that heroes aren't made in the first quarter, so we want to remain vigilant and guarded as the 2026 landscape starts to take shape. I've provided annual guidance now for over a decade, and through that time, I've determined there are two things in February that I can be highly confident on. Number one, no one knows what will happen in the economy. And number two, regardless of what happens in the economy, Linde employees will rise to the occasion and leverage our unique supply network, culture, and operating rhythm to create shareholder value in any environment. I'll now turn the call over to Q&A. Operator: Thank you. And we'll now begin the question and answer session. If you have dialed in and would like to ask a question, please press 1 on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your questions, simply press 1 a second time. If you are called upon to ask your question and are listening via speakerphone on your device, please pick up your handset and ensure that your phone is not on mute when asking your question. To be able to take as many questions as possible, we ask that you please limit yourself to one question. Again, it is 1 if you would like to join the queue. And our first question comes from the line of David Begleiter with Deutsche Bank. Your line is open. David Begleiter: Thank you. Good morning. Sanjiv, just on Europe, are there are you seeing any signs of progress in that region? And I did see that pricing did slow to plus 1% in Q4. Do you think you can still get pricing of roughly plus 2% in the region during 2026? Thank you. Sanjiv Lamba: David, EMEA tends to be an area that we put a lot of attention to, as you would expect. And, unfortunately, based on what we see at the moment, I have to say that the market continues to see broad-based weakness. That's been the theme for a number of quarters over the last couple of three years now. There are some bright spots in EMEA as well. I'd say Europe North, the Scandinavian countries, continues to grow even in these conditions, so that's good news. But beyond that, there's a little bit of optimism coming out of Germany. I tend to be very cautious on that. The recently announced manufacturing numbers moved up a little bit in Germany. I would watch that to see if there is any momentum underpinning that. Beyond that, there doesn't seem to be a catalyst to really get to a recovery in Europe that would be substantive. On pricing, Europe's had a fantastic track record on pricing in Linde. EMEA business does a really good job around that, have done so. I expect them to fully find pricing in line with their weighted CPI is what my expectation of that business remains. You should see that in the coming year as well in 2026. Beyond that, I'd say I think there's a lot to watch out for. The complexity of Europe and the European Union unfortunately makes execution of any changes there or indeed any catalyst there somewhat provides a bit of a skeptical view from our perspective till we actually see it happen on the ground. Operator: And our next question comes from the line of Duffy Fischer with Goldman Sachs. Duffy Fischer: Maybe if you could just go around the rest of the world. You talked a little bit about Europe and maybe about your end markets. You're not putting any growth in your estimates. But what are you seeing? Obviously, you've got pretty good connectivity with the market. So what does your gut say your different end markets and your different geographies end up growing this year? Sanjiv Lamba: Thanks, Duffy. Let's do that. But before I kind of give you a walk around the world, why don't I say this because it kind of prefaces a little bit, and the end market slide in some ways validates this. So you will see the end market slides showing all green, right, and essentially suggesting year-on-year growth across all end markets. And, yes, recently, ISM, PMI, etcetera, have shown a slightly more positive trend. As I stand here today, I'd say to you, if I was reflecting back on the last twelve months, I am today slightly more positive on the industrial activity that I foresee for this year and the potential for growth as well. Now I'll add to that a caution. As you would expect, we live in a hyper-dynamic world. Things change every day. So you would expect us to bring you a far more informed and insights view in April when we have this conversation. But fair to say we and I'll say this about particularly, we've been very conservative in how we are looking at the markets, and you'll see that reflected in the guidance as well. Now let's walk around and just tell you what I've seen in the last quarter and first part of this month as well or last month now. Let's start with The Americas. The US, and I've said this over and over again, proven to be a really resilient market. Sales are up across almost every end market. Obviously, electronics, commercial space, kind of stand out in that in terms of growth that we've seen there. Manufacturing has been stable. There is still some caution when we speak to our customers. I look at a leading indicator. You hear me talk about the hard goods business often or our packaged business often as a good leading indicator. A hard goods sales, particularly in automation, saw a pickup in the last quarter. But beyond that, on consumables, we haven't seen anything reflect the pickup. So the expectation at this stage is people are investing in the automation equipment to be prepared for any recovery that might happen or indeed to look for more productivity. So a little bit difficult to gauge, which is why I say when we come back in April, you'll have a far more informed we will have a far more informed view. And you'll get a far more informed view of what we think is likely to happen for the rest of the year. If I think about LatAm, across the board, LatAm sales have been stable and growing. Brazil stands out as having had a really good year last year. We saw that play out in Q4 as well. Canada, on the other hand, remains flat, and I don't see any catalyst for that changing anytime soon. If I move from The Americas to talk about APAC, I think the best way to talk about APAC is to start with China. In my assessment, the China markets that we supply and work with closely are largely bottoming out. In fact, in a recent email I got from Will Lee, who's the president of our China business, he wrote I have to say with some pride, he wrote that after quite a few quarters, our China business, our merchant business, to our end customers, not distributors and channels, but our end customers grew at a rate higher than the published IP number. Which, as you all know, was 5% for the last quarter, we tend to take that with a pinch of salt as well. So the rate of growth in China has certainly in the last quarter, shown an improvement. China team done some excellent work to get that growth. So I'm happy to see that. But I remain watchful to see whether we see that momentum carry on into Q1, which obviously will be disrupted by the Chinese New Year. So we'll have to kind of look through and sift through the data to see if that trend is holding. India also had a continued strong growth I think we were happy to see that almost all end markets in India were improving and moving forward. And in fact, by distribution modes as well, we saw growth across all of those distribution modes. Again, the India team does a really good job of making sure we win more than our fair share. So happy to see that momentum. But, again, I also expect further growth and momentum in the India market given that two of the recent events will support that growth story there. First is the EU free trade agreement. That will help kind of build some momentum around industrial activity and exports from India. And, of course, The US India tariffs getting sorted out is also an element that will provide some catalyst for further growth. The rest of APAC, to be honest, largely stable. Nothing exciting. Australia, which has had a tough year in 2025, we saw some I mean, they were still declining in Q4, but we saw some signs of that stabilizing. And my expectation is Australia should see comps will also get better as you can expect. But should see some kind of a recovery this year, as we move forward. So that's kind of a walk around the world, and I think I was to just talk about end markets, let's say to you, electronics stands out, we are seeing good strong growth there. My expectation remains that we'll see a lot more investment in that space, and you hear me talk about it when I talk about backlog. I'm sure there'll be a question on backlog, and I'll talk a bit more about how I see that playing out. And, of course, the other market's also appearing to be stable to slightly up as we spoke. Duffy Fischer: Awesome. Thank you, guys. Operator: And our next question comes from the line of Laurent Favre with BNP Paribas. Your line is open. Laurent Favre: Yes. Good morning all. And, Sanjiv, I don't want to disappoint. So a question on the trajectory of the sale of gas backlog. So with Beaumont start-ups, I guess, we would be coming down towards $5.5 billion. I heard your conviction on electronics, but I'm just wondering, I guess, what sells we should be focusing on. Is $5.5 billion the new norm, or would you hope to get back closer to $7 billion in the next year or so? Thank you. Sanjiv Lamba: Laurent, you know the answer to that. We will be heading towards that $7 billion mark. I was gonna say that anyway. Right? So let's just break out what happens with backlog and year. And I say this often, and I think it's worth reiterating that. The best backlog is one that shrinks before it grows back up again. So my expectation is this year, you know, in 2025, we started about a billion of projects. This year in 2026 is a big year for us. You all know that OCI Woodside startup is gonna be phased through the course of the year. So I would expect fully that the backlog will see projects $2.5 to $3 billion come off and get started up and start contributing to revenue and earnings. So that's exactly what we would like to see happen. The pressure on the businesses and the teams are aware of my expectations that we will grow back the backlog. And I feel good about the pipeline of projects that we're currently working on and some fairly advanced as well, which I expect we will fully make as I mentioned in my prepared remarks, a little bit earlier. Some really large wins around fabs that I'm hopeful that we will be able to get to a point of being able to get to announcing, you know, having signed them up and put them in the backlog soon. So, yeah, the target is to get back to that $7 billion. We'll be close to that mind view. We'll see whether we can dare cross it or how close we can get that business to get us there. Operator: And our next question comes from the line of Toni Jones with Roth Child. Toni Jones: Sanjiv, earlier you talked about your restructuring that you booked in the fourth quarter. If we take that $230 million, can we assume a roughly one-to-one ratio to savings? If we do that, it points to something like a 70 basis point margin uplift in '26. Or maybe we get it in the second half when it rolls forward. Is that reasonable? And then just to think about net margin expansion, how do you see OpEx inflation tracking over the year? Thank you. Sanjiv Lamba: Thanks, Toni. So the easy way to answer that is, typically, you've heard us say this previously as well, so I'll just reiterate that. Our restructuring paybacks on a cash basis tend to be on average about two years. And I think if you take that into account, you can kind of do the math and get to the numbers that you're looking for. What I would say to you for 2026, my expectation remains that we will be above the long-term margin range that we normally offer you. Always say 30 to 50 basis points is what you should expect. My view is in 2026, we will beat that number. Toni Jones: That's really helpful. Thank you. Operator: And our next question comes from the line of Josh Spector with UBS. Your line is open. Josh Spector: Yeah. Hi. Good morning. I had a couple questions I put together around the space opportunity for you guys. I mean, first, I wanted to ask if any of that is contributing to the CapEx increase you're projecting for 2026. It's not backlog. So is it in there? Is it upside? How should we think about that? Thank you. Matthew White: Hey, Josh. I briefly glanced through the report that you sent out. It was a nice report. Well done. I'll say this to you. You know, the CapEx in the backlog does not include about half a billion of projects that we have invested in, and we continue to make investments in 2026 as well to be able to support this growth opportunity. So you're spot on. This is a secular growth opportunity. We are excited about it. We are really well positioned to be able to serve this. The two major investment hubs that we see around this, building the network out, are in Texas and Florida. We have extremely strong positions in supporting launches here. Let's talk about launches because I know there's been some confusion and questions around it. Look, the easy answer to this is we only measure by the number of launches where Linde is directly involved. Some cases, others are also involved in launches, so they may be double counting. I think about six months ago, one, I think it was in the second quarter, we talked about more than three-quarters of all launches are supplied by Linde. At that point in time, that was absolutely the right number. I think the number ranges between 65 to 75% on average, and I think that's a really robust number, and we do that by launch. Last year, there were 189 launches. You can do the math. I mean, Juan can help you with some more details if you need, but solid, you know, solid growth, extremely well positioned. Florida and Texas is where bulk of the launches are expected. And you know what? We are expecting to get, you know, more than our fair share of that just given the unique position we built up there. In fact, we started up a plant in Brownsville earlier this year. In early January, in fact. So we just can't get enough product availability in our network to be able to make sure we meet all of that demand. It is factored into the guidance. It's a secular trend for sure. But remember, and, you know, I'm looking forward to having a billion-dollar business year that I can split it up in the end markets and show it to you guys separately. I expect to see that happen in the next few years. But it isn't big enough to mold the needle for Linde as a company overall. So it's in the guidance. We are excited about it. Double-digit growth. Expect to see that continue over the next few years. And at some stage, we'll fill it out and you'll actually see the numbers and feel good about it as well. Thank you. Operator: And our next question comes from the line of Patrick Cunningham with Citi. Your line is open. Patrick Cunningham: Hi, good morning. Thanks for taking my question. Maybe just on the 90 new customer wins in oxyfuel combustion, can you just help us understand the specific customer base, whether it's concentrated in any particular region? And what sort of contribution this has to the backlog and overall growth algorithm? Sanjiv Lamba: Patrick, I always love a question on gas application wins, and I think this is a good example. I think if you go back and read some of the transcripts from maybe a couple of years ago, you will let us talk about us ramping up activity on oxyfuel wins and providing some great technology that helps customers reduce emissions, reduce natural gas consumption, and increase throughput. What a real win-win story that was. And I think that's what we're seeing play out in this. So we're seeing this across the world, to be honest. There is a little bit of a concentration in terms of China wins being disproportionately high. But, you know, we see the wins both across the Americas and EMEA as well. It's great technology. Customers are loving it. And I think, you know, we've seen that momentum that we built up on business development at this playing out and actually these wins being signed up and actually under execution as we speak. Operator: And our next question comes from the line of Vincent Andrews with Morgan Stanley. Your line is open. Vincent Andrews: Thank you, and good morning, everyone. You mentioned $400 million of bolt-ons were completed in 2025. Just curious, you know, how much of an impact that's having on the top line in '26. And also, if you could talk about that lever in general of capital allocation and how much, you know, particularly as we remain sort of at the bottom of a cycle, is there increasing opportunity to do more bolt-ons or decaps at this point in the cycle? And should we be thinking about this as more of a growth lever than perhaps it's been over the past five, ten years? Matthew White: Hey, Vince. Yeah. It's Matt. I can handle that one. So as you see from our sales variance, you know, we're getting a percent right now. It is a weaker percent, but it rounds to a on the acquisitions from the 2025 contribution. So right now, we expect we should be able to maintain that into '26, time will tell. But as you can see, this sort of $400 to $500 million number, at least on the current baseline, is able to get us around at 1%. As far as how we think about them, you know, number one, we buy into density. We want to buy into our core strength, and we're buying based on synergies. We justify these on the synergies we can bring with our existing network and our existing density. You know, we don't really tend to speculate on the growth around them. So any growth we can achieve is usually upside to the models. And as far as the sentiment, yeah, I would say, you know, a lot of these are regional players. They're generally smaller independents. The concentration of that, right now is more in North America. There is some in parts of Asia. We're seeing in China and in the South Pacific area. That's where you tend to see a little bit more of the independent opportunities. This is something that we've been doing for a long time. We have a very strong capability on not just identifying and acquiring, but more importantly, integrating and achieving the synergies that we set forth. So it's absolutely integral to our growth. But we also are not going to lose our discipline we're not gonna get out of our swim lane, so to speak. So expect to continue to see these kind of numbers. And where opportunities present themselves for larger ones, will absolutely be in the mix. And we'll make sure we continue to apply our investment criteria for each incremental opportunity. Operator: And our next question comes from the line of John Roberts with Mizuho. Your line is open. John Roberts: Thank you. Sanjiv, late last year, it sounded like you were working on a new six-point blueprint to extend the growth for Linde. Have you formalized that? And is there anything you can tease us with? Sanjiv Lamba: John, I love to tease you, but I'm probably gonna resist that temptation. We have a growth out there. You've seen that. You were here with us in Danbury. In December, I recall, and I showed you a page out of my notebook. So those growth sticks have been formalized. They have been rolled out. We are measuring progress against that. And, at Linde, you know we are an execution machine. So once we set the goals, I think that's when the execution delivers. So I'm feeling good about how momentum is picking up on that. But, you know, those elements. And I think I'd say to you, there is no rocket science over there. These are things that we know how to do well, and we just focus the organization to go out and get the wins in. Particularly in an economic environment where there is a national momentum coming for growth. So it's good to see that we are getting traction across the organization in there. And, you know, today, haven't spoken about small on-site, a small on-site sit within that piece, acquisitions, Matt just talked to, you know, briefly about expectation that we want to see that 1% top line and a little bit more coming through on the bottom line once we integrate them effectively. You know? So those would be all elements that you should see within that. As would be application sales, etcetera. So the Chrome six was rolled out. The organization knows it well. They live and breathe it every morning. And when they don't, I remind them very quickly. So I'm feeling good about where that stands. John Roberts: Thank you. Operator: And our next question comes from the line of Matthew DeYoe with Bank of America. Your line is open. Matthew DeYoe: Good morning, everyone. I hear you on the China IP commentary and the growth, and that's encouraging. I wanted to dig in a little bit more on APAC if I could. Manufacturing as an end market looks to be pretty weak. On a one-year and two-year stack. So I'm just trying to get a sense for what exactly is at issue there, which specific end markets are maybe causing the trouble, and if that was a particular area where you saw some strength because it seemed like data pointed to a softer four Q as well. And then conversely, this bucket of other is actually doing seemingly pretty well. You know, I don't want to get lost to rounding on some of these breakouts, but what is that in relation to? And if I could, just one more attack on it, Vincent. How it seems like these acquisitions aren't immediately accretive. And if you do a steady cadence, maybe that's irrelevant. But how long does it take for a year, like an acquisition, to show up on the bottom line? Sanjiv Lamba: Alright. Let me talk about Matt, let me talk about APAC, and then I'll ask my Matt to give you a quick view on the other piece, which he always ensures is doing what it needs to do to make sure accretive to the business overall of the PLC overall. Look. In APAC, you have to split that by different regions. I'm gonna give you a little bit of a deeper dive there just to kind of give you a sense. So start with China. We talked about China earlier on. China manufacturing, as you know, a lot of that underwritten by large-scale exports to markets, which may or may not be welcoming those exports in. But has provided a little bit of momentum. And within that, there are clear green shoots in manufacturing. The EVPs, you know, when I was with BYD, one of our customers in China, the chairman was complaining that he wasn't seeing as growth as he was expecting, and he was unhappy that he was only growing 28%. Hey. 28% in this environment is a good place to be. Right? So things like that, battery developments continue to be positive within that piece. So, also, in manufacturing, is commercial space today. We haven't split it out, and, you know, that we've been talking about space quite a lot, so I won't repeat all of that. But there is clearly momentum over there as well. So you put that piece together and, obviously, commercial space applies more to The US market than APAC, but we have had some small contributions in APAC as well. So that's kind of the broader piece around China. RSP has been down, and RSP manufacturing numbers continue to reflect that broad-based weakness. We are seeing that things are a little bit better in the fourth quarter versus what they were in the first and second quarter. So expectation remains that you might see a continued improvement or a gradient towards a recovery in the RSP of the South Pacific market. Australia being the large market there. And then, you know, India I kind of briefly talked about providing a bit of tailwind on the manufacturing side, particularly again, the expectation with the three-deal agreement and the tariff issues getting resolved. We'll see further improvements there. So I'm not sure that's entirely factored into the one to two-year outlook that you're looking at. Where I think there is probably a degree of disappointment is ASEAN. If you recall, ASEAN used to have a reasonably strong growth but not as strong as China and India, but nonetheless, in the middle part. And we haven't seen that. They've largely been stable but flattish at best. And I think unfortunately, the ASEAN futures are inextricably linked to what happened to China, and the weakness in China has permeated there as well. So, again, a recovery on that will take a little longer. So, you know, your view on a slightly softer outlook there would be absolutely right. But that's kind of where manufacturing kind of adds up. Matt, you wanna cover the other piece? Matthew White: Sure. And, Matt, I think two questions. Right? One on M&A timing and one on other segment. So we start with M&A timing. I would say that for an average M&A deal, generally, we tend to see full run rate synergies within twelve to twenty-four months on full run rate. You think about synergies, it can come down to a few things. You know, clearly, headcount is one. And that tends to be the fastest. That you can recognize, I would say, you know, sometimes between zero and six months. You're also gonna have any type of real estate or site consolidation. And you're also gonna have supply since a lot of these tend to be packaged gas acquisitions, you're gonna have supply of merchant. Those are more a function of contract expirations of the target that we acquire. And, obviously, as those either leases or those supply agreements lap, then we substitute with either our sites, our supply. But, all in, I'd say, usually, somewhere between twelve to twenty-four months, you have full run rate. And you get a pretty significant chunk that you can get within the first zero to twelve months. So how I would think about the synergy timing. As far as other segment, just to kind of remind what's in there, there's really three pieces that are in the global other. Do you have what we call sort of our global helium supply group. And what they do is they sell all the helium intercompany to the geographic regions. And they also sell some wholesale direct out of this segment. So, clearly, you saw some retrenchment and pricing impact in the helium business, of which is reflected in this other segment. Now going forward, I do expect some relief on the supply side, and that should start to manifest itself in the other segment in time. But it obviously had to take the brunt of these changes in the intercompany transfer pricing in some of that over the last two years. The second business in here is our global materials business. They continue to perform quite well, actually. This is mostly in the aerospace and in primarily 3D printing powders. As you can imagine, that is a pretty hot field right now when you think about aerospace and commercial space. So they've been growing quite nicely. You may recall first quarter of last year, we had a large insurance claim. That also was in this business, to the tune of around $40 million or so. That is part of the other income, online that you may have seen change year on year for a full year. And then the third piece is our corporate overhead cost. We put all of the overhead costs in this bucket. We do not allocate it. So as you can imagine, the goal is that our wholesale helium business and that our materials business can basically pay for all the corporate overhead to run a publicly listed company. So every time this is positive OP, we're achieving that. And from our perspective, that's our goal is to continue to have positive OP in this business to be able to basically subsidize the cost to run this company. Matthew DeYoe: Thanks for that. Sorry. Operator: My apologies. Our next question comes from the line of Jeff Zekauskas with JPMorgan. Jeff Zekauskas: Thanks very much. Two-part question. Manufacturing PMIs in The US went from negative to positive. Is that something that your business can perceive? And do you feel that there's an acceleration in U.S. manufacturing growth relative to the fourth quarter? And then secondly, can you discuss how much helium was a drag on your either EBIT or prices or EBITDA in 2025? And how do you expect helium to perform in 2026 and why? Sanjiv Lamba: Thanks, Jeff. So, start with The US manufacturing. The ISM, PMI, etcetera, have shown a positive trend. You're right. I'd just say it's too early to tell. As I said before, when I kind of talked about my walk around the wall, I do see I am a little bit more positive, but still, you know, we would say guarded in how we think about the manufacturing developments playing out in The US particularly. Yes. We have more conversations with customers. You know, the reassuring near-shoring kind of efforts that we've been talking about for some time, continue to progress. Semiconductors are well ahead, as you know. But other sectors and markets moving forward as well. So I'd just say you know, it's a bit early to call, think the next couple of months will give us a much better view. But, you know, there is some potential for a very resilient US market to see some good growth probably towards the end of this year or the back end of this year anyway. And anything before that, you know, we'd be thrilled as you know, we would able to get the tailwind that may make a really strong impact on our earnings should that happen. On helium impact, just on 2026, I see nothing different. Helium is gonna be long in the medium term at least. But I'd say to you, again, as a reminder, Jeff, and you know this well, helium is a low single-digit business for us when we look at the overall portfolio. I think you're aware that pricing has been high single-digit negative on helium for a few quarters now. I'm not seeing anything change dramatically in the helium space. There are differences across the world. You know, if you need regional differences, that is. China, clearly, long seeing the impact of the Russian helium coming into that market. And in some ways leaking out a little bit to other markets from there as well. Whereas the other markets in Europe and The US or Americas, probably a little bit more balanced from that perspective. You might also be aware that we made an investment, a couple of investments in one in the cabin, which actually provide us with a really good opportunity to balance, you know, supply demand in a way that works for us and gives us an opportunity for us to continue to optimize that whole piece. Matthew White: Anything else? Yeah. Jeff, this is Matt. I think just, I answer your other question on impact to '25, you know, I tend to combine helium and rare gas. And when you combine those two, the kind of range we've laid out is about a one to 2% headwind on EPS. I would say towards the upper end of that range is how I would think about both of those. To Sanjiv's point, helium at this point, hard to see any real change in the supply-demand dynamics. Rear gas does feel a little bit better right now, especially with some of the electronics recovery. And so that's a way to think about the '25 impact. And then as far as '26, you know, we'll see how that plays out in that range. Jeff Zekauskas: Thank you. Operator: And our next question comes from the line of Kevin McCarthy with Vertical Research Partners. Your line is open. Kevin McCarthy: Yes. Thank you, and good morning. Sanjiv, would you comment on your U.S. Packaged gas business sales trends with regard to both gas and rent and hard goods? Just curious as to whether you're seeing any improvement on the leading hardgoods side? And then more broadly, besides hard goods, are there any other businesses that you would tend to look to across Linde's portfolio that you would consider leading maybe certain markets or even individual customers that have useful leading indicators in the past. Sanjiv Lamba: Thanks, Kevin. So I think I briefly alluded to this before. Let me kind of maybe provide a slightly more detailed view on this. So The US packaged gas business, as you've rightly pointed out, Kevin, is a leading indicator that we watch closely. And within that, there are three separate elements that you can look at. The gas consumption, the consumption of consumable hard goods, and the consumption or purchase of hard goods automation equipment. Right? And each one of them gives us a different perspective in terms of how we see US manufacturing more broadly playing out. And what I'd say is The US hard goods automation equipment sales in the fourth quarter were up again I think we said that in prior quarters as well. So we were seeing investment in hard goods automation. Which usually has two potential outcomes. One, that there is an expectation of a pickup in the order intake and therefore, you know, growth as a consequence of that. And along with that, attractive. there is a shortage of skilled labor, and therefore automation becomes more for the small to medium enterprises or even in some cases large customers. Which we'll talk about in a minute. So that is a good trend as things stand. I think we want to watch the next couple of months to see how that plays out. But an initial investment in automation equipment is a good sign. Having said that, on the consumables end, we do not see that optimism or that growth come through. Consumers are flat at best, maybe a little bit down. And gas is following a very similar pattern. So I'd say to you, people are preparing for what is likely to come and have some maybe what I would call cautious optimism around growth in manufacturing and some level of recovery, beyond where we are today. But we aren't seeing that natural consumption just yet. So you'll have to hold your breath for a while. Now talking about customers, you know, one of the areas we look at quite carefully is automotive and large ag equipment. They're usually good indicators as to how we see manufacturing trends play out. I think the feedback from those customers broadly tends to continue to be cautious. With an expectation that hopefully, things will improve in the second half. But caution for now. And as I said before, a bit early in the year for us to give a more insightful or informed view on how we are expecting the markets to play out. Kevin McCarthy: Thank you for that. Operator: And our next question comes from the line of Laurence Alexander with Jefferies. Your line is open. Dan Rizzo: This is Dan Rizzo on for Laurence. You mentioned during the commentary about doing some restructuring cost cutting. Was just wondering if that's like addressing cyclical issues that can kind of be added back when things do ultimately turn or if this is more of a structural permanent change that you're making in different regions based upon what you see over the long term. Matthew White: Hey, Dan. This is Matt. I can handle that one. Yeah. When we put it into restructuring, we view it as structural. Right? We view this as changing our organization or changing how we're our market in a structural way. The kind of cyclical that you referred to tends to be more just a function of our normal ongoing attrition, evidence flowing, of our headcount. These restructuring charges we took are predominantly related to headcount options around the world. So this is more a function of that majority of it right now is in the engineering segment, given how we're navigating that business and organizing that business. Given how we're looking at some of the third-party opportunities. So that's really how I would describe that, that this is not expected to come back. It is more a function of how we run our company. Dan Rizzo: So I guess, does that mean that, you know, there'll be significant leverage when things do turn, though? I mean or do you have to I guess, I'm just wondering if you have to hire back or would that Yeah. I mean, that is the expectation. I mean, look at 2025 as an example and I'll just use SG&A as a proxy line to kind of understand that. You know, our SG&A, during calendar year 2025 is up 3% year over year. Right? And when you take the M&A portion, obviously, we acquired SG&A. And there is about a, I'd say, probably a half percent or so of FX. Just footing to zero on the table. But you're looking at probably one and a half plus percent of that growth was just FX and acquired SG&A. So our underlying SG&A is only up a percent and change. Why? Well, you've had, you know, about a 3% or so merit inflation cycle, and that was mitigated against the actions we took back last year from October coupled with some of the productivity initiatives. So this is kind of how we need to think about it that you have to get ahead of this. You have to get ahead of the inflation. You have to structure your organizations around the regions you operate in. And that's one of the I'll say, attributes of this very local model is that we can quickly act in each individual region around what is occurring in that region without having any ramifications or impacts in other parts of the company. Because we do not have integrated supply chains in our company. They are stand-alone markets that are fully self-sufficient in each small geography they operate. And allows them to adjust quickly to the conditions they're seeing and you see that benefit in our cost stack. Sanjiv Lamba: Matt, the only thing I'd add is what does happen is when there is a bit of volume tailwind, you get a pickup in volumes because of industrial activity. That leverage then flows through very quickly to the EPS. And I think that's what we were able to show in 2021. We always give that as a good example where volumes went up 7%, 8%, and we saw EPS grow up 30%. So that maintaining that tight control on the cost structure and ensuring that we are well positioned for any recovery as and when it happens I think, has always held in good stead for us. Dan Rizzo: Thank you very much. Operator: And our next question comes from the line of Eric Bois with Evercore ISI. Your line is open. And, Eric, your line is live. Please check your mute button. And hearing no response. We will move to our next question. It comes from the line of Arun Viswanathan with RBC Capital Markets. Your line is open. Arun Viswanathan: Great. Thanks for taking my question. Hope you guys are well. I just wanted to, I guess, understand the EPS guidance just a little bit. Back in December, you guys had discussed the possibility of getting to 10% plus. The guidance here is maybe slightly below that, and maybe that would be mostly attributed to the base business as maybe you discussed. But if you were to see a pathway back to that level, what would you think would really need to improve? Maybe Europe, is there anything in the backlog that space or electronics that we could point to? Thanks a lot. Matthew White: Hey, Arun. It's Matt. So we'll start with its guidance, and it's early in the year, as you know. So when you kind of think about the six to nine mean, I agree with you. The upper end of that range maybe catches the low eight to twelve that we've laid out there ex economic impact. So we know we've got room to improve. We know we've got opportunities that we need to pursue this year. But at this stage, I think it's appropriate for us to just remain guarded. I, you know, I do feel better. The comps we have this year are better than what we were facing this time last year on a year-over-year basis. And time will tell where we ultimately finish. But I can say that, you know, between the project backlog, between the acquisitions we've done, so the capital contribution of our algorithm we feel quite good. When you look at the management actions of price and productivity, and we took actions this quarter to better position us, Sanjiv mentioned, we continue to expect to price with inflation. And so from the elements of both management actions and capital contribution, we still feel quite strong about that algorithm, and we expect to deliver on the expected range. Time will tell where we finish, and time will tell what will happen on the macro piece. So but our we know our goal is to get that double-digit percent growth in long term, and know, we will get back to there. Sanjiv Lamba: Arun, we thought a lot about how we should describe this guidance and the words we used internally when we were discussing it are guarded, prudent, and I would say conservative. Time will tell. Arun Viswanathan: Thanks. That's prudent. Operator: And our next question comes from the line of Eric Bois with Evercore ISI. Your line is open. Eric Bois: Thank you, and good morning. Could you please provide a timeline update on when you anticipate your unit to start up at TSMC's Arizona Fab 2? And then could you remind on how gas intensity increases from Fab 1 to Fab 2? And what that means from a profitability standpoint for Linde? Thank you. Sanjiv Lamba: So as you know, you know, our plans for Fab 1 and 2 are in operation already. Fab 2, as you're aware, probably from TSMC, is ramping up at their end, and, obviously, we're there fully supporting them on that. So those assets are on the ground. They have been commissioned. They are in different stages of utilization. Fab 1 fully utilized. Fab 2 kind of ramping up. Exactly as planned. The next round of fabs is now under discussion and being worked through. And as you know, the yield that came out of the first couple of fabs surprised positively surprised everybody. So you know, the commitment to major investments in advanced nodes at Phoenix is strong, and with that comes higher gas intensity. I think, Juan, you've done a paper where you've done a lot of work around gas intensity. You should reach out, Eric, to Juan and have a chat with him. He'll show you some of the analysis we've done around gas intensity. Both two things happen. Right? Because we're going to advance nodes, the intensity or the usage of gas goes up, per node. But more importantly, we also see new gases being introduced and used in much bigger quantities. And I think that you know, all of that contributes then to the overall increase in gas intensity for these new fabs. Operator: And our final question comes from the line of Abigail Evertz with Wells Fargo. Your line is open. Abigail Evertz: Hi there. Good morning, and thank you for taking my question. I wanted to follow-up on your walk around the world. And if I missed this, I apologize. But could you clarify your pricing expectations for Americas and APAC for the year? Sanjiv Lamba: The pricing expectations, Abigail, remain consistent with, you know, the view that we've always given, which is globally weighted CPI we should be at or around that. And I think consistently, we have including the last quarter, if you take out the impact of helium and China deflation weakness, we are seeing, our businesses perform to that. That's a long-term trend. As you know, we've had positive pricing for twenty-five years. Operator: All. Everyone online, we appreciate your participation. Have a great day. And ladies and gentlemen, that concludes today's call. We thank you for your participation, and you may now disconnect.
Operator: Good day, and thank you for standing by. Welcome to the First Quarter 2026 Spectrum Brands Holdings, Inc. 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 the session, you will need to press star 11 on your telephone. You will then hear an automated message device in your hand is raised. To withdraw your question, please press star 11 again. Please be advised today's conference is being recorded. I would now like to hand the conference over to your speaker today, Jen Schultz, DVP, FP and A and Investor Relations. Please go ahead. Jen Schultz: Welcome to Spectrum Brands Holdings Q1 2026 Earnings Conference Call and Webcast. I'm Jen Schultz, Division Vice President of FP and A and Investor Relations, and I will moderate today's call. To help you follow our comments, we have placed the slide presentation on the event calendar page in the Investor Relations section of our website at www.spectrumbrands.com. This document will remain there following our call. Starting with slide two of the presentation, our call will be led by David Maura, our Chairman and Chief Executive Officer, and Faisal Cutter, our Chief Financial Officer. After opening remarks, we will conduct the Q&A. Turning to slides three and four, our comments today include forward-looking statements, including statements about tariffs, which are based upon management's current expectations and assumptions, and are by nature uncertain. Actual results may differ materially. Due to that risk, Spectrum Brands encourages you to review the risk factors and cautionary statements outlined in our press release dated 02/05/2026, our most recent SEC filings, and Spectrum Brands Holdings' most recent annual report on Form 10-K and quarterly reports on Form 10-Q. We assume no obligation to update any forward-looking statements. Also, please note that we will discuss certain non-GAAP financial measures in this call. Reconciliations on a GAAP basis for these measures are included in today's press release and slide presentation, which are both available on our website in the Investor Relations section. Now I'll turn the call over to David Maura. David? David Maura: Morning. Thank you, Jen. Good morning, everybody. We would like to welcome you this morning to our first quarter earnings update for fiscal 2026. And again, thank you for joining us today. I'll start the call today with an update on the operating environment and its impact on our company, Spectrum Brands. I'll then talk about our operating performance, and then I'll talk about our strategic initiatives. Faisal will then provide a lot more color and detailed financial and operations updates, including discussions on the specific business unit results. But can now everybody turn to slide six. Our financial results for the first quarter demonstrate that our strategy is working. Fiscal 2025 was a challenging year, and we took some tough but necessary actions that positioned us well for the future. We proactively and decisively addressed forces beyond our control, and we are already seeing the positive impact of those decisions within our results. While the hard work is not over, we are confident that we will continue to create a competitive advantage for our company. We are pleased that our first quarter net sales and adjusted EBITDA exceeded expectations despite continued headwinds. These results reinforce our belief that the most significant impacts from the tariff disruptions last year and the macroeconomic volatility we believe these issues are largely behind us due to our decisive mitigating activities. As anticipated, we are seeing early signs of recovery in consumables, while durable products are taking longer to rebound. These external realities are disproportionately impacting our home and personal care business, where overall global consumer demand continues to be subdued. We are pleased to report that our most profitable and our largest adjusted EBITDA contributing business, our global pet care business, has returned to growth this quarter. And our brands continue to perform well in the marketplace. I'm particularly encouraged by our performance in North America, where we saw share gains across our companion animal categories. Fueled by our brand-building investments that we've been making over the past couple of months and quarters. While these categories were modestly down for the quarter, our brands actually outpaced the category and delivered growth versus the prior year. I want to take a moment and thank Ori and our entire global pet care team for their efforts and, of course, these results. During the first quarter, we remain disciplined in maintaining a strong balance. While this period is usually characterized by cash usage, as we prepare for the home and garden season, I'm quite pleased to report that we generated nearly $660 million of adjusted free cash flow in the first quarter. We also repurchased approximately 600,000 shares this quarter, and we've continued to buy back our shares following the completion of the quarter. Year to date through today, we have repurchased approximately 800,000 shares for roughly $42.3 million in total. Since the close of the HHI transaction, we've returned approximately $1.4 billion of capital to our shareholders through our various share repurchase programs. And we have repurchased almost 45% of our entire share count since the closing of that deal. We also recently have received board authorization for a brand new $300 million share repurchase program. Our strong financial position affords us meaningful flexibility to capitalize on market opportunities while continuing to invest in our businesses and return capital to our shareholders. I'll tell you about our strategic priorities for fiscal 2026. Our priorities remain unchanged, and they provide a clear framework that will continue to guide our decision-making throughout this year. During the first quarter, we made meaningful progress on each of our initiatives. And these are positioning us well to capitalize on opportunities we see ahead and to also address challenges as they may arise. First, as you've heard me say before, maintaining a healthy balance sheet and remaining good financial stewards is and will continue to be a top priority for us. I'm proud of the progress we've made in optimizing our working capital and exercising diligence in our spending, which has strengthened our financial position. We ended the first quarter with nearly $127 million of cash, zero drawn on our revolver, and our net leverage was 1.65 turns, well below our long-term targets. We did this despite returning $46 million to shareholders through buybacks and dividends in the quarter. As we look ahead, we will continue to invest in our brands, with a clear focus on generating meaningful returns. Our fewer, bigger, better approach is allowing us to concentrate our resources on higher impact initiatives, maximizing the effectiveness of our investments. Later in the call, Faisal will provide insights into how our innovation pipeline is connecting with consumers, highlighted by significant share gains in several of our key categories, which actually underscores the effectiveness of our approach. Secondly, in regards to operational excellence, we continue to make steady progress for the remaining planned deployments of our S4HANA platform. As a reminder, we have already implemented S4 in our North America global pet care and our home and garden businesses. In the preparation for its deployment in our appliance business, and the remaining international regions is currently underway. Upgrading and rolling out our new global ERP system has been a significant undertaking. And I would like to express my sincere appreciation to our teams around the world for their expertise, perseverance, and their diligence throughout this project. This now brings me to our third key priority, which is investing in our people. As you know, fiscal 2025 was a very difficult year for us. And it was marked by a number of hard decisions that directly affected our teammates. While these actions were necessary to position our company for long-term success, and to avoid a lot of tariff disruption, we recognize the impact that this has had on our people. We do not take that lightly. We are deeply appreciative of the resilience, the professionalism, and the commitment our employees have demonstrated during this period of volatility. Investing in our people goes way beyond hiring and development. It also means being honest about what's working and what isn't and making changes when needed. We are increasingly leveraging the expertise across the organization to address gaps, to redeploy talent, it can have the greatest impact, and frankly, to ensure that our teams are set up to execute at a high level. Our fourth priority, fiscal 2026, is centered around transformation. Last quarter, I shared our expectation that both Global Pet Care and our Home and Garden businesses would actually return to growth in fiscal 2026. At that time, we indicated Pet would lead the way, with growth in the first fiscal quarter, which obviously it's done, while home and garden's growth would be weighted toward the second half of the year. We expected this first quarter for Home and Garden to be down, and that's due to some abnormal timing of some seasonal inventory build in the prior year's results. Our first quarter results confirm these expectations with significant momentum, frankly, heading into the balance of the year. I am confident we remain on track to achieve our growth objectives in both of these segments. We continue also to be optimistic about the evolving M&A landscape. We will continue to be disciplined in our pursuit of acquisition opportunities in both our global pet care and our home and garden businesses. We are confident that we are well-positioned within this industry to be the consolidator of choice in both categories. Lastly, on our Home and Personal Care business, we are committed to being good stewards with a focus on maximizing the results of this business unit and improving its overall profitability in fiscal 2026. As the headwinds dissipate from 2025, we will continue to work towards a strategic solution for this business. Now if everyone could turn over to slide eight, please. Here, I'll give a review of our high-level fiscal 2026 earnings framework. Today, we are reiterating our expectations for full-year net sales, adjusted EBITDA, and adjusted free cash flow. Thus far, this year is progressing as we planned and anticipated. With overall consumer sentiment consistent with our expectations. Before I turn the call over to Faisal, I'd like to thank each and every one of our global teammates. Their dedication, their hard work, has been instrumental in advancing our company's strategic objectives and putting us back on a path to sustained growth. Now I'll turn the call to Faisal, and you'll hear more about the financials, and the additional business unit insights. The call is yours, Faisal. Faisal Cutter: Thank you, David. Let's turn to slide 10. And I will review our Q1 results from continuing operations beginning with net sales. Net sales decreased 3.3% excluding the impact of $18.5 million favorable foreign exchange, organic net sales decreased 6%. Primarily driven by continued category demand softness in home and personal care business, and the impact of an accelerated seasonal inventory build by some home and garden customers in the prior year. This was partially offset by our global pet care business returning to growth with our key companion animal brands outperforming the market while also benefiting from a softer prior year comparison. Gross profit decreased $16.2 million and gross margin of 35.7% decreased 110 basis points. Largely driven by lower volume, higher trade spend, and higher tariff cost, partially offset by pricing, cost improvement actions, operational efficiencies, and favorable effects. Operating expenses of $214.5 million moderately increased by 0.7% with lower spend in advertising and marketing, partially offsetting unfavorable FX. Operating income of $27.1 million decreased by $17.6 million due to the decline in gross profit. Our GAAP net income and diluted earnings per share both increased primarily driven by a one-time tax benefit for the quarter resulting from a favorable settlement and lower share count. Partially offset by lower operating income. Adjusted EBITDA for the quarter was $62.6 million, a decrease of $15.2 million driven by lower volume and reduced gross margins. Adjusted diluted EPS increased to $1.40 driven by a one-time tax benefit and the reduction in share outstanding partially offset by lower adjusted EBITDA. Now let's turn to slide 11. Q1 interest expense from continuing operations of $6.8 million increased $600,000. Cash taxes during the quarter decreased $4.2 million from the prior year. Depreciation and amortization of $25.8 million increased $1.3 million from last year. And separately, share-based compensation decreased $4.3 million from $4.7 million in the prior year. Capital expenditure were $8.1 million in the quarter, $2.2 million higher than last year. Cash payment towards restructuring transactions, strategic transactions, restructuring-related projects, and other unusual nonrecurring adjustments were $4.8 million versus $8.8 million last year. Moving to the balance sheet. We had a quarter-end cash balance of $126.6 million, and $492.2 million available on our $500 million cash flow revolver. Total debt outstanding was approximately $578.9 million consisting of $490.1 million of senior unsecured notes and $82.8 million of finance leases. We ended the quarter with $452.3 million of net debt. Now let's get into the review of each business unit. Where I'll provide you details on the underlying performance drivers of our operational results. I'll start with global pet care, which is slide 12. Reported net sales increased 8.3% excluding favorable foreign currency exchange impact, organic net sales increased 5.8%. Sales in companion animal increased high single digit while sales in aquatics increased low double digits. In North America, sales increased in both companion animal and aquatics. This was partially driven by the strategic shift of orders by retailers and the prior year of approximately $10 million in preparation for our S4HANA ERP implementation. After normalizing for the softer comparison, North American net sales increased mid-single digits. Including the impact from tariff-related pricing actions taken during the last fiscal year. In companion animal, our key brands continue to outperform the market. Good and Fun, Dream Bone, Nature's Miracle, and Furminator are gaining market share across chews, stain and odor, and grooming despite our premium positioning and the modest softness in the overall category. We continue to be encouraged by improving POS trends across our core brands and top accounts within the category. The sales growth in aquatics was primarily driven by the pull forward in the prior year as overall demand in the category begins to stabilize. Our European sales were positively impacted by favorable foreign exchange rates as the US dollar weakened against the British pound and the euro compared to last year. Excluding the impact of foreign exchange, sales in EMEA decreased in the low single digits. Primarily due to a decline in dog and cat food sales following their refreshed portfolio launch within our Eucanuba brand in our fiscal fourth quarter. The launch prompted some retailers to accelerate inventory purchase to support the reset adversely impacting this quarter's results. This was partially offset by the continued strength of our Good Boy brand, which once again gained market share in The UK. Successful Good Boy expansion across Continental Europe continues to gain track and new points of distribution. Aquatics organic sales increased with our global leading Tetra brand outperforming the market in a declining category and benefiting from a softer prior year comparison. On the commercial side, innovation continues to drive incremental growth. The investments we have made in Nature's Miracle are yielding results and have enhanced our position as the market leader in the stain and odor category. We recently launched our Nature's Miracle outdoor stain and odor remover designed to address pet stains and odors on outdoor surfaces. In grooming, our firm propped with expanded distribution confirmed in the coming months. Our Good Boy brand, the number one brand in dog chews in The UK, continues to grow market share driven by consistent consumer-focused innovation. In fact, over the last quarter, Good Boy became the third largest brand in the overall UK pet market. The brand's expansion across Continental Europe continues to perform very well, and new launch is expected to drive further growth in the coming months. Our Good and Fun and Dream Bond brands are winning distribution in key retailers and strengthened activation is fueling the brand's growth online. I'm advanced nutrition positioning is driving market share wins in The UK on both dog and cat. And the brand expansion in France is off to a good start. Tetra's Nutri Evolution launches driving strong market share wins in Germany. This quarter's adjusted EBITDA of $49 million is $2.5 million lower than the previous quarter, and adjusted EBITDA margin was 17.4% compared to 19.8% last year. The decline in adjusted EBITDA was primarily driven by higher tariff costs, inflation, and additional trade investment spend. These headwinds were partially offset by higher sales volume, pricing, and cost improvement actions. We expect to see the first quarter's result sales trend continue for the balance of the year and deliver modest growth for fiscal 2026 in the GPC business. This quarter's results coupled with trends in overall POS support our belief that the macroeconomic conditions are stabilizing. Fiscal year we are excited about the strong innovation and brand activation coming to market later in the expected to drive top-line growth and market share gain. Despite this quarter's decline in adjusted EBITDA, we remain confident in our ability to deliver year-over-year growth for the fiscal year. Now moving to Home and Garden. Is slide 13. Net sales decreased 19.8% in the quarter. You may recall in the prior year, certain customers accelerated their seasonal inventory build impacting all pest control categories. It's important to note that the prior year's results were not typical. And our net sales results for the quarter were in line with our expectations and historical averages. Our fiscal first quarter is typically H and G's slowest sales quarter and represents a small portion of the annual consumer activity for this business. During this time, our team is predominantly focused on preparation and staging for the upcoming season. With that said, while our first quarter typically represents less than 15% of the total year's POS, our brand continued to perform well in the market. Gaining share across The US pest control category. E-commerce is also a bright spot where we delivered our best ever first quarter for the business. Based upon discussions with our customers, we continue to prepare for a normal weather pattern in fiscal 2026 and we remain confident that our sales will pick up as the season unfolds. With normal seasonal POS expected to materialize beginning in the latter half of our second quarter. In fact, early indications are strong as POS over the last two months has gained significant momentum. While customer inventory levels are generally healthy, we expect that they will be disciplined in building inventory for the season. Heading into the season, we continue to launch and support new innovations into the market. In fiscal 2025, we launched the Spectracide Wasp Hornet and yellow jacket trap, which was a hit with consumers and quickly gained penetration within the category. Earning one of the highest penetration of any new items in overall pest control. POS performance was above expectations, and we built upon that to success in fiscal 2026 with expanded distribution continued market support, increased capacity. Additionally, our Hotshot brand continues to gain shares supported by the flying insect trap that we launched last year and was subsequently awarded product of the year. We expect continued growth in fiscal 2026 with expanded distribution. Lastly, in repellents, Repel, our personal insect repellent brand, continues to outperform the market supported by recently refreshed graphics and strong marketing support. We will continue to support its growth with sustained marketing investment and expanded display presence in fiscal 2026. Adjusted EBITDA for the quarter was $4.5 million compared to $9.3 million last year, and the adjusted EBITDA margin was 6.1%. Which is 400 basis points lower than the prior year. The decrease in adjusted EBITDA was primarily driven by lower sales volume partially offset by productivity improvements and operational efficiencies. The additional cost of tariffs was largely mitigated through a variety of actions, including pricing. As we look forward to the balance of the fiscal year, we are pleased with the continued support from our customers for both the category and our brands. Our big bets continue to resonate with confirmed distribution gains planned for our fiscal second quarter. Spring is expected to bring above-average temperatures across the Southern And Eastern United States. Which with precipitation levels projected to be average which are favorable conditions for our pest control category. We will maintain our focus on consumer-centered innovation and continue to support our brands through targeted investments throughout the year. Based on these factors, we remain on track to deliver net sales growth in fiscal 2026 for the Home and Garden business. And finally, moving to Home and Personal Care, which is slide 14. Reported net sales decreased 7.6%. Excluding favorable foreign exchange organic net sales decreased 11.1%. Net sales in the personal care category were down mid-single digits this quarter, and sales in home appliances were down high single digits. Organic net sales in EMEA were down in the mid-teens with continued softness in both home appliances and personal care. Sales across both categories were impacted when one of our retailers was left with higher inventory levels following a weaker than anticipated holiday season. Resulting in lower replenishment orders within the quarter. However, outside of this retailer, we are encouraged by the performance in our core markets which are showing early signs of recovery. In contrast, organic sales in LatAm region increased in the high teens. The strong growth was driven largely by positive consumer reaction, to new product launches in both the personal care and home appliances categories. The introduction of these products resonated well with the consumers. With many of our strategic retail partners reporting double-digit growth and sell-through figures following successful holiday campaign. North America sales decreased in the mid-teens driven by lower sales in both home appliances and personal care. Demand in both categories were adversely impacted by overall consumer softness in light of increased product costs from tariffs. You may recall that we were one of the first to pricing with our retail partners. And thus our products were among the first to see tariff-related price increases hit the shelves. With higher promotional activity during the holiday season, some of the price increases across industry were delayed. And we expect that this is still some that that there is still some normalization to come in the next few months as all pricing goes into effect across the categories. Despite overall demand erosion within personal care and home appliances, coffee, and espresso makers, saw positive POS and our brand performance and our brand performed well in this space. Partially offsetting weaker performance in the broader category. Sales were also lower from our SKU rationalization actions taken to address changes in trade policy to ensure overall profitability. On the commercial side, we are very excited about our recent multi-brand global ice cream maker launch. In The US, the product debuted under the Black and Decker brand during the holiday season. And received strong consumer response. Leveraging a centralized global marketing framework for this launch has enabled us to drive greater efficiency and have facilitated the sharing of consumer insights across markets. On the personal care side, Remington was recently recognized as the number one flat iron in The US. And the recently launched Airweave line continues to resonate with consumers in international markets. Also, we previously shared the success of fiscal 2025 launch of the shop in The UK in response to the evolving consumer landscape. Advancing our DTC approach globally has been a priority for us. With plans in place to build upon success within The UK and take these best practices to other markets. In our fiscal first quarter, we had rollouts in both Germany and The US modeled after UK's success. While in early stages of deployment, we are optimistic about the these new platforms bring. This quarter's adjusted EBITDA was $20.7 million compared to $26.7 million in the prior year. Adjusted EBITDA margin was 6.4%. The decline in adjusted EBITDA was driven by lower volume and higher tariff costs partially offset by pricing, reduced investment spend, cost improvement initiatives, and favorable foreign exchange. Looking forward to the second quarter, we continue to expect softness in global consumer demand within home appliances and personal care categories. In North America, we expect tariff-related disruptions will continue to reduce sales with a smaller subset of product offering as we continue to prioritize overall profitability. We continue to expect a decline in full-year net sales for the HPC business as we navigate through category softness a reduced North American product portfolio. As we look ahead to the second quarter, we anticipate that our results will continue to be impacted by continued softness in consumer demand and ongoing headwinds. The second half of the year is expected to show sequential improvement as we lap softer prior year comparisons and benefits from the actions we have taken to strengthen our business. Now let's turn to slide 15, and I'll talk about our expectations for fiscal 2026. Our earnings framework for fiscal 2026 remains unchanged from our prior update. We continue to expect net sales to be flat to up single digits compared to the prior year, we expect growth in both our personal care and our global pet care and home and garden businesses home and personal care is expected to decline. Adjusted EBITDA is expected to grow low single digits driven by the return to sales growth our global pet care and home and garden businesses. Continued expense management, continuous improvement initiatives, and FX favorability offering the lower volume offsetting the lower volumes in home and personal care. Tariffs are expected to be largely offset through the various mitigation we have taken. Including pricing. From a phasing perspective, we expect the second quarter to be challenging year over year primarily due to the continued softness in consumer demand in our home and personal care business. We continue to expect POS in home and garden to materially pick up late in the second quarter, with retailers being disciplined in their buildup of inventory. A result, we expect net sales growth for our home and garden business will occur in the second half of the fiscal year. And lastly, adjusted free cash flow as a percentage of as a percentage of adjusted EBITDA is expected to be around 50%. Now let's turn to slide 16. Depreciation and amortization is expected to be a 115 and a 125 million dollars including stock-based compensation of approximately $20 million to $25 million cash payment towards restructuring, optimization, and strategic transactions costs are expected to be between $25 million and $35 million. Capital expenditure are expected to be between 50 and $60 million. Cash taxes are expected to be between 40 million and $50 million. For adjusted EPS, we use an effective tax rate of 25% incorporating both discrete items and state taxes. To end my section, I want to echo David and thank all the global employees for their hard work in helping us regain our momentum. Now back to you, David. David Maura: Thanks, Faisal, and thanks again everybody for joining us this morning for today's call. Look. I'll just take a few minutes right now. We'll recap the key takeaways of today's call. If you guys could turn with me to slide 18. First, look, although we experienced year-over-year declines in both net sales and adjusted EBITDA, we're actually pleased that first quarter financial results actually exceeded expectations. Our businesses continue to heal from the tariff torpedo that hit us in fiscal 2025. As we have restored our supply chains and have taken pricing actions. While the global macroeconomic condition and environment remain challenging, we're encouraged by the meaningful signs of improvement. Particularly in our consumables product portfolio. Our global pet care business returned to growth this quarter representing a significant milestone for us. Beyond the broader category improvements, our key companion animal brands have continued to outperform and they're performing exceptionally well. Further strengthening our market share positions. In our home and garden business, we are seeing strong category POS trends currently and our brands are outperforming category. We are encouraged by the success of our new product launches in fiscal 2025, and we expect to build on that momentum with expanded distribution here in fiscal 2026. This year, we expect home and garden to be our fastest growing business. In our appliance business, overall category demand continues to be soft. We expect that to continue into the fiscal second quarter. We will continue to prioritize maximizing the performance of this business unit through disciplined expense management as we navigate a challenged market. Secondly, as we look forward to the balance of the year, we continue to believe that our data-driven strategy of fewer, bigger, better initiatives will actually yield higher returns. The positive results we are seeing so far serve as clear evidence that this disciplined approach is actually driving and delivering the right outcomes. Our low leverage and strong balance sheet position us exceptionally well to navigate the current macroeconomic environment. And I actually believe we are in a tremendous position of strength to capitalize on opportunities with the evolving M&A landscape. With respect to our global pet care and home and garden businesses, we continue to look for highly synergistic assets that will allow us to maintain our low leverage. In regards to our appliance businesses, we remain committed to finding a strategic solution for that business unit. Last but not least, I'd like to conclude my remarks by reiterating our fiscal 2026 earnings framework for flat to low single-digit growth in net sales, low single-digit growth in adjusted EBITDA, and approximately 50% conversion of our adjusted EBITDA to adjusted free cash flow. Progress we made this quarter reflects the dedication of our team, and our focus on delivering sustainable growth. We appreciate the trust and the support of all of our stakeholders as we work together to achieve both our short and our long-term objectives. I'll turn the call now back to Jen we're gonna be happy to take any questions. Jen Schultz: Thank you, David. Operator, we can go to the question queue now. Operator: Thank you. Our first question comes from Brian McNamara with Genuity. Your line is open. Madison Callinan: Hi. This is Madison Callinan. I'm on for Brian. Thanks for taking our questions. First, one of your competitors stated their belief that we've reached a bottom in Pet. I'm curious if you would agree with that assessment and provide any color around your view. David Maura: Thanks. I've been humbled more than once in my life calling tops and bottoms. So I'm gonna pass on that. But we're significantly focused on what we can do and we're really pleased with, the new leadership in Pet. And the investments we're making there and the fact that we're taking market share with our main brands. So you know, I yeah. Pet's been through some some tough turbulence. There's still a lot of soft pockets out there, so I just you know, I just don't have that kind of crystal ball to make that statement. Madison Callinan: Fair. And you mentioned that retailers should be disciplined in inventory, but how committed are your retailers to the Garden category this upcoming season? And are you in position to chase if the weather cooperates? And demand is better than we've seen? The last few years? David Maura: Yeah. Look. I'm I'm actually very bullish on our home and garden business. You know, Javier, who leads that unit, has done a great job kind of fixing the culture, restoring a lot of operational rhythm. And frankly our innovation there. You know, Faisal talked about the wasp and hornet trap, We've got a lot of new products, new innovation, and actually, it's not us. Consumers endorsing it. So know, we have we have some new SKUs launching and and frankly, we see some of these small pockets see the business doubling and tripling in in some of these new product launches. So I would also tell you, you know, during times of macroeconomic volatility when the consumer is stretched, it's pretty nice to be the value price point brand. And so, honestly, as I look forward, I think we are the foot traffic driver to that category, and we see retailers leaning in with us because they they get that joke too. So look, it's been cold. It's tough to look at weather forecast. It's it's gonna be warmer. It is a weather you know, business. It does influence it. Q1, we knew it was gonna be soft because we prebuilt a lot of inventory for one particular customer last year. We didn't do that this year. But the POS trends, you know, that we see right now are very encouraging. And we're pretty bullish on on what we can accomplish this season in Home and Garden, but proof's always in the pudding. And you know, Q I would tell you Q2 you know, I wouldn't get over your skis there as you model it. I think it'll be flat, slightly up. You know, year on year. But that's just that's just the phasing and then, you know, big back half. For for Home and Garden if that helps you with your modeling. Madison Callinan: Thanks so much. David Maura: Thank you. Appreciate the questions. Operator: One moment for our next question. Our next question comes from Olivia Tong with Raymond James. Your line is open. Olivia Tong: Great. The comps get a fair bit easier after Q1. So can you talk about your views in terms of the arc of anticipated improvement as you get from the flat plus low single digits that you were looking for, for the year? There were obviously a couple of comp issues in Q1 that are now in the past. So just talking about the cadence of improvement for this year. David Maura: Sounds like a tough question. I'm gonna give that to Faisal. Faisal Cutter: Look. I think we talked about how our pet business is definitely back to growth. We expect that trend to continue. We expect that business to continue growing in the second quarter. I think David just mentioned on the home and garden side, that we don't expect a lot of growth in the second quarter because we think retailers are going to be more disciplined in how they build inventory versus last year. But we do expect a normal weather season, which means third and fourth quarter for us are going to be strong for H and G. So that makes it much more of a back half growth story for H and G. For our home and personal care business, I think we'll continue to see some pressure in the second quarter. And our comps start to stabilize we go into third and fourth quarter. So, again, that's not a business we're expecting to grow this year, but I think our second half starts to stabilize versus our prior year a little bit more. Versus the kind of trend you're seeing in Q1. The trend you're seeing in Q1 on the top line probably continues in the second quarter, and then it stabilizes. So it's different by business, but hopefully that answers your question, Olivia. Olivia Tong: Yep. Thank you. Operator: One moment for our next question. Our next question comes from Bob Labick with CJS Securities. Your line is open. Will: This is Will on for Bob. Just broadly speaking, are the levels of investment in brands where you want them? Might they increase or decrease? And same question at the corporate level. Faisal Cutter: Yeah. So I think we I'll start with corporate. We talked about in the last quarter's earnings call, we talked about how we do have some headwind on the corporate side, on the cost side. That has to do with the exit of our ASSA ABLOY HHI transaction-related TSA income. That was a $20 million headwind that we said will roughly cover half of that cost this year. So that stays true. We were able to push some of our cost out of Q1 primarily because a lot of our S4 go live occur in the second to the third and fourth quarter. So a lot of our cost is pushed out of the first quarter. So I think you'll see our overall full-year outlook on corporate remains roughly the same. On the other businesses, I think we're we're going to be careful about how we invest. I think we're at the right level of investment for our global pet care and home and garden businesses. I think on the home and personal care business, you'll see us pull back some of the investments just based on when we see the recovery and when we see our top line coming back. And so it's probably too early to say. I I generally say given where the top line is, we have pulled back some investment on the HPC business prior compared to last year. But if the second half comes back strong, we can certainly dial that back up. And it's a lot this year is gonna be a lot more about reconfiguring our investment dollars to be more productive. And we're just gonna continue to measure the return on our investment on on our advertising investment, and try to put more dollars in areas where we see the return versus not. But on an overall basis, I would say for both home and garden and personal and Global Pet Care, we are at the right level of investment. Will: Thank you. That's super helpful. And can you talk about, the innovation and your pipeline for FY '26 and beyond? Are you at the level of new product introduction you want to be at? Faisal Cutter: Yeah. I think we've got a lot of good new exciting new products coming in. We talked about and on the home and garden business, we've got some more products coming in, but we actually had really successful launches last year. And once we're able to get the consumers excited about it, you'll see us expand the distribution on those products a lot more this year. So that's gonna be one of our growth drivers for home and garden business. On the global pet care business, we talked about new products that we launched last year. And I won't get ahead of myself, but you'll see more exciting things come over the next couple of quarters. So I think we've got a very good pipeline in both those two businesses. That we'll continue to invest in. Thank you. Operator: One moment for our next question. Our next question comes from Chris Carey with Wells Fargo Securities. Your line is open. Chris Carey: Hey. Good morning, guys. David Maura: Morning. Chris Carey: You think about the the the process with the HPC business, how would you characterize the the progress that that you think, you know, has been made towards your or how things are have have evolved and are evolving. You know, maybe what has has gone against you, obviously, from the external environment. And, you know, what what gives you confidence that you can still execute on these plans that you have. For the business? I have a follow-up. David Maura: Yeah. Look. Let's take it in two pieces. Right? One is the operating piece, and the other is the strategic piece. And you know, when you look at we're sitting in February. Right? So a year ago, I mean, we were staring at a half $1,000,000,000 tariff problem. Like, $500,000,000 is a lot of tariffs for a company of our size to absorb. And we shut down buying for literally two months. Like, you know, that puts a lot of air in your pipeline, right, if you're trying to sell product. And we dealt with the harsh realities of that volatility, and we were up with our retailers, and we took pricing. Immediately. And, you know, when you shut down buying product in your supply chain for two months, and you raise prices double digits, on these type of items, you're gonna run into something called the elasticity really fast. And for us to put $20,000,000 of EBITDA on the board, in the last ninety days in that business I'm pleased with it. So you know, again, I'm I'm I'm I'm, you know, do we wanna do better? Of course. But I can tell you managing that type of volatility you know, not to pat ourselves in the back, but I think we did it better than most. If I look at that industry, there's really one big player that's making all the money, taking all the market share, and there's everybody else. And most of those other players are in a more difficult position than I am. Operationally and financially. Very few players have an unlevered balance sheet and an outlook that's gonna improve profitability. This company has both. So if you're looking at the neighborhood of small domestic appliances, I like where we play. And frankly, think given our outlook for improved profitability, in appliances in fiscal 2026, that is going to cause the consolidation I'm sick of talking about to finally occur. And we believe we will be the strategic merger partner choice. So I think that's pretty crystal clear, but I'm pretty I'm pretty excited that we put $20,000,000 of EBIT on the board. I'm telling you it's still a very challenging environment. I'm telling you that most of my competitors got six to 12 times leverage sitting on their balance sheets. And good luck. Chris Carey: Yeah. Yeah. A a a lot has certainly come at you guys. That's helpful. When it comes to EBITDA for the year, as we think about cadence, I think you gave some good perspective, which I interpreted as as as more top line. The outlook is more back half weighted from a profitability perspective as well? Just remind us of the anomalies at Q1 and the the confidence as you you know, get toward that that full year objective. David Maura: Yeah. Again, there's just so much ball going on right now. It's it's it's look. We ran a process for the business. It attracted a lot of interest. Right? The the tariff situation through cold water on that. Right now, the industry is trying to get back to you. Okay. What are my input costs? What's my new rate of sales? What's my margin structure? And can you underwrite these businesses? Right? So what I'm trying to describe is you know, when you encounter that much volatility and disruption, it's gonna take you more than a quarter or two to heal. So that business is in the process of healing. Again, to put $20,000,000 of EBITDA on the board in Q1 appliances, I'm proud of that. What is occurring right now, to answer your question directly, is the North America market which took the biggest hit for us because of the tariffs coming into this country. Is healing and we're seeing things improve there. What is also occurring globally is because barriers went up here but not other places, keep Chinese product is hitting the rest of the globe. And it's being dumped into other markets. That is disruptive. It's causing issues for us right now in Europe. And so we've gotta wrestle that to the ground here in Q2. Figure out a better go to market strategy, and get that humming again. But so we you know, Q2 is gonna continue to be a little messy you know, in this unit. With all the pricing in place and with all the supply chains fixed, and and working on a better, more strategic go to market plan, we do anticipate kinda Q3 and Q4 resulting in such numbers that we actually report growth in EBITDA in the appliance unit in fiscal 2026. Does that help? Chris Carey: It does. It does. Good luck. Thanks, guys. David Maura: Thank you. Operator: One moment for our next question. Our next question comes from Ian Zaffino with Oppenheimer. Your line is open. Ian Zaffino: Great. I just wanted to drill down a little bit more on GPC here. When we think about kind of the growth for the year, is there an opportunity to maybe grow faster than low single digits? And I also understand the demand in aquatics. Is that just kind of a a comp thing Or do you actually see, like, underlying demand improving? David Maura: Hey, Ian. Good to hear from you. Thanks for the questions. I'll take the first piece and Faisal will fix it if I mess anything up. Look, companion animal, I've got a new leadership team in pet. I like what we're doing there. We spent a number of months here trying to get smarter strategically. And we're working on price pack architecture. We're doing some deep dives into some of the product portfolios. We're looking, as we've told you, fewer, bigger, better. So we're trying to concentrate resources on higher return opportunities. You know, we're really pleased with the early results, right, in companion animal you look at kind of the big drivers, that's good and fun. It's dream bone. Exterminator, nature's miracle. To have four of these big brands back in growth feels good. More work to do. Somebody asked earlier, we have we how we happy with innovation, said yes. I'm never happy with it. We need more and more and more. I I want more new products. I want more new excitement, and we want better margin mix. We're working on it. Aquatics. We see recovery in Europe right now. North America still needs some fix. But honestly, I'm bullish because I've got a team finally underwriting that with a lot more intelligence, and I think there's some price pack architecture stuff we can do there. Within the next month, we're gonna go out and sit down with our retailers, and we're gonna talk about the new strategy new price points, new ways to manage the category. TETRA is the leader globally. It's time we start acting like it. Kids love aquariums. Taking care of pets is it's it's it's therapeutic. It teaches responsibility. It's phenomenal category. We gotta get our swagger back, but I'm determined to do it, and I've got a new leader who's gonna help me make that happen. Faisal? Faisal Cutter: Yeah. I'll just quickly add. One, it Aquatics is less than a fourth of our business. Right? So we don't not a business we rely on for growth. Aquatics itself is a category is never really a growth driver. Recently, it's actually been the decline leader for us, but it the the overall market seems to be stabilizing. As David said, we need to put more oomph behind our aquatic category and try to push that forward and act like leaders. And there's a lot of good ideas that we're going to execute against in the next few quarters. But our growth will primarily come from the companion animal side, and we're very bullish about how we've performed in the first quarter. But to answer your question, we've performed well, and we're showing growth in one quarter. We need to continue doing that every quarter coming forward to just give ourselves more confidence. But we we're pretty optimistic about our performance here. Ian Zaffino: Okay. Great. Thank you very much for the color. David Maura: Thank you. Operator: One moment for our next question. Our next question comes from Carla Casella with JPMorgan. Your line is open. Carla Casella: Just two quick ones. You talked a bit about some wins, on terms of shelf space. Can you quantify at all your kind of net wins or net wins and losses and how they should impact the coming quarter? Faisal Cutter: I mean, I think I don't think we're gonna give you details on the call on exactly what those how those ones materialize into what kind of growth. But like I said in in my earlier remarks, we're pretty jazzed about the growth we'll see on products that we launched last year. That I think will gain distribution in both home and garden and on the global pet care side. And I think we've got some good exciting products coming over the next couple of quarters as well. Carla Casella: Okay. That's great. And then just I guess, given the movement with the as the tariff costs flow through, should we expect any unusual changes in working capital this year? Or kind of do you expect working capital to be a source or use of cash for the for the full year? Faisal Cutter: I think you you see in our performance in the first quarter, our our our working capital management has been really great. Overall, I don't think it'll be a use of cash in a meaningful way this year, but I would say at this point, working capital would remain stable for the year. And our cash flow free cash flow projections reflect that. Carla Casella: Great. Thank you so much. Faisal Cutter: Thank you. Thank you. Operator: I'm not showing any further questions at this time. I'd like to turn the call back over to Jen for any further remarks. Jen Schultz: Okay. Well, thank you. With that, we have reached the conclusion of our call. Thank you to David and Faisal. And on behalf of Spectrum Brands, thank you for your participation in this morning. Operator: Thank you, ladies and gentlemen. This does conclude today's presentation. You may now disconnect, and have a wonderful day.
Operator: Welcome to ITT Inc.'s 2025 Fourth Quarter Conference Call. Today is Thursday, February 5, 2026. Today's call is being recorded and will be available for replay beginning at 12 PM Eastern Time. At this time, all participants have been placed in a listen-only mode, and the floor will be open for your questions following the presentation. If at any point your question has been answered, you may remove yourself from the queue by pressing star 11. We ask that you please pick up your handset to allow optimal sound quality. It is now my pleasure to turn the floor over to Carleen Salvage, Vice President, Investor Relations and FP&A. You may begin. Carleen Salvage: Thank you, Gigi, and good morning. Joining me in Stanford today are Luca Savi, ITT Inc.'s Chief Executive and President, and Emmanuel Caprais, Chief Financial Officer. Today's call will cover ITT Inc.'s financial results for the three and twelve months periods ended December 31, 2025, which we announced this morning. Please refer to slide two of the presentation available on our website where we note that today's comments will include forward-looking statements that are based on our current expectations. Actual results may differ materially due to several risks and uncertainties, including those described in our 2024 annual report on Form 10-Ks and other recent SEC filings. Except where otherwise noted, the fourth quarter and full year results we present this morning will be compared to the fourth quarter and full year 2024 and include certain non-GAAP financial measures. The reconciliation of such measures to the most comparable GAAP figures are detailed in our press release and in the appendix of our presentation, both of which are available on our website. With that, it is now my pleasure to turn the call over to Luca, who will begin on Slide three. Luca Savi: Thank you, Carleen, and good morning. Before we begin, I want to introduce Carleen Salvage, our new Vice President of Investor Relations and Financial Planning and Analysis. Carleen brings extensive experience in financial and operational leadership and is returning to ITT Inc., where she spent over nine years in roles of increasing responsibility, culminating in the position of Vice President and CFO of Industrial Process. In her new expanded role at ITT Inc., Carleen will lead our global IR and FP&A organization, driving ITT Inc.'s performance and continuing to provide compelling communication of our long-term value proposition. Welcome, Carleen. We are very happy to have you back. I would like to thank both our existing and new shareholders for participating in the equity raise we completed in December to fund the pending SPX Flow acquisition. We are grateful for your support, and we will work hard to make this acquisition a success. Finally, I am also deeply grateful to our ITT Inc. team for their contributions in 2025, a year that marked a milestone in the execution of our long-term strategy. I am humbled by what you have accomplished. Now to the results. The dominant theme of the year was growth, and we delivered growth across every metric at Linear Capital Markets Day: revenue, margin, cash, orders, and all these compounded with M&A. Let's get into 2025 financial highlights. We grew revenue 8% in total and 5% organically. We grew EPS 14% or 18% excluding the $0.16 impact from the Wolverine divestiture and the $0.03 dilutive impact from the equity offering related to the pending SPX Flow acquisition. We grew operating income 11% and expanded margin by 40 basis points to 18.2%. In addition, our recent acquisitions, Svanehøj and Kessler, both expanded margins compared to the prior year. The fourth quarter was equally strong. ITT Inc. hit a milestone with orders and revenue both exceeding $1 billion for the very first time. Orders grew 15% or 9% organic, specifically CCT grew an outstanding 40% organic with equal contribution from our legacy business and from Kessler. Revenue grew 13% or 9% organic. Of note, both IP and CCT grew more than 11% organically. Operating margin grew 90 basis points to 18.4% with all segments expanding versus prior year. EPS of $1.85 grew 23% excluding the dilutive impact of the equity raise to fund the pending SPX Flow acquisition. I would also like to take a moment to underscore our cash performance in 2025. We grew free cash flow to over $550 million, up 27%. Free cash flow margin of 14% was up 200 basis points. Cash conversion was well over 100%, and during the year, we put this cash to work, investing in productivity, growth, and innovation, as well as deploying $500 million to repurchase shares early in 2025. Now turning to drivers of future growth. We grew orders 10% to $4 billion, up 5% organically. Backlog ended at $1.9 billion, up 18% year over year. We continue to look for ways to elevate our commercial performance and win market share in all our businesses. Earlier this year, we held our first sales conference as WIN, where the ITT Inc. sales team spent two days together in the Middle East to review our performance, hear from our customers, learn from various speakers, and strategize to win and conquer in 2026 and beyond. Looking at our investments in new products, wider inflow and high performance in Friction will continue to feed the growth in previously unaddressed markets. And the pending acquisition of SPX Flow, the largest in recent ITT Inc. history, will be a significant accelerator as we focus on a higher growth, higher margin flow business. On SPX Flow, we still expect to close the transaction in March. Let me share a few highlights on their performance for 2025. Total orders grew in the mid-teens for the full year, driven by strength in the Nutrition and Health segment and in mixers. Backlog was up in the high teens with a book-to-bill comfortably above one. EBITDA margin was in line with our expectations, with significant runway for expansion driven by volume growth, pricing, operational efficiencies, and synergies. On the integration front, our teams are preparing for day one readiness. We are identifying best practices to deploy and defining priorities and integration must-haves. We are currently defining the future organizational structure and aligning on performance measures to ensure clear and effective accountability and delivery. We are also very happy to have secured many key leaders from SPX Flow ahead of closing, who are fully engaged for the long-term success of this new platform. And from a synergy standpoint, expected savings related to G&A are on track. We continue to identify further procurement synergies, and we are evaluating footprint and best-cost country opportunities to plan for seamless execution, leveraging SPX Flow's size in Poland and China. Let's return to ITT Inc. on Slide four. I would like to talk about the incredible work our sales and engineering teams have done this past year to win in the marketplace and ensure we sustain the high single-digit growth ITT Inc. delivered over the past five years. As we discussed during Capital Markets Day, we are focused on delivering growth organically and through M&A. On the organic front, I want to highlight three specific platforms for growth. Flow, what honestly starts as an opportunistic award in the decarbonization of Australia, has grown into an approximately $50 million win for our Bornemann multiphase pumps. Bornemann's technological superiority convinced the customer to source from us for the entire project, consisting of three expansion phases. We shipped the first system in 2025, and we will deliver the follow-on systems in 2026 and 2027. Great job, Yaron and Bornemann team. In Latin America, we are supporting Argentina's oil production ramp, and our BB3 pumps were chosen for one of the largest unconventional oil reserves outside of North America. This was thanks to the perseverance of Gabriela and Fernando, who executed the perfect commercial strategy for a project where we started as the underdog. Finally, we are well on our way to supply 100% of the biopharma diaphragm valves for a leading GLP-1 drug maker for their U.S. and European expansion phases. Our patented Envision technology and the intimacy we developed with both the EPC and the end user made it happen. Moving to defense, Enidine, a leading brand of rotorcraft energy absorption, is benefiting from defense modernization. Specifically, in the U.S., we have been selected for the development of a FLARA energy absorption system by Bell. This is a platform that could be worth more than $60 million over ten years, starting in 2028. Connectivity is another growing trend in defense that continues to benefit our connector business. In 2025, we grew orders by 27%, as we secured several high-profile soldier-worn and drone applications. In land defense applications, KONI Hydride is rapidly gaining shares in the U.S. and Europe as our marquee platforms' spending ramps up. KONI's defense business is approaching $15 million in orders after growing more than 70% in 2025. Finally, on transportation, in Q4, we renewed a multiyear contract that will ensure aerospace controls support Boeing's growth plans. Great job, Yelena and aerospace team. In rail, KONI keeps on gaining market share as the only validated source of the CR450 high-speed train platform, thanks to the incredible work of Tim and Charles. And I could not talk about platforms for growth without mentioning our Friction business, which has outperformed global OE production again for the thirteenth year in a row. While our team in Barge continues to make progress on the Geopad, our breakthrough friction material that is now in trials with a major European OEM for a start of production in 2028. Amazing job for Humberto and Alessandra. As you can see, we have a long organic growth runway ahead of us at ITT Inc. We are compounding it with M&A, as you have seen with Svanehøj in marine energy transition, with Kessler in defense, and now with the SPX Flow acquisition that we expect to close in March. Let me now turn the call over to Emmanuel to discuss Q4 results in detail. Emmanuel Caprais: Thank you, Luca. Good morning. We ended the year with another strong quarter. In Q4, we delivered strong performance across the board in orders, revenue, margin, EPS, and cash. Our teams delivered over $1 billion in revenue, up 13% in total and 9% organically, from higher volumes and price realization. Within IP, Svanehøj grew over 50% while legacy pump projects were up 30% organically. CCT grew 11% organically thanks to strong aerospace and defense, up 27% and 17%, respectively, while Kessler grew 11%. In MT, KONI Defense grew 13% as we continue to penetrate the ground vehicle market in Europe. Friction OE outperformed global automotive production by 400 basis points while aftermarket was up 9% from an easy 2024 compare. On profitability, operating income grew 19% driven primarily by strong operational performance and contributions from our acquisitions. MT operating income grew 13% and margin reached 19.7%. The team at IP drove 100 basis points of margin expansion including Svanehøj EBITDA improvement of 350 basis points. Moreover, 240 basis points excluding M&A dilution. With the Boeing contract negotiation now closed, we are confident that our teams can focus on supporting the accelerated aerospace growth expected in the next few years. EPS of $1.85 was up 23% or 26% excluding the dilutive impact of the equity offering related to the SPX Flow acquisition. Lastly, on free cash flow, our performance accelerated sequentially to deliver 27% growth for the full year and 14% free cash flow margin. We are already at the level we targeted for 2030 at Capital Markets Day. Here, I want to point out the significant progress regarding customer advances. Following the example of Svanehøj, the team in IP collected 20% more cash advances compared to the prior year, which represents 300 basis points improvement as a percentage of the inventory brought in-house. Great momentum with more opportunities to drive further improvement in working capital. Let's turn to the full year EPS bridge on slide six. For the full year, EPS grew 14% compared to the prior year, and 15% excluding the dilutive impact of the December equity raise related to the SPX Flow acquisition. The $0.62 from operational performance including volume growth, pricing actions, and productivity, were compounded by $0.25 contribution from our acquisitions. The $0.16 headwind from the loss of income from the Wolverine divestiture, the impact from the higher tax rate, and interest expense, was offset by a lower weighted average share count. Here, I would like to spend a moment describing the foundational progress we have made particularly in IP and CCT, as we are driving towards the MT benchmark. SQDC or safety, quality, delivery, and cost is the framework we use to measure our operational performance. On safety, both IP and CCT are below the injury frequency rate benchmark of 0.4. Specifically, IP delivered a 50% recordable incident reduction in 2025 compared to the prior year. Quality performance also improved, with 20% fewer claims in IP and a 60% TPM reduction in CCT in 2025. On delivery, overall IP improved on-time performance by 600 basis points, and our NC pump product line improved by 2,700 basis points in December compared to the prior year. Both businesses significantly improved their cost position during the year, which led to the margin expansion performance we presented earlier. This positions us very well to grow profitably in the future. With that setup, let's now move to slide seven, to discuss our 2026 outlook. Let's review the assumptions underpinning our revenue growth outlook by segment. Beginning with Connect and Control Technologies. Accelerating commercial aero production, supported by a wide-body recovery ramp, is expected to drive meaningful growth across our aerospace portfolio. Repricing of long-term aero contracts is poised to deliver multiyear benefits enhancing visibility and profitability over the cycle. In defense, expanding demand for advanced electronics and the introduction of product innovations will continue to drive incremental share gains. At the same time, Kessler backlog conversion provides an additional tailwind further strengthening CCT's outlook for sustained above-market growth. Industrial Process is positioned for strong growth as we convert our $1 billion backlog and continue gaining share in pump projects. Svanehøj continues to benefit from the accelerating marine energy transition while our execution differentiation further drives short cycle demand. As mentioned previously, the expansion of GLP-1 production will support valves growth thanks to our patented Envision technology. In Motion Technologies, continued friction OE outperformance positions the business well despite flat vehicle production and softness in North America. Share gains in high-speed trains in China and Europe are fueling strong growth in our rail portfolio. Finally, high teens growth in KONI Defense driven by product differentiation and expanding military ground vehicle programs in the U.S. and Europe provide an additional impetus for the segment. Let's move to Slide eight to continue our outlook discussion. Because of the planned SPX Flow closing in March, we will focus today on Q1 guidance. This does not include any of the accretion we expect from the acquisition. For Q1, we expect total revenue growth of approximately 115% organically. This is driven by mid-single-digit growth in IP and CCT, due to share gains in pump projects in aerospace and defense. MT will continue to outperform global auto and rail production to deliver low single-digit growth. In addition, Q1 2026 will have four more days than the prior year. All segments are expected to expand margin versus the prior year to deliver over 100 basis points of EBIT margin growth, driven by higher volume, positive price costs, and fixed cost controls. We expect both Svanehøj and Kessler to improve profitability year over year as revenue ramps up and productivity accelerates. All of this will translate into 17% EPS at the midpoint in Q1. On slide nine, we can see the different components of the Q1 EPS outlook. We expect EPS to land at $1.70 for Q1, at the midpoint up 29% when excluding the impact of the December equity offer. This is primarily driven by operational improvements. We expect a flat tax rate, higher corporate expenses, and a share count of 86 million shares given the December public offering. This does not include the impact related to the Lone Star equity consideration to be issued at the closing of the SPX Flow acquisition. For the full year, we expect ITT Inc. to grow organic revenue mid-single digits. This top-line momentum combined with favorable price cost, fixed cost discipline, and productivity gains across our recent acquisitions, position us to deliver at least 50 basis points of margin expansion for the full year. We look forward to providing updated guidance inclusive of the acquisition impact of SPX Flow at our next earnings call. As previously mentioned, we expect the SPX Flow acquisition to close in March, and we continue to estimate it will generate a net single-digit EPS accretion in full year 2026. As a reminder, following the close of the transaction, ITT Inc. will revise the definitions of adjusted operating income and adjusted income from continuing operations to exclude all acquisition-related intangible amortization reflecting ITT Inc.'s ongoing M&A activity. Let me turn the call over to Luca on slide 10. Luca Savi: Thanks, Emmanuel. A few points before Q&A. 2025 was a milestone. We executed on all fronts, delivering strong growth, higher profitability, and making strategic use of our capital. We delivered on all our commitments, and we have started the next chapter of strong. Our execution and innovation will continue to drive future growth as you have seen in 2025. We are accelerating our 2030 vision as we compound our organic performance with the announced SPX Flow acquisition. We are well-positioned for continued value creation. Thank you for joining us today. As always, it's been my pleasure to speak with you. Gigi, please open the line for Q&A. Operator: The floor is now open for questions. At this time, if you have a question or comment, please press 11 on your touch-tone phone. If at any point your question has been answered, you may remove yourself from the queue by pressing 11. Again, we do ask that while you pose your question, you pick up your handset to provide optimal sound quality. Please limit your question to one question and one follow-up. Our first question comes from the line of Jeffrey Hammond from KeyBanc. Jeffrey Hammond: Yes. Hi, good morning. Luca Savi: Hi, Jeff. A lot of moving pieces. Please appreciate all the color. Jeffrey Hammond: Maybe just to start with IP, I know those orders can be lumpy and the backlog sounds great and gives you visibility. But just wanted to get an update on the funnel and just how you see orders flowing through the year, based on that funnel visibility. Luca Savi: Sure. When you look at the funnel, in terms of the orders, the funnel is slightly down versus the prior year. If you look at the quarter, Q4 funnel actually is stable versus Q3 and still very, very healthy. And within that funnel, we actually see that the funnel in the Middle East and in Asia Pacific actually grew nicely. So we are feeling pretty good on the funnel. Just to give a little bit more color, when we were in the Middle East at the expansion of our facilities in Saudi Arabia, and I was able to talk to Saudi Aramco, our customer, they were quite positive about the future investment in 2026 being better than 2025. Emmanuel Caprais: And, Jeff, if you look at our 2026 orders, we expect to deliver growth with really all end markets contributing to roughly probably low to mid-single-digit growth. Jeffrey Hammond: Okay. Great. And then on CCT, you talked specifically about, I think, a Kessler order. But just unpack that 40% organic growth in the orders and if there's any kind of one-time or lumpiness in there. And then just separately, like, just wanted to clarify the Q1 guide still includes amortization. And then once you close SPX Flow, you'll exclude it. Thanks. Luca Savi: Okay. Let me take the orders and, of course, Emmanuel, you would tackle the second one. So when you look at that incredible performance in terms of the orders in Q4, I would say that everything was nicely up. Connectors were up more than 20%. Controls were up 70%. Aftermarket was up 35%. Kessler was up 33%. So all the orders were nicely up in the quarter. And this is very true also for the full year. I think that there is probably just one item, which probably is a few million dollars, which is a price adjustment because of the contract renegotiation with Boeing. That's the only thing. But I would say, very nice across the board. Emmanuel Caprais: Yeah. And regarding our Q1 guidance, so we're very happy to deliver a 17% expected growth from an EPS standpoint. This does not include any change to the accounting we have on the intangible amortization. So we'll do that when the acquisition closes sometime in Q1. And so, but it includes the dilution from the equity raise that we did in December. Jeffrey Hammond: Okay. Great. Appreciate it, guys. Luca Savi: Thank you, Jeff. Operator: Thank you. One moment for our next question. Our next question comes from the line of Michael Halloran from Baird. Michael Halloran: Hey, good morning, everyone. Luca Savi: Hi, Mike. Michael Halloran: Hey, can we start on some of the SPX Flow comments you made there, Luca? Obviously, really good momentum exiting the year with order trajectory, backlog commentary, etcetera. Maybe just dig into a little bit how sustainable that trajectory looks and what the core drivers from your perspective are that should allow that momentum to continue? Luca Savi: Sure. So we are working very closely with the SPX Flow team. So, you know, we still haven't closed the deal yet. So more color will come later. But I can tell you that when you look at the nutrition and health, I think that when you look at many of the customers that they're working with, they are in a good CapEx cycle. And SPX Flow is in a very good position with several of them. As a matter of fact, I participated in a call together with the SPX leadership team with one of their major customers, and it was really good to see the intimacy that they have and how they work with the customer in building the CapEx and building the execution for the years to come. I think that this is confirming a little bit our visibility into what we said at the beginning when we communicated the acquisition that we see this SPX Flow as a really a growth opportunity. And when it comes to mixers, I would say, we have some good opportunities there as well. Granted, probably that was coming from an easy compare when it comes to 2024. Michael Halloran: Thank you for that. And then maybe just a generic question and then a specific one associated with it. If you think about your outlook for '26, how much has changed over the last three, six months in terms of how you're thinking about next year or at least versus the 3Q earnings release? And more specifically, within the motion piece, is there anything changed on how you're thinking about the end market outlook for auto? Luca Savi: Sure. I would say that some of the trends continue. Some of the trends probably reinforced. So if you look at the aerospace recovery, we've been talking about the aerospace recovery now for a few quarters. And now you see some good results in there in terms of the orders and in terms of the revenue as well. And the aftermarket is strong. We see the production ramp-up. We see also the wide bodies. So those were something that were happening, and now they're getting a little bit stronger. Defense that was good is getting a little bit stronger. And that is what's happening. So a confirmation. Now when you look specifically at Motion Technologies, I would say in terms of the auto market, if you look at 2025, it was a positive year in terms of growth of production. But it was mainly because of China. Both Europe and North America were down. Less than what we expected at the beginning of the year. When you look at 2026, expect the production, the global production to be flat, slightly down. And once again, it will be, you know, across the board. You know? Probably Europe being flattish, and North America and China flat to low single-digit down. Michael Halloran: Thank you. Really appreciate it, Luca. Luca Savi: Thank you, Mike. Operator: Thank you. Our next question comes from the line of Joe Giordano from TD Cowen. Joe Giordano: Good morning. Hey. Good morning, guys. Luca Savi: Hi, Joe. Joe Giordano: So for businesses like Svanehøj, Kessler, it's great to see them scaling and getting orders to this magnitude. But like, I guess the other side of that mountain is sometimes challenging. Right? So how do you kind of prepare these companies? Like, are these stable run rate orders, or are we going to have to kind of find new ways to keep the level of business to that magnitude? Like, how do we prevent a plus 40 becoming an impossible comp in out years? Luca Savi: Sure. So when you look at that, I would say there are slightly differences between Kessler and Svanehøj. I think that when you look at the Kessler incredible order performance, I would say that is quite sustainable if you think that more and more expenditure will happen in defense and Kessler plays 80% of the Kessler business is actually in defense. So I think that that is sustainable in the short and medium term, from our perspective. The comment in terms of Svanehøj, I think it would be difficult to repeat the level of performance of orders in 2026 versus 2025. I mean, 2025 orders grew 44%. So, obviously, that will not be repeated. Having said that, you know, we are working to expand the opportunity in Svanehøj with the new product introduction and also from small additions from an organic perspective, like the acquisition of Coho that we did at the end of last year, which introduces compressors into the mix. So working on that from an innovation and product point of view. Joe Giordano: Perfect. And, Luca, you touched on this in your prepared remarks. But, as you get ready for SPX to come in, like, it's a much larger deal than anything you guys have done. So how do you like, what can you do ahead of time before you can really dig in? Like, before you get your hands on it, what can you do to prep internally to make the early stage integration as fast and efficient as possible? Luca Savi: I can tell you that the teams are working very closely together. Actually, it was really good to see the team working together over here in Stanford. We had it a few weeks ago. Both the SPX team and the ITT Inc. team working to really hit the ground running on day one. And know exactly how the organization is going to look like. And working on those synergies that we expect to deliver in year one and also working commercially as I said before as well, you know, both Bartek and myself participated in a call with one of our major customers that we will meet in person after closing next week. I will be in London. I will be able to spend one day with the nutrition and health leadership team, altogether, looking at the projects and the opportunities. So we are all in it already. Joe Giordano: Thanks, guys. Luca Savi: Thank you, Joe. Operator: Thank you. One moment for our next question. Our next question comes from the line of Nathan Jones from Stifel. Nathan Jones: Good morning, Nathan. Good morning, everyone. Luca Savi: Hi, Nathan. Nathan Jones: I guess just following up on some of the SPX stuff. Interested in hearing a little bit more about the organizational structure, you know, post getting the deal closed here. There's some parts that, you know, where there's overlap. There's, you know, some completely different customer bases between your industrial process business and some of their flow businesses. So just any commentary on how you'll structurally go about integrating those? What will run separately? What gets integrated into IP, just how you're thinking about running those businesses once you get them in the door, please. Luca Savi: Sure. First of all, SPX is well run. We saw, you know, the margin that they were delivering. Right? So we have a good, well-run company with a good management team in the businesses. So when we are approaching this, it's really to ensure that the businesses are performing well with strong management teams, you know, staying stable, they're delivering the base case. And on top of that, we're going to deliver the synergies. But most of the synergies, particularly in year one, are coming from the G&A. From, you know, the fact that we are not going to have a duplication from, you know, the from a corporate point of view. So we are using the best athlete, and we got very good athletes and very good management team in SPX. So, we will integrate some parts and those are the must-have conversations that we're having today. But, you know, the parts that are running well, you know, you want to keep on running well and ensure that you do not disturb them. Nathan Jones: Thanks for that. I guess, a question on the finalization of the contract negotiations with Boeing. I'm sure you're glad to finally have that behind you. You talk about the potential margin improvement that CCT sees from those contract negotiations. I know that, you know, some of that benefit is coming over the last few years and some of it will come out, you know, over the next few years. Just, you know, where we get to or what the contribution is from that and you know, how quickly that rolls in and over what time period? Thanks. Emmanuel Caprais: Yeah. Thanks, Nathan. So, we're very happy, as you said, about the conclusion of the Boeing contract. And here, really, we want to applaud the work of the CCT aerospace team that really worked really hard to deliver that contract. So this is a high double-digit price adjustment before a five-year contract. So, most of the price adjustment or the price increase is going to come in the first and the second year. With additional price increases to offset expected inflation in year three, four, and five. This is obviously compensating for the absence of price adjustment we have had since 2015 and 2017 and the cost inflation that we have experienced. So as a result, as you can imagine, this will be a large improvement of our profitability, our aerospace profitability, specifically with Boeing. And we're very happy because it allows us to focus on supporting the growth at Boeing that we've seen both on the narrow body and the wide body platforms. Luca Savi: Thanks for taking the questions. Nathan Jones: Thanks, Nathan. Operator: Thank you. One moment for our next question. Our next question comes from the line of Amit Mehrotra from UBS. Amit Mehrotra: Thank you. Good morning, everybody. Luca Savi: Good morning. Amit Mehrotra: Luca, you know, we're just currently, I guess, in an environment where folks are getting maybe a bit more positive on some cyclical tempo improving. You kind of just look at the more cyclical parts of your business, are you seeing any evidence of that? Because, obviously, there are certain large parts of your business that sell into cyclical markets, but you've been able to outperform that, obviously, with autos, for example. But if we were to just sort of isolate the cyclicality of the market, I'd just be curious. Does it feel better to you, or is it really no change? Luca Savi: I would say that, you know, there are some small signs of improvement, I would say. If you look, you know, the last, I would say, probably six weeks, if we look at some of the parts in the short cycle in IP. The order book in terms of automotive in Europe, I would say, is stable. The aftermarket in Q4 was growing nicely, even granted it was from an easy compare. So there are some signs, I mean, that would imply that maybe the situation is a little bit better, but it's probably too early to tell. Emmanuel Caprais: And I would add to that that our short cycle performance really is standing out. We are focusing on improving our on-time delivery, which really brings a lot of opportunities forward for us to gain market share. And when you look at the short cycle in IP, we had pretty strong spares orders in Q4, and we started the year also super strong. And so we're very encouraged by this. Amit Mehrotra: Okay. That's great. And just as a follow-up, on SPX Flow, I think the market obviously sort of understands and knows this asset as it used to exist. But it's gone through a lot of change. And, Luca, I know you've, I think, you and Bartek have probably visited every single facility of the company over the last couple of years is my guess. And so I guess, like, you know, there are some people that are skeptical of the asset, but you guys are excellent executors. And they're just trying to reconcile that. And so I'd love it for you, Luca, to just talk about what SPX was, what it is now, and what you think you can make it. Just given sort of applying some of your track record and execution to that business? Luca Savi: So when you look at the SPX, it's true. I would say but let's not forget that the acquisition that we're bringing in has already got a very good profitability. And a very good EBITDA margin. Right? So they've already done a good job in terms of that cost containment. Now on top of that, you need to lay the synergies that we have, which are roughly $80 million to be executed over the last three years. A lot of that will be from the G&A. One third from their procurement, and then there's going to be a 10% that is coming also from the footprint rationalization. I think that this is the area where we are pretty good, and I believe that they also are good, and we're working together on executing. I think that what we are going to add as well is the impetus on growth, on the growth momentum. And there are a lot of revenue synergies that are not in the model that we're already working on. You're talking about Latin America, where we have a very strong base. We're talking about the Middle East, where we have a very strong base. So that is an area where we will be able to grow. There are some product gaps that we'll be able to cover with our twin screw Bornemann twin screw pumps. And then I would say probably a little bit more focused on growth that is in our DNA and probably be less religious when it comes to 80/20. Market size and customer size. Amit Mehrotra: And just to confirm that, the high single-digit accretion in this year pro forma for the closing, does not include any revenues. Have you talked about maybe the magnitude? I mean, we're talking about a few hundred million dollars of revenue synergies. As an opportunity. Any thoughts there? Emmanuel Caprais: Yeah. So I think that when you think about revenue synergies, I think we expect them beyond 2026. Right now, we're going to focus on understanding the business. Obviously, there's a short-term opportunity. We will take it, but I think it's fair to say that the cross-selling and the commercial synergies are going to happen most likely starting 2027. So we haven't really quantified how much those commercial synergies are, but we expect that they're going to be meaningful as we're really able to leverage the portfolio of both companies. Amit Mehrotra: Right. Got it. Thank you very much, guys. Appreciate it. Luca Savi: Thank you. Operator: Thank you. Our next question comes from the line of Vladimir Bystricky from Citi. Vladimir Bystricky: Good morning, Vlad. Luca Savi: Hey, good morning. Vladimir Bystricky: Good morning, guys. Impressive pronunciation of my last name there. I like it. Anyhow, thanks for taking my questions. So just following up on IP and your ability to continue to outperform the market there, can you just talk about whether you've seen any change in competitive behavior in that business? Or are you thinking about potential risks for more aggressive competition on pricing or on terms and conditions? Luca Savi: Thanks, Vlad. No. We don't see any change in terms of behavior in the competitive landscape. That has not changed. I've never seen any change in the last six years as a matter of fact. I can tell you. But the thing that is changing is really the performance that keeps on improving. Let's take the project example, the project business. Vlad. You know, this was a business that was losing money, that was making a bit of money. A little bit, then we give a target of 15% plus, then twenty. Today, those execution projects deliver margin in the high 20s. And they are perfectly on time, and when you have this level of performance in the market, your customers tend to be loyal. And as I said, some of the best intimacy and loyalty, I've seen it actually when I was in Saudi, and I met with the customers over there. This is what really is happening in the market. Vladimir Bystricky: That's helpful and great to hear, Luca. And then maybe just sticking with IP and digging into the biopharma valves wins that you've mentioned. We've heard from some others about pretty positive commentary around the capital investment cycle in pharma and biopharma. So can you just talk about sort of incremental opportunities that you see in the pipeline specifically in that market segment and how you're thinking about potential for incremental wins over the course of '26? In the biopharma space? Emmanuel Caprais: Yeah. Thanks for that, Vlad. So, yeah, the one business opportunity that we have has been growing really fast. So this was a roughly $20 million opportunity that we got awarded a couple of years ago, and then that has grown into more than $50 million. As this customer is expanding production sites in the U.S. and also in Europe. What's really interesting about this as well is that those are diaphragm valves, and so, there's a meaningful recurring aftermarket when you have to replace diaphragms every time you change the composition of the formula that you are developing. So this is really interesting for us. I think that when you look at our biopharma valves business, it has been expanding. I think it's up 10% this year from an order standpoint, and we continue to see other opportunities. Especially because in Europe, we have penetrated Europe much less than in the U.S. So we have many opportunities. And then the last point I wanted to make is that Habonim is doing really well as well. More on the new energy, but this is a significant platform for growth for our valves business. You know, Habonim now is a little bit more than a $60 million business. When we bought it, it was barely $30 million. And the margin is still very good. And we are finding new ways to grow and gain market share, especially in the U.S. Vladimir Bystricky: Great. That's helpful, Emmanuel. Thanks. I'll get back in queue. Operator: Thank you. One moment for our next question. Our next question comes from the line of Matt Summerville from D.A. Davidson. Matt Summerville: Good morning, Matt. Thanks. Just a couple of quick ones. Emmanuel Caprais: Morning. Matt Summerville: Can you talk about how much relative price capture you're expecting across the three reportable business segments that's embedded in your full year '26 organic outlook? And then I have a quick follow-up. Emmanuel Caprais: Yeah. So let me start by saying that 2025 was a really successful year in terms of price capture. We were able to capture a lot of price in IP and CCT, above our cost inflation. And we were able to limit as well the price decrease in motion tech and friction compensated by the raw material disinflation that we've seen during the year. In 2026, we expect our price capture to be as strong. Obviously, it's incremental. We expect IP and CCT to lead the way, overcoming the cost inflation. So being price-cost positive from a dollar and a margin standpoint. And in terms of MT, we expect to be neutral. Matt Summerville: Got it. And then you've mentioned aftermarket and friction a couple of times being up 9% against an easy compare. How should we be thinking about kind of what's embedded in your guidance for Friction Aftermarket in '26 relative to how it performed over the course of the full year '25? Thank you. Emmanuel Caprais: Yeah. So in terms of the friction independent aftermarket, we expect this to be roughly flat in 2026. You know, this is mainly a European business. And as we described, you know, Europe is really flatlining from a growth standpoint. So that's why we don't expect much of an uptick. And then in terms of the original equipment spares, we expect also to be flat. Here, there's a lot of market share gains that are at play. And we're working with our customers to provide low-cost quality solutions. Matt Summerville: Thank you. Operator: Our last question comes from the line of Sabrina Abrams from Bank of America. Sabrina Abrams: Hey, good morning, everyone. You have Sabrina on for Andrew. Luca Savi: Morning, Sabrina. Sabrina Abrams: Hi, Sabrina. You guys have had a really impressive trend of accelerating organic growth this year. I think we went from flat to 4% to 6% to 10%. And you're ending the year on such a strong note, and I think above the commentary from where we sat a quarter ago. Any comment on, I guess, what went better than expectations? And then as a follow-up, other than guiding with some conservatism, any reason why things would decelerate to mid-single digits next quarter? Thank you. Emmanuel Caprais: Yeah. Thank you, Sabrina. So, yes, we are very happy we were able to grow organically 5% in 2025 and almost 9% total. Large contribution from industrial process and connecting control technologies. So when you think about what has driven that growth, in Connect and Control Technologies, obviously, aerospace and defense is helping a lot. And in that, we have a significant contribution from a sales standpoint from aftermarket. Aftermarket aero, especially from a sales standpoint, was up more than 20%. Kessler is doing also really well. We talked about the orders that they were able to get and convert some of them. So CCT a lot of really good activity from an aerospace standpoint, as well as some price capture as I mentioned a little earlier. In IP, I think here, what you see is all the pump projects that we've been able to deliver. When you think about the pump projects for the year, they were up 30%. And I would say that a large majority of those pumps were delivered in quarter three and quarter four both at legacy IP and Svanehøj. Sabrina Abrams: Thank you. And as a follow-up sort of to the last comment, I know the project mix in IP is dilutive to margins, but I think we had the best, I think we had the highest margins you guys have seen since you closed Svanehøj. So anything in particular you want to call out, like, given the mix headwinds, anything in particular you want to call out that's gone super well in the execution for this segment? Luca Savi: Nothing in particular. It's really broad in terms of the execution of the project. When you look at these projects, when we close and ship the projects, the margin is always higher than what we those projects at, which is a testament to the good project execution, good project management, management of the changes, and also the cost management. So that and also, good project order acquisitions. So this is general. We have seen that trend, and the trend keeps on improving. So go to the next improvement. Sabrina Abrams: Thank you. Luca Savi: Thank you, Sabrina. Operator: Thank you. This does conclude today's teleconference. Please disconnect your lines at this time, and have a wonderful day.
Operator: Good morning, everyone, and thank you for joining us on today's ICE Fourth Quarter 2025 Earnings Conference Call and Webcast. My name is Drew, and I'll be the operator on the call today. After the prepared remarks, we will have a Q&A session. And with that, I'll hand over to Steve Egerton, VP of Investor Relations to begin. Please go ahead when you're ready. Good morning. Steve Egerton: ICE's Fourth Quarter 2025 Earnings Release and Presentation can be found in the Investors section of ice.com. These items will be archived, and our call will be available for replay. Today's call may contain forward-looking statements. These statements, which we undertake no obligation to update, represent our current judgment and are subject to risks, assumptions, and uncertainties. For a description of the risks that could cause our results to differ materially from those described in forward-looking statements, please refer to our 2025 Form 10-Ks and other filings with the SEC. In our earnings supplement, we refer to certain non-GAAP measures. We believe our non-GAAP measures are more reflective of our cash operations and core business performance. You will find a reconciliation to the equivalent GAAP term in the earnings materials. When used on this call, net revenue refers to revenue net of transaction-based expenses. Adjusted earnings refer to adjusted diluted earnings per share. Throughout this presentation, unless otherwise indicated, references to revenue growth are on a constant currency basis. Please see the explanatory notes on the second page of the earnings supplement for additional details regarding the definition of certain items. With us on the call today are Jeffrey Sprecher, Chair and CEO, Warren Gardiner, Chief Financial Officer, Benjamin Jackson, President, Lynn Martin, President of the NYSE, and Christopher Edmonds, President of Fixed Income and Data Services. I'll now turn over the call to Warren. Thanks, Steve. Warren Gardiner: Welcome to the call. I'm glad to have you leading investor relations for us going forward. Good morning, everyone, and thank you for joining us today. I'll begin on Slide four with our exceptional full-year 2025 results, which demonstrate the strength of our diversified business model and the consistency of our execution. 2025 was a landmark year for ICE. We delivered record adjusted earnings per share of $6.95, a 14% increase year over year, marking the best performance in our company's history. This achievement reflects both the resilience of our franchise and our team's relentless focus on operational excellence. Full-year net revenues reached a record $9.9 billion, up 6% year over year, with balanced growth across our platform, including 5% growth in recurring revenues, providing durability and visibility, and 8% growth in transaction revenues, which demonstrate robust customer engagement and growing demand for risk management tools. Our disciplined approach to expense management continues to drive operating adjusted operating expenses totaled $3.9 billion, reflecting our commitment to cost discipline while also investing strategically. I'm particularly pleased to report that annualized expense synergies from our 2023 Black Knight acquisition exited the year at an annualized rate of approximately $230 million, exceeding the updated $200 million target that we set early last year. Based on this momentum, we now expect total expense synergies to reach $275 million by 2028, a $75 million increase, or nearly 40% above our initial commitment when we announced the transaction back in 2022. This outperformance underscores our integration capabilities and our proven ability to identify incremental value creation opportunities. These results drove record adjusted operating income of $6 billion, up 9% year over year, demonstrating the quality and scalability of our business model. Turning to capital allocation, our record operating performance generated $4.2 billion in adjusted free cash flow, which we deployed strategically to enhance shareholder value. We repurchased $1.3 billion of stock, increased our dividend by 6%, and reduced our leverage ratio from 3.3 at year-end 2024 to three times as we closed 2025, all while funding strategic investments across our business. This balanced approach reflects our confidence in both our core operations and our ability to capitalize on future growth opportunities. Moving to Slide five, let me walk you through our strong fourth-quarter performance, which provides excellent momentum as we enter 2026. Fourth-quarter adjusted earnings per share totaled $1.71, up 13% versus the prior year. Fourth-quarter net revenues of $2.5 billion increased 7% year over year, with transaction revenues growing 8% and recurring revenues advancing 6%. Fourth-quarter adjusted operating expenses totaled $1.01 billion, coming at the midpoint of our guidance range and reflecting our continued focus on balancing cost discipline with investments in future profitable growth. Now let's turn to Slide six for our Exchange segment, which delivered outstanding results. Our Exchange business achieved record fourth-quarter net revenues of $1.4 billion, up 9% year over year. Notably, this compounds on 9% growth in 2024 and 14% growth in 2023, demonstrating sustained business momentum. Transaction revenues grew 8%, led by our global oil complex, which increased 12% year over year. Our natural gas and environmental products, which represent nearly half of our energy revenues, grew 10% in the quarter and 15% for the full year, reflecting strong structural demand for energy risk management and the ongoing energy evolution. Warren Gardiner: Importantly, these positive trends accelerated into January. We saw record monthly volumes of 23% year over year, including a record month for energy ABB. Further supporting momentum into February is robust open interest, growing 19%, including 7% growth in global energy and 48% growth in our interest rate complex, reflecting heightened volatility, increased hedging demand, and the mission-critical nature of our markets. Our recurring revenue streams, comprised of our exchange data services and our NYSE listings franchise, reached a record $391 million, up 11% year over year. Growth was driven by a 16% expansion in exchange data and connectivity services. After adjusting for a one-time true-up in Q4 2024, Exchange Data Services grew 11% in the quarter as customers increasingly rely on our comprehensive market data and technology. Our NYSE listings business continues to attract the highest quality companies from around the globe. While only about 40% of global IPOs met our rigorous listing standards in 2025, the NYSE facilitated $25 billion in new IPO capital formation, welcoming 71 new operating companies, including seven of the top 10 IPOs. In addition, our retention rate remained above 99%, while we also welcomed several transfers, including Virtu, Etsy, and the largest transfer in NYSE history, AstraZeneca, who officially transferred to the NYSE this week. This performance reflects the enduring value proposition that combines the NYSE brand with our leading-edge technology. Looking to 2026, we expect Exchange segment recurring revenues to grow in the mid-single-digit range, driven by continued growth in Exchange Data Services and expansion in our listings franchise. Turning to Slide seven, our fixed income data and services segment delivered another quarter of strong execution. Fourth-quarter revenues totaled $608 million, including $101 million in transaction revenues. Within ICE bonds, continued growth in municipal bond revenue was offset by lower retail corporate and treasury activity, while strong CDS clearing results were offset by lower member interest income following the FOMC's rate reductions in 2025. Importantly, recurring revenues reached a record $507 million, growing 7% year over year. Our fixed income data and analytics business achieved record revenues of $318 million, up 5%, driven by our pricing and reference data offering, which posted its best quarter for net new business since 2020. Our index business ended the year with a record $794 billion in ETF AUM tracking ICE indices, up over 20% versus last year. This growth reflects the increasing adoption of our data and indices as well as the quality of our benchmark products. Data and network technology reached record revenues, increasing by 10% in the fourth quarter, reflecting strong demand for our ICE global network, consolidated feeds, and desktop solutions. As customers integrate artificial intelligence into their workflows and require ever-increasing volumes of high-quality data, we are uniquely positioned as a critical technology provider. For 2026, we anticipate fixed income and data services recurring revenue growth in the mid-single-digit range, with growth expected to trend towards the high end of that range, underpinned by another year of high single-digit growth in our Data and Network Technology business. Please turn to Slide eight for our Mortgage Technology segment results. Fourth-quarter Mortgage Technology revenues totaled $532 million, up 5% year over year. On a pro forma basis, including Black Knight, this represents our strongest quarterly performance since Q3 2022. Recurring revenues totaled $391 million and were in line with our expectations. As we discussed in prior quarters, some customer renewals came in at lower minimums. Importantly, these renewals are paired with higher per transaction pricing, which becomes increasingly beneficial as origination volumes normalize. The impact from lower minimums was largely offset by strong implementations and product expansions, particularly within origination technology. Transaction revenues totaled $141 million, up an impressive 20% year over year. This was driven by a significant increase in transaction revenues from Encompass closed loans, as customers increasingly exceed their minimums in an improving origination environment, along with double-digit growth in MERS registrations, which was supported by strong fourth-quarter refinancing activity. Turning to 2026 guidance, we expect total mortgage technology revenues to grow in the low to mid-single-digit range. The high end of our range assumes the number of loans originated across the industry grows in the low teens, while the low end assumes flat to modest growth. Importantly, at both ends of this range, we anticipate continued growth in recurring revenues in 2026. Several factors underpin this confidence. First, revenue synergies have nearly doubled from $55 million at year-end 2024 to approximately $100 million at year-end 2025, with further runway ahead. Second, we have substantially reworked through the 2020 to 2022 vintage contract renewals, reducing but not yet eliminating headwinds from Encompass minimum adjustments. And third, we continue to see strong product adoption and implementation momentum. These positives will be partially offset by previously client attrition related to certain M&A activity in 2025. Please return to Slide nine, where I'll provide additional context on our 2026 guidance and outlook. Warren Gardiner: We expect 2026 adjusted operating expenses to grow between 4-5%, or between $4.075 billion and $4.14 billion. This includes approximately $25 million in accelerated stock-based compensation related to adjustments to our compensation plan. As a result, we expect less incremental stock expense in both 2027 and 2028. Additionally, we currently expect depreciation in the euro and pound to add roughly $15 million to $20 million, which is more than offset by incremental revenue. Excluding these items, expense growth is expected to be in the 3% to 4% range, driven primarily by annual merit increases, reflecting our commitment to rewarding employees for their exceptional contributions and strategic technology investments across our platform. Among several other initiatives, these investments include expanding our data center footprint to meet growing customer demand and developing new artificial intelligence tools that will drive future productivity and innovation. Regarding capital expenditures, we expect 2026 investments to be between $740 million and $790 million. This includes installing AI infrastructure, such as GPUs, storage, and network equipment designed to handle AI and data-intensive workloads. Importantly, CapEx also includes elevated investment in real estate of approximately $250 million as we build revenue-generating data center capacity and new office space in Jacksonville, Dallas, Washington DC, and India. These are all strategic growth-enabling investments that position us for long-term success. Warren Gardiner: In closing, 2025 was an exceptional year for ICE. We delivered growth across all key metrics: revenues, adjusted operating income, free cash flow, and adjusted earnings per share. We exceeded our synergy targets, invested strategically in our infrastructure and technology, and returned significant capital to shareholders while also strengthening our balance sheet. As we begin 2026, we have tremendous momentum. Our diversified business model, market-leading positions, recurring revenue base, and operational discipline give us confidence in our ability to deliver another year of profitable growth and shareholder value creation. I'll be happy to address your questions during the Q&A, but for now, I'll turn it over to Ben. Benjamin Jackson: Thank you, Warren. Thank you all for joining us this morning. Please turn to Slide 10. Across ICE's derivatives platform, we've built technology that scales with our customers' needs, combining deep liquidity, global participation, and transparent price discovery into a single connected marketplace. 2025 was another record year for our global derivatives markets, with 2.3 billion futures and options contracts traded, surpassing the prior record set in 2024 by 13% and record average daily volumes of 9.3 million contracts, up 14% year over year. This momentum translated into our thirteenth consecutive year of record futures revenue in 2025, which grew 11% for the year and 8% in the fourth quarter. Performance was broad-based across our multi-asset and geographically diverse platform, reflecting the depth of liquidity and participation on our platform. Building on that breadth, our energy complex continued to lead in 2025, with strength across oil and gas. Volumes increased year over year in Brent, up 11%, WTI, up 9%, and gas oil up 8%, each setting full-year records in 2025. While our global natural gas markets advanced with record TTF in Japan Korean marker or JKM volumes up 21% and 36% respectively. This strength has continued into 2026 as January marked the strongest month for trading activity in our history, and trading in energy achieved record average daily volume, up 27% year over year. At the core of this strength in our energy business is our oil complex, which gives customers precise tools to manage exposure across grades, regional flows, and the spread relationships between them. In crude oil, ICE operates the most liquid futures benchmarks across every major producing region in the world. Benjamin Jackson: From west to east, that includes the only Canadian crude futures market ICE WTI at Cushing, the only physically deliverable Midland WTI contract in Houston, which itself is deliverable into the Brent benchmark, and our two leading Middle Eastern benchmarks, ICE Mervin and ICE Dubai. Surrounding these benchmarks is a deep set of differential contracts allowing market participants to price dislocations across grades and locations globally. In an environment shaped by Iran-related tensions, uncertainty around Venezuelan production, ongoing Russian sanctions, and broader geopolitical flashpoints, this global network has proven essential for managing supply risk, arbitrage flows, and price volatility. Second, in refined products, ICE provides an equally integrated global complex. US heating oil and gasoline link directly into ICE gas oil, the most liquid middle distillate futures contract in the world, with further connections into Asia and The Middle East. These markets spanning diesel, jet fuel, gasoline, and petrochemicals are tied back to crude through our refining margin and crack spread futures, enabling refiners to lock in margins amid volatile feedstock and product demand. Benjamin Jackson: Third, as the energy mix evolves, ICE continues to lead in renewable fuels and renewable credit markets. As regulatory frameworks broaden and renewable adoption accelerates, our ability to offer a unified risk management ecosystem across traditional and renewable energy remains a powerful structural growth driver. Turning to natural gas, our blueprint has built a benchmark-led complex where TTF's deep liquidity and price transparency attract a diverse mix of physical and financial participants, providing reliable price signals and serving as the leading benchmark for global gas pricing that influences LNG contracts and hedging strategies. Against that backdrop, December was the strongest month of the quarter for TTF, with ADV up 30% and NOI up 18% year over year. That strength has carried into 2026 with elevated January participation evident as OI was up 16% year over year and average daily volumes doubled versus 2024. Benjamin Jackson: Finally, with global energy demand rising, driven in part by the rapid expansion of data centers, electrification, and AI infrastructure, capital-efficient risk management is critical. Thus, we delivered another significant milestone last year through the rollout of our ICE Risk Model 2, margin methodology across more than 1,000 energy contracts, extending a VAR-based portfolio approach that captures relationships across oil, natural gas, power, emissions, and freight. IRM 2 is designed to be resilient against stress events and correlation breakdowns, as well as adjusting for seasonality where appropriate, which in turn allows us to offer customers greater margining benefits when the portfolio is diversified or hedged. As a result, customers have seen collateral efficiencies across hedge portfolios. In combination, these factors—geopolitical complexity, rising demand, and the need for sophisticated risk management—continue to play to the strength around our energy franchise for sustained growth in the years ahead. Beyond commodities, our global interest rate franchise also delivered strong results in 2025 as participants responded to shifting policy paths and cross-market signals. Activity across our rates complex reached record levels in 2025, with ADV up 19% and OI up 54% at the close of the year, reinforcing how customers use a single technology platform to align exposures across assets. Benjamin Jackson: The output of our markets—high-quality price signals and liquidity—also become inputs to our fixed income and data services segment, the platform's compounding engine where proprietary data, indices, and network connectivity power customer decision-making and automation. Moving now to our fixed income and data services segment on Slide 11. 2025 was a milestone year. Pricing and reference data remains our foundation, and our index franchise continues to scale alongside ETF adoption and customization, driving record index AUM of $794 billion at the end of 2025. We continue to expand our differentiated offering through new data partnerships, including our recent deal with Reddit. Here, we are now offering real-time historical signals and sentiment scores integrated with our datasets to enhance market insights and risk management capabilities, in turn uncovering new investment opportunities for clients. Our fixed income workflows, electronic execution, and clearing set new records in 2025, validating our role in helping clients manage risk. On execution, ICE bonds saw record revenue, with our secondary MBS trading growing well year over year. And in clearing, CDS volumes reached record levels across index, single name, and options. Underpinning this is our ICE global network, which provides secure, low-latency connectivity and data distribution that customers rely on as they modernize their trading workflows. Demand for connectivity and colocation also remains strong as we've more than doubled capacity since 2020 as client demand continues to grow. Benjamin Jackson: More broadly, the growth of AI continues to be an enabler. Our ICE Aurora platform, paired with our high-quality proprietary data with controlled secure distribution into customer workflows, is where ICE differentiates. We provide fit-for-purpose datasets, delivered securely and integrated directly with customer decisioning tools. In practice, that includes ICE Aurora AI-assisted capture and validation of reference data, enhancements to evaluated pricing, and secure entitlement-based access into valuation and risk regulatory systems. This way, customers can adopt AI with confidence in the quality and permitted use of the data powering their models. Where FIDS turns market data into workflow intelligence, mortgage technology applies those capabilities across the life of a loan. Benjamin Jackson: Moving to our mortgage business on Slide 12. Mortgage technology is another expression of ICE's core capability, automating complex regulated workflows through high-quality data, secured delivery, and governed automation. In 2025, we continued to execute on reducing inefficiencies across the mortgage workflow. Automating legacy workflows through applying state-of-the-art technology and innovation has been foundational to ICE since inception. The application of AI with our agents that automate multistep manual workflows is driving our engagement with our clients across price mortgage technology. So here, just as in FIDS, AI is an enabler and an accelerator to deliver workflow efficiencies. Benjamin Jackson: Both Encompass and MSP, as core systems of record for lending and servicing of mortgages today, support modern access and data delivery options that are plugged into the AI layer. These systems of record understand the data ontology and orchestrate highly regulated compliance-laden business processes in a trusted manner as errors have a near-zero level of tolerance. Applying our ICE Aurora platform and agents to workflow automation remains the most effective lever, moving manual steer and compare tasks to exception-based workflows where people focus only on what needs human judgment. This enables us to deliver efficiencies to maximize productivity for full-time employees, reduce cost per loan, and enable scale without proportional headcount increases. We are in the process of rolling out the following ICE Aurora AI-enabled agents for our IMT business in the first half of this year. First, we've extended our ICE business intelligence capabilities by accelerating cycle times and improving loan quality with our agents analyzing data, identifying errors, and highlighting bottlenecks and inefficiencies in our clients' workflows. Second is the launch of our virtual and text-based agents in servicing, capable of executing real actions such as payment scheduling, so borrowers can self-service within our servicing digital application as well as resolving issues, answering questions, and interfacing directly with borrowers to reduce the need for a call. This capability is already in beta with a handful of clients. Third, AI-powered customer service agents that shorten turnarounds, improve customer satisfaction, and lower costs by summarizing notes, predicting call context, and responding to questions to help representatives resolve inquiries and close tickets faster. Fourth, business intelligence and exception handling agents used by processors, underwriters, and servicers that can respond to ad hoc queries in natural language in real-time and facilitate exception handling with approved steps and guardrails. These capabilities also permit executives and line of business owners to derive actionable insights from their data in real-time rather than using ad hoc queries, thus reducing overhead associated with research and reporting. We continue to see strong customer adoption, with wins and implementations that reflect the value of standardizing data and automating workflows across origination and servicing. In Q4, we had our best quarter of the year with 32 new Encompass logos signed. Moving to servicing, our focus on driving client efficiency helped lead to two new MSP wins, including a cross-sell into an existing Encompass client. Last month, United Wholesale Mortgage went live on MSP, approximately nine months after signing. We are proud of the focus from our internal teams as well as the collaboration from UWM to deliver a rapid implementation. In summary, as ICE continues to enhance our leading technology, we do so with both the client and end consumer in mind. We're delivering solutions that automate legacy, manual workflows throughout each stage of the mortgage life cycle, resulting in raising workforce productivity, improving loan quality, and expanding team capacity, all of which lowers the cost to originate and service loans and can be passed on to the end consumer. Before I close, I'm pleased to share that my longtime colleague, Bob Hart, has been appointed president of ICE Mortgage Technology. Bob's twenty-plus years of mortgage and real estate experience will help us accelerate this strategy as we continue to modernize mortgage workflows and deliver value for our customers. With that, I'll hand it over to Jeff. Thank you, Ben. Jeffrey Sprecher: Good morning, everyone, and thank you for joining us. Please turn to Slide 13. For over two decades, ICE has been built around the simple idea that markets function best when their infrastructure is trusted, neutral, and engineered to work in all environments. Our job has never been to predict outcomes or to direct capital. It's been to build and operate the systems that allow capital to move efficiently, allow risk to be transferred, and allow price discovery to occur regardless of market conditions. As a result, we've deliberately placed ICE at the intersection of markets that respond to different forces. Some react to acts of God, such as weather events or energy supply disruptions. Others react to acts of man, including central bank policy and regulatory frameworks. By operating across both, and by connecting them through technology and clearing infrastructure, we've built an all-weather model that performs through cycles rather than around them. In 2025, that model once again proved its resilience. Jeffrey Sprecher: Market participants across asset classes continued to turn to ICE to manage risk, allocate capital, and access trusted data as they navigated geopolitical tensions, rate uncertainty, and evolving regulatory landscapes. While the macro environment remains dynamic, our performance reflects the value of our mission-critical networks that customers rely upon. Over time, we've consistently invested in areas where markets were operating with friction, opacity, or manual workflows. We did this in energy markets where global pricing lacked transparency, in fixed income markets by building institutional-grade data and analytics that brought structure to historically fragmented markets, and, again, in consumer credit markets by digitizing core workflows throughout the home mortgage ecosystem. Across each of these, the common thread has been the same: combining technology, data, and operating expertise to rewire critical financial infrastructures that customers can rely upon. We're taking the same approach into the next phase of market evolution. Jeffrey Sprecher: Last month, we announced the development of a tokenized securities platform for NYSE, following our investment and distribution partnership with Polymarket. While tokenization has attracted significant attention across the industry, our approach is grounded in the same principles that have guided ICE since our inception. We are not pursuing tokenization as a novelty or as a substitution for how markets operate today. We are exploring tokenization as a potential evolution of existing market infrastructure, one that could further improve capital efficiencies, broaden access, and advance settlement processes, such as our recent announcements with BNY and Citi to accept tokenized collateral, all while preserving the safeguards, governance, and neutrality that institutional markets require and that ICE is known for. In fact, ICE plans to apply for regulatory approval for NYSE tokenization from the US Securities and Exchange Commission under existing federal law and existing SEC authorities. ICE plans to seek foreign distribution under our existing securities passporting relationships. Jeffrey Sprecher: This NYSE tokenization initiative is not dependent on the passage of The US Clarity Act or any other foreign legislation. Our intent is to tokenize regulated securities that attach contractual rights and interests to their holders, just as they occur under existing securities laws, such as ownership rights, dividends, and voting privileges. Importantly, tokenization is not a stand-alone initiative. It sits alongside the infrastructure that we already operate across exchanges, clearing houses, data platforms, and our networks. Our experience running global markets, managing collateral, and supporting trillions of dollars in daily notional activity gives us a clear view on how new technologies may be integrated into the financial system. We believe this approach positions us well to support innovation while maintaining the stability that customers and regulators expect from ICE-operated venues. Just last week, ICE received approval from the US Securities and Exchange Commission to launch a new clearing service for US cash treasuries, almost a year in advance of the January 2027 treasury clearing mandate. This is another example of our ability to position ourselves to meet the needs of an evolving market. Importantly, this approval is accretive to our existing fixed income clearing services, where we have provided global leadership since the great financial crisis. We're excited about the fixed income market evolution and the choice that this initiative will provide to our clients. Jeffrey Sprecher: Looking ahead, we continue to see secular forces reshaping global markets. The digitization of financial markets is ongoing. Regulatory frameworks continue to evolve. Capital moves globally, even as policy is set locally. Against this backdrop, the need for trusted infrastructure that can perform under stress becomes more important. ICE's role is to remain a trusted operator through this change, investing in technology where it removes friction, expanding our networks where it creates efficiency, and maintaining discipline in how we allocate capital. That consistency is what has allowed us to grow through every business cycle, and it's what underpins our confidence as we look forward. Jeffrey Sprecher: I'd like to conclude today's prepared remarks by thanking our customers for their business and for their continued trust. And I want to thank my colleagues at ICE for their efforts that contributed to yet another record year at ICE. I'll now turn the call back to our moderator, Drew, to conduct the question and answer session. Jeffrey Sprecher: Until 09:30 Eastern Time. Operator: Thank you. We'll now start today's Q&A session. Please note that we are limiting to one question per person at this time. If you would like to register a question, please press star followed by one on your telephone keypad. And to withdraw your question, it's star followed by two. Operator: Our first question today comes from Craig Siegenthaler from Bank of America. Please go ahead when you're ready. Craig Siegenthaler: Hey. Good morning, everyone. Hope you're doing well. Our question is on the mortgage technology outlook. And it's actually a two-parter. But the first one is, can you update us on the health of the mortgage industry? And how the recent rebound in refi activity is influencing demand trends? And we're especially looking beyond 2026 because you already provided us some guidance for this year. And just as a follow-up on the tech side, can you update us on the opportunities to modernize your mortgage technology tech stack, whether it's through blockchain-enabled capabilities at MERS or even AI tools that could improve efficiency at Encompass or MSP? Thank you. Benjamin Jackson: Thanks, Craig. It's Ben. So I'll hit both of these. In terms of the overall mortgage, you know, the backdrop on the health of the overall mortgage market, we feel good on how it's improving. And I'll pack it in a couple of different areas. So one, in terms of just the refinance market, if you look at where rates are today, we obviously had a nice pop in volumes in refis in the fourth quarter last year. If you look at where rates are today, there's approximately 4 million loans that are in the money to refi, which means that the rates that they were set at at the time, the rates today are 75 basis points lower than where the customer's rate is locked now. And if you get just another 25 basis point move from where we are now, that number goes up to 5.5 million. And if you get a 50 basis point move, it goes up to 7.5 to 8 million loans in the money. So that's a good sign. And then, obviously, the backdrop now is also encouraging a rate environment that would continue to come down. So that's a positive. On the purchase market, affordability from the metrics we've been looking at is better than it's been in approximately four years, so that's improving. And, obviously, the administration's been very vocal about stimulating housing starts to get that going. And even there's, you know, policies that are out there potentially being discussed around increasing capital gains exemptions, etcetera. So we see looking into 26, 27, and beyond that the overall health of the market is showing signs of improvement. In the second part of your question was around the technology opportunity. And, you know, I deliberately talked about in my prepared remarks that both Encompass and MSP, you know, one of the first things we did with both of those deals is made sure that we, in a very secured way, opened access to both of those platforms to be able to tap into newer technologies in AI, artificial intelligence, agentic AI, etcetera. Benjamin Jackson: And we have been accelerating bringing to market different solutions in and around those tech stacks. I went through a bunch of the agents and AgenTek AI initiatives that we have coming into this year. Those are the result of initiatives that we had this year, and solutions that we brought to market both across Encompass as well as in servicing. In Encompass, we've been automating things like data capture, document automation, automating certain parts of the underwriting process. And as we brought those solutions to bear, we're bringing time efficiencies and lowering the cost for our clients. As we're bringing those to bear, the clients have a facial demand for us to deliver more, and we're doing that. The same is true on servicing, where within the servicing side of the business, we've been looking at the customer service area in particular and how can we help provide efficiencies there. We did that last year through the launch of call prediction capabilities, call summarization, automated call routing to help take costs out of the process there. And now this year, we are already in pilot with a number of different initiatives that I mentioned in my prepared remarks. We're looking at consumer chatbots that would auto-populate basically a loan application for either a HELOC or a refinance. So when we're helping customers identify based on the servicing data we have, this is the opportunity, auto-populate the loan and then streamline the process of completing that transaction. We have a new chatbot on Ask Encompass, which is an always-on loan status recommending the most efficient way for an underwriter to advance and close on a loan. We have advanced our compliance chatbot capabilities, looking through millions and millions of pages of regulations that as a loan's getting underwritten, to ensure that the underwriter has the right belts and suspenders on making sure that the loan is highly compliant as it's being originated. And then taking our servicing chatbots even further with our servicing digital application and automating payments, and then an intelligent virtual agent that we're also launching this year. So we feel really good about the technology opportunity and our ability to execute on it. Operator: Our next question today comes from Benjamin Budish from Barclays. Your line is now open. Please go ahead. Benjamin Budish: Hi. Good morning, thank you for taking the question. I wanted to ask about the FIDS business. One of the themes that reemerged quickly this week has been this AI disruptive fear across all things software. Just for you guys, I think the question that we get the most is, you know, on the data and analytics businesses, you know, where is their potential risk? So curious if you could address that concern, where do you see or how would you describe sort of the moats of that business? Where is there, you know, proprietary data versus, you know, software that could potentially be replicable? You know, how do you think about the defensibility there? Thank you very much. Christopher Edmonds: Hey, Ben. Thanks for the questions. Chris Edmonds here. One, I'd like to go back to both Jeff and Ben's comments around being a trusted source over the years. And if I look at the pipeline of opportunity that we have in front of us, there are really three key components if I look at the data business. One, we generate a lot of proprietary mission-critical content on all of our activities that we have within the exchange and clearing space that goes into drive models around there. And we license that data effectively to the client base around there. Second, we have the data center opportunity where folks needing that data along the way want to be as close to that data and part of that virtuous feedback loop as they possibly can be at all times. And then third, we have things on the, you know, we'll call it the alpha generation side, like what Ben talked about with the Reddit deal that we announced. We're continuing to add correlated datasets to that. Christopher Edmonds: That culmination of all of that is something you can't get anywhere else. And if you look at a prime example, that is what we have in our fixed income business around PRD. And then when we look at price and reference data and the valuations that come off that and how they drive our index growth that we're seeing there. Those things are looked at over one, three, ten, sometimes thirty-year history, and we have more than that in the history. And that piece of it is not a formulaic conversation. That piece is much more comprehensive at the end of the day, and that trusted source piece that referenced earlier to that Jeff and Ben touched on becomes most important. If I look at the pipeline on a go-forward basis, I believe that's driving most of the conversations that we have. Christopher Edmonds: What more can you give us? How can you deliver it? It's not a one-dimensional play that's out there of just exhaust data. It's actually the context of how it's being used in their decision-making process. And that's what we're excited about coming this year, working closer with our clients on both the breadth and depth. If you look at our energy business and what Ben would do in the prepared remarks, you look at all of the thousands of contracts we created in energy, create an ecosystem you can't get anywhere else. That continues to build for us in the FIDS segment, and I look forward to seeing that become a bigger reality even as decisions become more real-time where other agents are coming online within our client base. Operator: Our next question today is from Patrick Moley from Piper Sandler. Your line is now open. Please proceed. Patrick Moley: Yes, good morning. Thanks for taking the question. Wanted to ask about the outlook for the futures business. Ben, you touched on it in your prepared remarks. But, you know, January, you finished at record open interest in both energy and financials, and it really took off in the fourth quarter and has continued into the year. So can you talk about some of the drivers of that a little bit more? How sustainable do you think it is? And then what impact, either positive or negative, do you expect some of the, you know, the recent patent volatility you've seen in the markets to have on customer activity levels and open interest? Thanks. Benjamin Jackson: Thanks, Patrick. It's Ben. As we've alluded to on prior calls around our energy business, customers now more than ever are looking for a truly global provider of the most accurate deep liquid places that people can manage their risks. And today, you have, you know, geopolitical flashpoints. You've got supply chain evolution. You have the energy evolution. You've got trade and tariff issues, people concerns around energy security, and this confluence of issues that's going on around the world. And that's what's really led to, you know, our energy business being up. You know, year to date here, it's up 30%. Our Brent business, which is the cornerstone of our global oil complex, is up 25% year over year. Our crude business overall is up 15% year over year. And more importantly in those, we have open interest continuing to grow, which you alluded to in your question as well. Brent's up 35% to start off this year. It's an unbelievable start to the year. So you had this backdrop of a bunch of issues, and now you pile on top of it new dynamics that have taken place. You have escalating issues in Iran, which is obviously one big issue. A second issue that you have out there, which is a good resolution, is the, you know, you take the trade deal now with India. And in that trade deal with India, it looks like India is agreeing to no longer import Russian crude. Well, what's going to be the substitute to that Russian crude? It's more likely than not to be Middle Eastern grades as well as US grades of crude going into India. Well, that bodes very well because those grades of crude are priced via the Brent benchmark, number one. Number two, it bodes well for our HOU contract. It's the contract we launched three years ago to price Midland WTI barrels basis Houston that are hitting the water. So it's a great opportunity there. We've had a well-established Dubai contract which is doing extraordinarily well, up 20% to start this year. It should bode well for that contract. And then also three years ago, on our ICE Futures Abu Dhabi Exchange, we launched our Mervin contract, which is another contract that should benefit from that dynamic for some period of time. And then you take on top of that the US involvement in Venezuela and the Venezuelan markets. If that Venezuelan oil starts to flow into the US, starts to flow into Europe, that bodes well for further for Brent for the foreseeable future. And if in the US, the US Gulf Coast, starts to take on some of these Venezuelan barrels into processing, you're going to have Canadian barrels that are looking for a new home. And we could see that flowing into Asia as well as Europe. That bodes well for our Brent benchmark. And then also in my prepared remarks, I mentioned we're the only place that prices Canadian crude oil futures. So those are just some examples of where we see some sustainable growth opportunities. Obviously, our TTF contracts, which are the gas quickly, is off to an incredible start. Obviously, there's a demand for power LNG moving around the world, and our TTF contract started off the year up 100% off of a great year last year. So all signs are very positive. Operator: Thank you. Our next question comes from Ashish Sabadra from RBC Capital. Your line is now open. Please go ahead. Ashish Sabadra: Thanks for taking my question. I just wanted to ask a follow-up question on the mortgage. You laid out some of the puts and takes for mortgage recurring revenue growth in 2026. My question there was just around when do we expect that headwind from the lower minimums to come off? Is it mostly 26%? And when we get into 27%, should we think some of those headwinds to start to come off? So that'll be one. And then just on the transaction, wanted to confirm how should we think about when we do get a mortgage market going back to a normalized level, how should we think about the incremental transaction revenues? Warren Gardiner: Sure, Ashish. So I'll take both of those. So on the recurring side, the minimums we've seen improvement in the minimums of the headwind for the minimums over the last several years. And so as we head into 2026, we still do expect there to be some from that, but better than what we saw last year, better than the year before that. And so at this point, we've actually worked through all of the 2020 vintage contracts. We do have 2021 this year, and that will largely be complete this year once we get through those. And those were the two boom years, if you remember. And so again, largely worked through all of that in terms of the headwind perspective on the recurring revenue growth. And that's, of course, baked into the guidance that we gave you today. So the ability to grow despite that is really going to be driven by the implementation that we see. You know, included in that is some of the revenue synergies that are becoming online that we spoke to you about. So we're heading in the right direction on that front and feel pretty good about it as we head into next year and beyond that as well. On the transaction side, I think the way to really think about that, a normal environment, we define as about 7 to 10 million loans at an industry level. 10 million has been the average over the last thirty years. 7 to 8 million has kind of been the median, if you will. And so if we get into those kinds of environments, we gave you guys some stats last year where we thought 24 revenues in that scenario, those two scenarios, would be a couple hundred to, call it, half a billion dollars of incremental revenue. We obviously made a little bit of progress towards that this year because the market improved a little bit, but I think you're still in a good range to be thinking about that because, of course, we've added new customers and we've got a solid pipeline of customers that are coming in over the next couple of years as well. So feel good about the trajectory on that front, you know, as we head in again next this year and into the next year as well. Operator: Our next question today is from Dan Fannon from Jefferies. Your line is now open. Please proceed. Dan Fannon: Thanks. So you guys are talking to Exchange recurring revenues in the mid-single digits after growing, you know, I think, low double digits or 11% in 2025. So wanted to just, you know, talk about the difference as you think about next year or, sorry, this year versus last year and the strength across the recurring side of the exchange business? Warren Gardiner: Yeah. Dan, it's Warren again. So it's a good question. I think, look, as you get to the second half of next year, those are going to be some difficult compares, too, given we were double digits in both of those quarters as well. I think what you saw this year and what we expect to see next year is, or sorry, last year and expect to see this year as well, is continued growth from new customers coming on the platform. That's not only futures, but also on the equity side as well. Saw a little bit of benefit last year from the pool size on SIP data that helped us as well. That can be a little bit difficult to predict. So maybe a little bit conservative on that, but it's a bit of an unknown on that front. And then we don't see a ton of erosion as well. So, you know, you pull all that together. And then, of course, we, you know, we do, and we've done so this year, and we did so last year. We'll capture a little bit of price for the value that we brought to those products as well. So bring all those things together, and I think it sets up for another really strong year for the exchange data business and recurring revenue overall. To be clear, the guidance was for total recurring revenue, not just Exchange Data. I think Exchange Data could probably be a little bit better than, you know, the guidance we gave for overall recurring. Operator: Our next question comes from the line of Kenneth Worthington from JPMorgan. Your line is now open. Please go ahead. Kenneth Worthington: You experienced the highest number of Encompass new customer wins in a year. I think it's thirty-two. Can you talk about sort of what sort of customers you're winning? Are you in dialogue still with some of the largest potential new customers for Encompass? Or is that sales cycle extending? And then maybe lastly, how does the 32 new customers compare to attrition figures? Benjamin Jackson: Hi, Ken. It's Ben. I'll take this. We had a great year this past year in Encompass sales. You look across the entire year, we had 90 deals done. So that's, to me, a great sign and testament to the quality of the technology that we're bringing out to the market, the innovation that we're bringing to the market, the leverage that we have with accelerating, modernizing workflows, all of the, you know, adoption of AI. And as we continue to release more things for our customers, our customers are pointing us in the direction of other things that we can do to drive efficiencies for them. So that's, you know, a great start to the year. And many of these clients are already customers of ours across our IMT segment, and many of those Encompass clients are also on MSP or subserviced through an MSP subservicer that are, you know, taking advantage of the opportunity for us to provide that complete front-to-back automated workflow for them. So that's a great sign. In terms of the strength of the or the types of deals that we did last year, they're across all segments. We've done deals across the largest players in the segment, as well as down to startups. So we've had success across the different segments of the marketplace. Give you an example, in the fourth quarter alone, we closed one of the largest home equity line of credit lenders in the United States, so that was a great sign and testament to our capabilities within that specific channel, expanding that footprint with this client. In the third quarter, we closed one of the largest correspondent lenders in the United States. Good testament. So we're, you know, we're having success in each channel, whether it's HELOC, correspondent, retail, and then also across the variety of customer types. So we feel really good about our positioning. And then looking forward to the funnel that we have, the largest players in the market aren't as engaged as ever with us on looking for ways to automate and provide them more efficiencies based on, for the most part, homegrown technology that they have in place. Operator: Our next question today is from Simon Clinch from Redburn Atlantic. Your line is now open. Please proceed. Simon Clinch: Hi. Thanks for taking my question. I just wanted to again, on the mortgage side, just what could you update us on the transition from SDKs? And because that's been a relatively lengthy process, and I think there's a lot of clients that are still sort of wedded to the old ways, I guess. And I was just wondering how much disruption or how much window of opportunity that opens up for competition in this space and how you're sort of managing that. Benjamin Jackson: Thanks, Simon. It's Ben again. The transition to SDK, what that's about is just, you know, really providing more efficiency in supporting the connectivity that our clients have in either plug-ins and bespoke things that they build around our solution or the way that they connect to third-party vendors. And, you know, based on our clients looking at and adopting a lot of the other innovations that we've been providing them, you know, we've enabled Encompass and spent a lot of time innovating on Encompass to move it from a smart client technology to the web. We've successfully done that. We've enabled Encompass to be able to, in a secure way, be able to adopt ICE Aurora-based agents and AI technology. We're enabling that across the workflow and giving them savings. And, you know, providing time and resource towards the SDK thing has just been, for some of the clients, it's been something that has been a lower priority. So we gave them more time to do it because we know it wasn't slowing down our pace of innovation in other areas. And we have not seen it in any way, shape, or form as a hindrance to our sales success, nor have we seen it impacting any kind of attrition or changing the competitive landscape. Operator: Our final question today comes from Alex Kramm from UBS. Your line is now open. Please go ahead. Alex Kramm: Just since you mentioned, Warren, since you mentioned pricing on data earlier, can you maybe broaden that answer for pricing in general since you obviously just went through the budget process? Anything we should be aware of on all the businesses, also on the transaction side? And maybe related to that, in January, you actually saw a nice pickup in pricing on the energy RPC. So maybe is it just mix or anything to point to? And how sustainable is that? Warren Gardiner: Yes. So thanks for the question. So yeah, we took a very similar approach to what we've done in the last several years in terms of how we approach pricing. And on the future side, in, you know, that includes data and things of that nature. We again took a very similar approach in that. We picked our spots. We, at some areas where we think we've created some value for customers. And so we did do some price increases on the futures contracts, particularly within financials. We also did some price increases within the data business, the exchange data business that will be helpful in that from similar to what we did last year. And so again, I think in aggregate, the total amount was pretty similar to what you've seen us do over the couple of years, but just in some different areas as we said we would do. And again, areas that we think we've brought value to people on that front. Then in some of the other businesses, it's really those tend to be a little bit more, you know, similar products at similar rates. And so we saw similar kind of price increases that we've done in prior years across the FIDS business. We do pick our spots a little bit in some areas of theirs as well. And then, of course, in mortgage too as well. So I would say really no change really versus the approach we've taken. And it's, you know, across the business, we really just look for areas that we think we've created value for our customers. And then go capture that value. In terms of the RPC for the month of January, that wasn't related to any kind of contract change. That was actually really just the mix and really did happen in January. And Ben talked about it a little bit, but a lot of what that is is TTF and the mix of TTF within the energy complex, obviously, being very, very strong in the quarter. And that, of course, has a higher RPC than a lot of the other contracts within that business. So really, it was a mix shift benefit that really was a little bit in December, but also in January as well more than anything. Operator: Thank you. That concludes the Q&A portion of today's call. With that, I'll hand back over to Jeffrey Sprecher for some closing comments. Jeffrey Sprecher: Well, thank you, Drew, for moderating the call and you all for joining us this morning. And we'll look forward to updating you again as we continue to innovate for our customers. We're building an all-weather business model, and we're working to generate growth on top of growth. With that, I hope you'll have a great day, and thanks for attending our call. Operator: Thank you for joining and bridge today's call. You may disconnect your line.
Greg Mason: Start by providing a few thoughts on ARCC's performance, current market conditions, and our outlook for the year ahead. 2025 was another good year for our company. We generated strong financial results, supported by our stable credit quality and growing portfolio. Our core earnings per share of $0.50 for the fourth quarter and $2.01 for the full year fully covered our dividends and drove an ROE in excess of 10% for both the fourth quarter and the full year. Reinforcing our long-term track record of generating NAV growth with attractive dividends, we ended 2025 with modestly higher NAV per share and have now paid a consistent or growing level of regular quarterly dividends for over sixteen years. The drivers of these results are embedded in what we believe are our long-term competitive advantages, including the experience of our team, our long-standing market relationships, the scale of our capital base, and our rigorous credit standards. We remain confident that these enduring competitive advantages will continue to support compelling performance for the company in the future. Looking back on 2025, as uncertainty around macroeconomic policies from the early months of the year subsided, and pressure on private equity firms to return capital to investors mounted, we saw a rebound in transaction activity during the second half of the year. This, in turn, led to a meaningful acceleration in new investment commitments for us over the same period. Despite a relatively tepid M&A market, in 2025, we remained busy with the majority of our originations coming from incumbent borrowers as we sought to support the growth objectives of our portfolio companies. We believe that our ability to be a steady capital provider at scale through periods of economic and capital markets volatility is especially valuable to our portfolio companies and continues to lead to further market share gains as our existing borrowers consolidate their lending relationships with us. Specifically, across our top 10 incumbent transactions during 2025, we more than doubled our share of the overall financing. These incumbent transactions can offer attractive opportunities to increase our exposure to some of our best-performing portfolio companies. Therefore, our portfolio of more than 600 borrowers is yet another factor that we believe can drive future incumbent lending opportunities and, in turn, the long-term performance of our company. While we continue to see opportunities with incumbent borrowers into 2025, the M&A and LBO markets also gained momentum. This accelerated transaction activity and new borrowers comprised the majority of our new lending activity in 2025. Reflecting the breadth of our market reach, and further expanding future incumbent opportunities, ARCC added more than 100 new borrowers to the portfolio during the year, a new record for the company. While the broader tailwinds of increasing market activity levels helped drive higher originations to new borrowers in the second half of the year, much of this growth also came from the continued expansion of our specialized industry verticals. The deep knowledge and specialized skill set we have developed in industries such as sports media and entertainment, specialty health care, energy, software, consumer, and financial services ultimately results in access to differentiated deal flow, particularly in the non-sponsored channel. Building on the momentum we have in these verticals, our non-sponsored originations grew by more than 50% during 2025. Collectively, these factors supported a record year of gross originations at ARCC with $15.8 billion of new commitments in 2025. Importantly, we are maintaining our highly selective approach supported by a widening set of sourced opportunities. In 2025, our investment team reviewed nearly $1 trillion of potential investments, representing a 24% increase in the number of opportunities we reviewed relative to the prior year. We also see the merits of origination scale and our ability to garner attractive terms and pricing. Against a competitive market backdrop, market spreads declined before stabilizing over the course of the year, we were able to drive a modest year-over-year increase in spreads for our first lien commitments while also maintaining LTVs in the high 30% to low 40% range and upholding our stringent underwriting and documentation standards. The quality of our portfolio remains in excellent shape as our borrowers continue to demonstrate healthy overall performance. On average, our portfolio companies are growing faster than the economy and the comparable broadly syndicated loan market. In 2025, the weighted average organic EBITDA growth rate of our borrowers was more than three times that of GDP and more than double the growth rate of borrowers in the broadly syndicated loan market. The continued growth and stability of our borrowers also contributed to improvement in portfolio fundamentals. For example, average portfolio leverage decreased approximately a quarter turn of EBITDA from the prior year, while our portfolio's average interest coverage ratio improved to 2.2 times driven primarily by lower market interest rates and earnings growth. Our credit quality showed stability throughout the year. As our non-accruals at cost ended 2025 in line with both the prior quarter and year-end 2024 levels and our weighted average portfolio grade remained consistent throughout the year at 3.1. We also generated pretax net realized gains on investments, more than $100 million during 2025. These results extend our long track record of generating realized gains by successfully investing across the capital structure with the support of our industry-leading portfolio management team. During 2025, we realized over $470 million of gross gains from our equity co-investment portfolio and our successful portfolio management and restructuring efforts. The exits on our equity co-investments over the course of 2025 generated an average IRR in excess of 25% returning more than three times our initial investment on average. These results further support our track record generating an average gross IRR on our equity co-investment portfolio that was more than double the S&P 500 total return over the last ten years. Collectively, these results underscore the strength of our team and the merit of our differentiated investing strategy. Even as our overall portfolio continues to perform well, we remain steadfast in our approach to risk management and diversification. With a 0.2% average position size at ARCC, we believe we are well-positioned to minimize single-name risk and thus lower portfolio risk overall. We believe this level of diversification stands apart from many others in the industry. And in our view will contribute to further differentiation in performance between ARCC and industry averages. Against this backdrop of strong originations and stable credit performance, let me make some comments on our dividend outlook. We believe ARCC is in a good position to maintain its dividend despite market expectations for further declines in short-term interest rates. We generally set our dividend level based on our view of the earnings power of our company. While lower short-term rates present an earnings headwind, we believe there are multiple factors that can support our earnings and thus our current dividend level for the foreseeable future. First, we believe our dividend level was set in an achievable benchmark for today's interest rate and competitive environment. Second, our balance sheet leverage remains low below 1.1 times net debt to equity, leaving meaningful capacity relative to the upper end of our 1.25 times target range. Importantly, as we prudently grow the portfolio above one times, earnings will also benefit from the lower management fee rate on the marginal portfolio. Third, we see incremental growth opportunities from two of our most strategic investments, the senior direct lending program IDL Asset Management. And as market activity increases, the ability to invest across the capital structure has historically provided us with higher returning opportunities. Fourth, we expect continued healthy credit performance considering the current economic outlook, strength in stability of the current portfolio, and the team's track record, over more than twenty years. Finally, we have more than two quarters of spillover income, which provides an additional cushion to help support dividend stability in the event that our quarterly core earnings temporarily dip below the dividend. In closing, 2025 was a great year for ARCC. We believe our results for the fourth quarter and full year will continue to show differentiation in a market where there is already increasing dispersion in financial results. With this momentum, I believe we are well-positioned for a successful 2026 and beyond. I will now turn the call over to Scott to take us through more details on our financial results and balance sheet. Scott: Thanks, Cord. This morning, we reported GAAP net income per share of $0.41 for 2025 compared to $0.57 in the prior quarter and $0.55 in 2024. For the year, we reported GAAP net income per share of $1.86 compared to $2.44 for 2024. We also reported core earnings per share of $0.50 for 2025, compared to $0.50 in the prior quarter and $0.55 for the same period a year ago. For the year, our core earnings per share of $2.01 compared to $2.33 for 2024. The decrease in core earnings year over year was driven in large part by the decline in base rates. Importantly, in 2025, our core EPS remained in excess of our dividend in all four quarters, and we generated 10% core ROE for the year, which was in line with our historical average since inception. Looking forward, as mentioned in previous calls, it is important to consider the timing of contractual rate resets in our floating rate loan portfolio on our core earnings. Changes in base rates typically take about a quarter to be fully reflected in earnings. Therefore, assuming all else equal, the decline in base rates during the fourth quarter will create about $0.1 per share of earnings headwind for us in 2026. As a reminder, there typically is seasonality in our business, as origination volumes generally tend to be slower in the first quarter than in the fourth quarter. Capital structuring service fees which are tied to origination volumes, typically follow the seasonal pattern as well. Now turning to the balance sheet. Our total portfolio at fair value at the end of the fourth quarter was $29.5 billion, which increased from $28.7 billion at the end of the third quarter and $26.7 billion a year ago. Our net asset value ended at $14.3 billion or $19.94 per share, down 0.35% from a quarter ago and up 0.25% from a year ago. Shifting to our debt capital. We are proud of what we accomplished in the past year by continuing to grow and strengthen our best-in-class balance sheet. In total, we added new gross debt commitments of $4.5 billion in 2025, a new record for the company. That progress was driven by consistent and leading execution across multiple funding channels starting with our unsecured notes. We were active in the unsecured notes market during the year, issuing $2.4 billion of investment-grade bonds, marking our second most active issuance year since our inception. Notably, we remain the highest-rated BDC by all three of the major rating agencies. Consistent with our long-term strategy of being a regular issuer in the investment-grade notes market, we began 2026 by issuing $750 million of long five-year debt at an industry-leading spread of 180 basis points over treasuries, which we swapped to SOFR plus 172 basis points. We have also been a beneficiary of broader investor support as more than 75 new investors have participated in our bond offerings over the past twelve months through this transaction. We were also active with our diverse bank capital providers, expanding our credit facilities by $1.4 billion over the course of 2025 while also reducing borrowing spreads by approximately 20 basis points on average. We are proud of the relationships we have with over 40 banks, many of whom have been long-term and growing supporters of ARCC. And finally, we continue to benefit from Ares' long-standing reputation as a top-tier manager and one of the largest CLO issuers in the market. That positioning helped us execute our largest on-balance sheet CLO in our history, with $700 million of debt priced in December at a blended cost of SOFR plus 147 basis points. Beyond the efficiency of this transaction, our execution further broadened our funding mix by accessing the strong demand for rated asset-backed financing secured by a significantly diverse high-quality portfolio of assets. Collectively, our floating rate financings help the company capture the benefits of lower borrowing costs should market rates decline further. Nearly 70% of ARCC's borrowing today are floating rate compared to approximately 50% at year-end 2024. Overall, our liquidity position remains strong, totaling over $6 billion including available cash, on a pro forma basis for the post-year-end activity that I just mentioned. In terms of our leverage, we ended the fourth quarter with a debt-to-equity ratio net of available cash of 1.08 times, versus 1.02 times a quarter ago, which still leaves us with meaningful headroom relative to the upper end of our target leverage ratio of 1.25 times. We continue to believe our significant amount of dry powder positions us well to actively support both our existing and new portfolio companies. Furthermore, we appreciate the continued support of all of our debt investors and lenders and we look forward to building on these partnerships in the year ahead. Finally, our first quarter 2026 dividend of $0.48 per share is payable on March 31 to stockholders of record on March 13. ARCC has been paying stable or increasing regular quarterly dividends for sixty-six consecutive quarters. In terms of our taxable income spillover, we currently estimate that we will carry forward $988 million or $1.38 per share available for distribution to stockholders in 2026. I will now turn the call over to Jim to walk through our investment activities. Jim: Thank you, Scott. I'll provide some additional details on our fourth-quarter investment activity, our portfolio performance, and our positioning at year-end and then conclude with an update on our post-quarter-end activity and backlog. In the fourth quarter, our team originated over $5.8 billion of new investment commitments, which is up more than 50% from 2024. This brought our total new commitments for the year to $15.8 billion, marking a new annual record for ARCC. About half of our new originations in the fourth quarter supported M&A-driven transactions, such as LBOs and add-on acquisitions, which builds on the momentum we saw last quarter and highlights our ability to benefit from the early signs of a more active and M&A-driven market environment. Reflecting on our broad market coverage across the lower core and upper parts of the middle market, our fourth-quarter originations included companies with EBITDA ranging from under $20 million to over $800 million. Additionally, we made commitments to companies across 21 industries, and 58 sub-industries, demonstrating the benefit of our vertical-focused origination team in identifying specialized opportunities, which Cort touched upon earlier. We ended the year with a record $29.5 billion portfolio at fair value, a 3% increase from the prior quarter and a 10% increase from the prior year. As of year-end 2025, our strong and growing portfolio remains well diversified across 603 different borrowers. The number of companies in our portfolio has also increased nearly 10% over the past year and 72% over the past five years, further enhancing our diversification. The granularity of our portfolio can also be seen in our small position sizes. Each of our investments represents less than 0.2% of the overall portfolio on average, and our top 10 investments, excluding our investments in IAM and the SDLP, comprise approximately 11% of the overall portfolio, which is less than half the average concentration of our relevant peers. The scale of capital available at Ares and ARCC supports our ability to execute our origination strategy and invest across the middle market while also mitigating the impact of negative credit events in any one borrower on the credit performance of the company. The financial position of our portfolio companies remains strong. Our portfolio's average interest coverage ratio of 2.2 times increased 10% quarter over quarter and 15% year over year. The portfolio's average leverage level also showed strength, declining about a quarter turn of debt to EBITDA from year-end 2024 and remaining stable with Q3 levels. Additionally, healthy enterprise values continue to underpin our loan positions, as loan-to-value ratios remain low and stable at approximately 44%. Our portfolio companies continue to demonstrate growth in their profitability. The weighted average EBITDA of our underlying portfolio companies demonstrated organic growth over the last twelve months, expanding 9% year over year. This organic growth rate remains in line with our ten-year average and was more than double the EBITDA growth of the borrowers in the leveraged loan market of approximately 4%. When looking across the different segments of our portfolio, we continue to see healthy performance. We are observing positive EBITDA growth in excess of the broader economy across both senior and junior capital investments, as well as in both large and small companies. We are also seeing outperformance through our industry selection as the top five largest industries in our portfolio, including software, are experiencing faster EBITDA growth than the aggregate portfolio. The organic growth rate of our borrowers underscores what we believe is one of the many merits of not being a benchmark-style investor, as we are able to be selective not only with the companies we are financing but also with the industries we target more generally. Supported by these underlying portfolio trends, the credit performance of our portfolio remains strong. Our non-accruals at cost ended the quarter at 1.8%, in line with prior quarter and prior year levels. This level remains well below our 2.8% historical average since the global financial crisis and the BDC historical average of 3.8% over the same timeframe. Our non-accrual rate at fair value also remained low at 1.2% of the portfolio and well below our historical levers. Our overall risk ratings remain stable throughout 2025, and the share of our portfolio companies in our lowest risk category Grades one and two, totaled 3.8% at fair value, remaining 180 basis points below our five-year average. While our overall portfolio continues to perform well, we remain vigilant in monitoring our portfolio for underlying credit issues and seek to be proactive in addressing any issues as they arise. Shifting to 2026, we've had a strong start to the new year. Our total commitments through January 29, 2026, were nearly $1.4 billion, an 11% increase as compared to commitments closed in January. Additionally, our backlog as of January 29, 2026, stood at $2.2 billion, which is more than 17% greater than the reported backlog at January 28. As a reminder, our backlog contains investments that are subject to approvals and documentation and may not close or we may sell a portion of these investments post-closing. Furthermore, we are closely watching current market conditions to see if the competitive landscape in our favor. The choppiness in retail capital flows impacts in contrast to managers that have concentrated their fundraising in retail-oriented products, we believe managers such as Ares, with both significant institutional and retail sources of capital possess a more stable base of committed dry powder. This allows Ares and in turn ARCC to be a consistent capital provider with the scale, in the market through changing periods. As we look to the future, we believe we are well-positioned to capitalize on an expanding market opportunity supported by the collective expertise of our team and our differentiated approach. These advantages have underpinned both our leading investment performance and stock-based returns. Since our inception in 2004, our stock-based total returns have outperformed the KBW Bank Index, BDC peer averages, and the S&P 500 by approximately 40% or more. Most recently in 2025, ARCC generated more than 600 basis points of additional total return versus the BDC average as measured by the VanEck BDC ETF. As always, we appreciate you joining us today. And we look forward to speaking with you again next quarter. On behalf of the executive team, I'd like to thank our team for the hard work and dedication that led to another strong year for ARCC. With that operator, please open the line for questions. Operator: If you would like to withdraw your single follow-on. Investor Relations Team: The Investor Relations team will be available to address any further questions at the conclusion of today's call. We'll take our first question from John Hecht with Jefferies. Your line is open. John Hecht: Morning, guys. Thanks for taking my or I guess good afternoon. Thanks for taking my questions. You guys did you mention the position you have in software. You also mentioned that software continues to grow faster than the pretty strong rates of growth elsewhere in the portfolio. But there's a big emerging fear in the market about the impacts of AI on that type of business performance. I'm wondering, do you guys are you eyeing that emerging subject? And do you have any points to make on how you think it's positioned in that regard? Greg Mason: Yes. Hey, John. For the question. Very glad that this is the first question of the day. Because, obviously, there's a lot of noise going on out there. And I think we really want to make sure that we hit this hard and address anyone's questions and spend real time making sure that people understand our thesis in the space and how we built our portfolio. And our strategy going forward. So look, I think the first thing I want to say is we feel very good about our software book. And we don't feel any differently this quarter than we did last quarter despite all the noise in the market. The fundamentals and the underpinnings of our portfolio and our underwriting you know, haven't changed. And we did make a lot of comments last quarter in our prepared remarks on earnings call about AI and our software book. People could certainly refer back to that as well. But I think, you know, I'll spend a little bit time and sorry if it's a little long-winded, I want to really make sure that we frame up our strategy for people today. So the first thing to just sort of remind people is we started investing in the software space about fifteen years ago or so. Here at Ares Capital. And from the beginning, the number one risk that we identified in the software space was technology risk, and obsolescence risk. And so we said to ourselves, if we're going to have a thesis in the space and build a book, really want to make sure that every single software company we put in the portfolio is highly resistant to technology risk. And obviously AI is probably the most disruptive technology risk that we could have imagined. And it absolutely is going to disrupt a lot of software companies, and I don't want to sugarcoat it. But we still believe strongly that we've constructed a portfolio that will remain highly resistant to this risk. So think maybe I'll just outline a few characteristics that we've always looked for. In our software companies and that we obviously continue to raise the bar on and look for even more in our new investments. So look, the first thing is that we primarily look to invest in foundational infrastructure software for complex businesses. Right? This is software that sits at the center of the technology stack. And powers all core business systems, right? It's the last type of software in our opinion, that a company would look to switch out because that all of your downstream systems that feed off the software might also be at risk. So we like this kind of software where the entire business and operations of the customers are dependent on the accurate functioning of this system. So that's that's kind of probably the most important point number one. We're also looking for software companies that a lot of our software companies do this. We're looking for these companies that collect and own proprietary data. And they collect this data and build this data over many years serving their customers and then they use the data as a core part of their value proposition when they deliver the software. Right? So we call this a data moat. And it's important to mention that AI is not a database. AI doesn't house data. It can't replicate proprietary data. So we really believe that these data-enabled software companies will prove resistant. And these types of companies you'll find a lot of these types of companies in our portfolio. We also are looking for software companies that serve regulated end markets like healthcare, financial services as a couple examples. There's lots of these regulated end markets. Where the need for accuracy and auditing of information is really high. And the penalties for lack of compliance can be severe. Right? So John, you think about like Jeffrey's is not going to rip out its core infrastructure software and replace it with an AI-based solution anytime soon in our opinion. We think it's gonna take a really long time for companies are in these types of industries to gain enough trust in any kind of new product if ever. So that's a really important point as well. Obviously, we always talk about diversification in our strategy in so many different ways and that applies to our software companies as well in terms of their customer base. Right? So we're looking for software companies that have very diverse customer bases. So even if some customers do switch to maybe an AI-generated software solution, others will remain and they create sort of this long tail of cash flow. That will hopefully survive and we really do not see quick and binary outcomes that occur when you have this kind of diversified customer base. Right? And it's it sort of leads into the next point to remind people about which is we are lenders. To these companies with maturity dates. We're sitting at the top of the capital structure. We have all the assets as collateral, including intellectual property. There's lots of ways that we can look to recover our principal if things do start to get disrupted. And this is just a very different place to be sitting in in the capital structure than sitting down in the equity, right? So if you look at some of the metrics on our software book, they're extremely healthy. The book itself is also highly diversified. With lots and lots and lots of different position sciences none of which is outsized in any way. These software companies are very large and established business. Right? The average EBITDA on our software book is $350 million. That's above the average in our portfolio. You mentioned John in your question the growth rate of our software businesses remains really strong. The software book, the LTM EBITDA growth in the software book is growing at a faster rate than the overall average EBITDA on our book. Even through the recent quarter. The loan to values and this is maybe one of the most important points. The loan to values on our software book our software loan book is 37% on average. That's below the loan to values on our overall book there is just an enormous amount of equity cushion below these loans that sit in the first loss position beneath us. So there really would have to be a whole lot of value destruction that would occur before we as a lender lose a dollar. Right? So I again, sorry for being long-winded. I really wanna make sure we're getting clarity out on this topic. And maybe the last point I'll just say is we've got an incredible team of resources here at Ares. We've got a software vertical within our credit business that consists of a bunch of investment professionals that only do software credit investing. We've got an in-house AI team at a company called Bootstrap Labs which we acquired a few years ago which is the venture capital firm. It's been investing in AI for more than a decade. And we use all of these resources to help us evaluate every new deal we do as well as during our quarterly evaluation process. To assess the risks and the marks that we're taking on all of these names. Don't think everybody does that. That's something that's pretty unique to Ares and hopefully gives people confidence in in the marks and and the risk in portfolio. So, look, as we sit here today, we're obviously watching everything going on out there, close attention, want to sugarcoat it, but we really see minimal near-term risk to our software portfolio and I'd say very manageable medium to longer-term risk in the book. John Hecht: That is very helpful and appreciate the color. Rick, as I do think it's an important topic. Follow-up question is you guys have an active pipeline strong growth year over year. You mentioned, I think, about half of them were buyout sponsor related stuff. Anything to the other half? And how that paints the picture for how you think market's firming up for the duration of 2026? Greg Mason: Yes. I mean there's still a lot of add-on activity on existing portfolio right? So that makes up usually the bulk of the remainder of the deal flow. Us just putting capital into support continued acquiring of added EBITDA. So those are good uses of capital. We have not seen a real big resurgence of dividend transactions. There have been a few obviously private equity firms looking to return capital are going to test the market on dividends. But I wouldn't say that that's a huge driver of our deal flow right now. It's really the add-ons. Obviously, are refinancings still going on. But most of the sort of refinancings and spreads sort of reductions have worked their way through the system and spreads have been really stable now for better part of a year or so. It's not been a huge driver. There also have been some refinancings out of the broadly syndicated market where obviously the broadly syndicated market can be a little bit volatile at times or maybe a sponsor just values having certainty of capital in all environment that has come to us to take out a deal that currently is in the broad syndicated market. So probably the preponderance of the other activity. John Hecht: Great. I really appreciate all the color. Thanks very much. Operator: Of course. We'll take our next question from Finian O'Shea with Wells Fargo. And actually, we'll move next to Doug Harter with UBS. Your line is open. Doug Harter: Thanks. I guess as you guys look at this current environment, clearly, Ares as a platform has a lot of advantages relative valuation gap versus your peers. How do you think about potentially playing offense and taking advantage of market weakness in this type of environment? Greg Mason: Yes. Great question. We certainly get excited about those types of opportunities. Historically, when there have been any kind of periods of dislocation, or volatility, that's been a strength for our industry in private credit and certainly for us at Ares, especially since our capital base is much more diversified than a lot of our peers. And so the stability of our capital and the ability for us to sort of fill gaps in the market is a big advantage. So I think we'll see what unfolds from here. But to the extent that there are any pockets of know, changes in supply of capital, I think we stand the benefit. I mean, we just talked about software at length. I certainly might expect that the broadly syndicated market will have a hard time providing financing for some software businesses and you know, if there's very high-quality software companies that meet the standards I described earlier. I would venture a guess that the cost of capital for those companies probably has gone up a bit. And I think we might be excited to provide that type of financing to the very best of those companies. So we'll see again, we'll see what unfolds. Obviously, there's been some changes in the environment for some of the retail flows. And that could also create some changes in competitive behavior. That we're watching closely as Jim said in his prepared remarks and feel like we're in a great position capital-wise to step in. Doug Harter: Thank you. Operator: And now we'll move to Finian O'Shea with Wells Fargo. Your line is open. Finian O'Shea: Hey, everyone. Good morning. Thanks for keeping my place in line. So a follow-up on John's question on software, just to push back on a couple of those points for the spirit of argument. The risk, I think, is presented pretty widely as still a few years out. You have a good feel of resistance in the book as you outlined. But what sort of developments are you looking out for that would threaten even the more say, foundational enterprise SaaS place? And do you see any progress toward those risks from AI in real-time? Or if not, why so confident that that will take a very long time? Thanks. Greg Mason: Yeah. Thanks, Ben. And I would love to offline sit down and debate it at length. I think it's really hard, though, for me to see a scenario where we would find any kind of real dramatic risk or change in our view toward those core kind of enterprise software businesses or those regulated industries. Obviously, talked at length about all the reasons why I think for us what we're focused on is the businesses that can be disrupted or I'm not going to say our portfolio is entirely clean. We have a very small amount of portfolio companies that could be disrupted and that's where we're spending a lot of our time and focus and working with the financial sponsors and getting ahead of any kind of potential situation. It's not in those core enterprise software businesses. So I'm challenged right now to come up with scenarios where would really see that get disrupted. Look, I think the areas that we do think can get disrupted and where we're trying to be really disciplined on new transactions are kind of more single-function software apps that sit on the edge of the tech stack. Certainly, any kind of software that creates or delivers content because AI is fantastic at creating content. So we'd be extremely careful about those, you know, data analysis or visualization type companies. AI is exceptional at summarizing data and spitting out all different types of reports and synthesizing those. So I just think those are the areas that are more at risk. And again, very, very small exposure our portfolio for those. So sorry, not a great answer. Just can't come up with risks to those core enterprise businesses. Finian O'Shea: Appreciate that. Hard to envision. Follow on the dividend appreciate the color there. It feels like there'd be like a pretty good tailwind even though the structuring fees are lighter in today's environment has been the volume. The deployment has obviously been fantastic. Does that sort of need to continue in your outlook or guidance or does that maybe moderate and something else offsets that impact? Greg Mason: Yes. Yeah. I mean, there's so many variables and things that change all at Right? So it's hard to sort of look at one variable or one driver and just say if that changes what happens. One thing I do wanna say on the structuring fee point is the fees were actually consistent during the quarter. We had another quarter where we had some transactions that we fronted for and sold. Right after closing. And so that dilutes the fee percentage, the sort of stated fee percentage, but actually the fee percentage on a constant basis, if you just look at the dollars that we're holding in the book was constant. Quarter over quarter. So I just want to hit that one. But look, I think if the spread environment stays where it is now, which is obviously And we see, you know, rates potentially continue to fall a little bit like the curve shows. Then we're gonna wanna have a lot of volume. Like we did this quarter in order to produce results. And I don't see any reason why that wouldn't be the case. That we'd see that kind of volume. If the spread environment and the economic environment kinda stays where it is. If volume falls off, I would think there would be other things that are happening in conjunction with that. Which, you know, maybe is less supply of capital our space. Therefore, maybe spreads widen, maybe fees widen. Certainly what we saw in 2022 and 2023 coming off a super high volume here in 2021 and everything was getting tight. Spreads widened 150 basis points, volume fell off, but we obviously had a fantastic period of performance. At Ares Capital through twenty twenty two-twenty twenty three despite the lower volume. So I just think it's really hard to pick one variable. So hopefully that helps answer the question. Finian O'Shea: Yes, helpful. Thanks a lot. Operator: We'll take our next question from Casey Alexander with Compass Point. Your line is open. Casey Alexander: Hi, good morning, Court, and thanks you for taking my questions. I do want to expand on that. I mean, did give, you know, a little bit of color on broadly syndicated market and what that could cause to happen with spreads in software. But I'm curious in that we've had some at least psychological market dislocation going on since before you guys reported your third-quarter results. As a result of the Diamond comments and whatever. And this has continued to be you know, picked up a lot from the media on the minds of investors left and right. And so I'm curious why haven't we or are we about to see a widening of spreads in general? Normally, in a period of dislocation such as this, we usually see that happen fairly quickly. And in this event, it hasn't happened. And and I would add, you know, I think think inflows into the nontraded market are slowing down. So you know, I'm just I'm just curious on some comments as to why we haven't seen spreads widen or if you think they're about to. Greg Mason: Yeah. Great question, Casey. Probably two points I'd make on the events you mentioned. So when we saw some of that volatility a quarter or two ago when First Brands and Tricolor and there was concerns about credit quality and potential blowups. The BSL market wind out for a pretty short period of time. And it actually did recover pretty quickly and the fourth quarter became active again for the BSL market. Spreads kind of tightened back in that side of the market. So I just it was too short-lived is what I would say. To drive real impact on the private market and then it's know, I'm sure there's a lag our market. We often see the broadly syndicated market will move up and down. And our market takes a little bit of time to react to that which is by the way one of our value propositions in our market is we don't gyrate as much and our capital is more stable for our borrowers. And we take our time to make sure that any spread movement in the syndicated market is going to be more sustained. So I think that's just what we saw for the first event you mentioned last year. We were thinking there would be maybe a more sustained period, but it just didn't really prove out. You know, on the non-traded flows, absolutely something we're watching really closely. Again, what I would say on that one is that's pretty new. So it's really gonna last month or two max that we've seen those flows change. It's not like they are on a net basis moving wildly negative. They're really on the whole, just kind of moving. You're seeing redemptions, but you're still seeing inflows. So they're kind of the money is not flying into those funds like it was before, but it's still remaining pretty stable in terms of the funds that are that are there. I do think if it stays like that, It will impact competitive behavior for our peers that are more concentrated to that channel. And at Ares Capital and at Ares Management I should say, we've been purposeful about not becoming too concentrated into that channel so that we can take advantage of maybe those kinds of changes in competitive behavior. So again, if it stays like that, I expect it to change things and that could absolutely be a catalyst for spread widening. But it's just too soon. And we're really anecdotally not we haven't seen enough volume come through the system. It's January seasonally the slowest month of the year, but we're watching it closely. Hopefully that helps. Casey Alexander: Yes, it does. Thank you. My follow-up is, it's it's been a while since the stock has traded below NAV. And certainly recent mark to turmoil is has been a catalyst for that. I'm sure investors would love to hear. Our view has always been that if you're willing take capital from the market when you're trading at a premium DNAV, you should be willing to give capital to the market when you trade at a discount. You guys do have a billion-dollar share repurchase program. I think investors would like to hear your willingness to deploy the share repurchase program depending upon how volatile the market get. Greg Mason: Yeah. Good question. I guess the only thing I'd say on that Casey, is just we have heard have purchased shares back in the past. So it's not something that we're not unwilling to do. And it's always on the table. And something that we're looking at and discussing with our board based on where the stock is trading. So I other than that, I'd probably don't wanna speak too much or give much, you know, any kind of forward-looking statements about what we might or might not do on that front. Other than to say that we have done it and we're always open to it. Casey Alexander: Okay, thank you. Operator: We'll take our next question from Arren Cyganovich with Truist. Your line is open. Arren Cyganovich: Thank you. This will probably show my lack of knowledge in the tech sector, but going to give it a shot anyways. You mentioned that average EBITDA for the software portfolio companies is over $350 million and they've been growing. When I look at public software companies that have been facing a lot of pressure, EBITDA is not really a metric that they use in terms of valuation because I guess, they're in a higher growth phase. I was wondering if you could just describe some of the differentiation between the software that you own versus you know, what we might be looking at in the in the public markets? Greg Mason: Yeah. I don't know that it's all that different. I just think you're it's a difference between equity and debt. Thesis, right, when we're thinking about the investment. Strategy. So we, as lenders, are looking at the underlying cash flow of these businesses. Support our loan and get us paid our money back. So you know, we're we're very focused on EBITDA. The equity markets and publicly traded companies are focused on forward growth to justify their valuations, and there have been you know, extremely high expectations of future growth. And I think as you start to see some of that growth temper, that is driving a lot of the fall off in values in public market. And that's why those public companies are always pointing to revenue metrics and growth metrics, because I just think those investors are more focused on that. But I don't think they're necessarily different types of companies. We have seen obviously in the lending space over the last five or six years the development of recurring revenue loans where there lenders that will lend against the revenue and the forward growth not necessarily the EBITDA or the forward achievement of EBITDA. We have been very conservative on that, and I didn't even really mention that as part of the overall, you know, the intro I did on the software topic. But another data point to even point out around our strategy, which we've been much more conservative around recurring revenue lending than I think a lot of our peers. And it's less than it's like less than 2%, one to 2% of our book right now. Is recurring revenue loans, and that's also extremely diversified. We've had a strategy of building that book, with a bunch of very small positions. That we can watch that space develop and see how it would perform. By the way, it's actually performed quite well. And those loans have actually converted into EBITDA loans. So it's actually been a good space. But we've been very conservative on that. So hopefully that helps answer the question. Arren Cyganovich: It does. I still need to do some reading on the sector since it's not my area of expertise. But as a follow-up, we've been waiting for the M&A markets to really open back up and the IPO markets to kind of open back up to free up some of the investments that the private equity have been holding on for longer periods. You feel like the software pressure is going to weigh on that timeline for 2026 in you know, maybe what other areas outside of know, in this kind of story, other sectors, do you see within your pipeline that might be able to pick up some of that slack? Greg Mason: Yeah. I mean, I think it it it obviously might impact in the software space. Right? So and especially for the your prior question around valuations in the public market, and when you're private equity firm looking to buy a software company, you're obviously gonna rethink value. And a lot of the private equity firms that own the existing companies pay pretty high prices. So I certainly do expect there could be a bit of a widening of the gap on bid ask spreads on new buyouts in the software space. That being said, still think there's going to be really attractive add-on opportunities for existing portfolio companies. To potentially take advantage of lower valuations I think that'll be a good opportunity for us to deploy into the space. And certainly take private opportunities on in the software space given lower valuations will probably tick up if I had to venture a guess. So there's some offsetting factors, I think, within that industry. You know, I mean, in terms of the rest of the economy, again, fundamentals feel strong. Growth rates are good. And I don't necessarily see that spilling over into other areas of the economy. I think the ingredients are in place. Given the sort of long in the tooth nature of the whole periods on a lot of private equity funds that just continues to extend. And given the apparent confidence in the overall economy for on the part of buyers to step up and buy new companies. So, think we still feel optimistic on the rest of the year. Arren Cyganovich: Great. Thank you. Appreciate it. Operator: We'll move next to Brian McKenna with Citizens. Your line is open. Brian McKenna: Okay, great. Thanks for squeezing me in here. So maybe one more on the team of software. I think all the focus recently is clearly been around the negatives from AI and no one is really talking about maybe the potential upside for your portfolio companies from AI and leveraging AI, specifically those companies away from software. So I'm curious, when you look across your portfolio today, there any way to think about what percent of your portfolio companies could actually see more talents from AI than headwinds over time? And then is there actually a scenario where your portfolio collectively is experiencing more net benefits longer term? Greg Mason: Yes. Thanks so much for asking, Brian. I you know, we're lenders, so we're always focused on downside risks. But 100% there is upside and I think that is being that is missing from the discourse here in the public, which is it sort of almost feels like people think big software companies are sitting their heads in the sand asleep at the switch while AI is creating competitive threats and they're not doing anything. It couldn't be further from the truth. We have great dialogue with our software companies. They are all working on augmenting their products with know, using AI solutions or just using AI to create additional software modules and tools to add on to their core infrastructure software. And that's actually going to help some of these core infrastructure software businesses create new products to bolt on and upsell faster than they might otherwise have been able to do. And they already have that leg into the customer via the core enterprise. So I 100% think it's going to be a boon to some of our companies. Obviously as lenders help us get our money back, maybe faster, but is not a ton of upside as lender. But back to our equity co strategy which we talked a lot about in the prepared remarks. So certainly could be really helpful on those equity co investments that we have made selectively into some of those software companies. Brian McKenna: And then just one more for me. Just taking a step back and looking at the industry, it's clearly getting larger and larger, more competitive. And there's really a long list of firms that can write large checks. In the market. So I think having intellectual capital and really a full suite of value-added capabilities are becoming that much more important. So you guys clearly have this. You noted, you know, some of the strong expertise that exists across your deal teams and just the platform more broadly. But you know, when you look at some of the differentiated deals you're winning in the market today, how much of these how much of those are a function of kind of these, full suite of capabilities, if you will, and, really, the capabilities away from just being a provider of capital and, you know, just trying to think through that a little bit more. Greg Mason: Yeah. It's all about those capabilities. And not just about being a provider of capital. So you know, it's a combination of so many different things. I think first and are the amount of people and the talent that we have on our origination and investment team. We do believe we still have the largest investment team in the direct lending industry and means we have a lot of people out there calling on companies trying to source opportunities. And that deal flow takes longer to germinate and result in an actual transaction. We could be out talking to, you know, CEO or management team or a board of a of a non-sponsored company for years building a relationship and there might not be any transaction to do and then all of a sudden they want to do something and they pick up the phone and call us because we've been building that relationship. So this is something that does not happen overnight, takes a really long time to build those relationships and lead to this kind of deal flow. And, you know, so it starts starts with the team, starts with those touch points, but then it also combines with the fact that that team is out there offering a huge amount of flexibility of products. Right? We're not out just saying we can be your senior lender, your bank. We're saying we can be your junior capital provider. We can you equity co investments. We can start as a mezzanine lender and then down the line if you want a senior lender, we can become that lender. So we're really trying to explain to these companies that we can be their capital provider for the next ten to twenty years, not just the next three to five years. And I think that really resonates. So it's all those things combined. It's not really just one thing. And I do think we're ahead of our of our peers in that respect. Brian McKenna: Thanks so much. Operator: We'll take our next question from Robert Dodd with Raymond James. Your line is open. Robert Dodd: Hi guys. A quick one from me maybe. Obviously feel very comfortable with the underwriting process you're doing on software, and you've got a well-thought-out thesis there. You seem also optimistic that maybe spreads will widen that market if the if the BSL market becomes less inclined to finance. New software, LBOs, etcetera. I mean, so looking at that, would that make software even more attractive to you from a risk-return perspective? And would you be looking to potentially increase your allocation to software over the next you know, call it twelve to twenty-four months? Greg Mason: Yeah. Good question, Robert. Look, I we will have to see what unfolds, I think is what I would say. I it could go in so many different directions in terms of yeah, how how widespread gets. Right? What types of companies are looking to raise capital? So there's just so many different things that can go into that, but I don't know that I wanna necessarily speculate. We are big on diversification. As we said, over and over in so many different ways, And software is our largest industry category. We're very comfortable with it. But at the same time, we like diversification. So maybe I'll just leave it at that, and we'll see what the market gives us. Operator: We'll move next to Kenneth Lee with RBC Capital Markets. Your line is open. Kenneth Lee: Hey, good afternoon, and thanks for taking my question. Just one on the broader industry. The recent OCC FDIC changes to the leverage loan guidance for banks. You expect to see any kind of potential for meaningful change in over the competitive landscape over time based on the change of guidance there? Thanks. Greg Mason: Yeah. Ken, definitely something we're watching closely. I you know, I I don't think so. The reality is the leveraged lending guidance that was put in place a while ago hasn't really been enforced. And so I think the relaxing of that guidance is not necessarily gonna change behavior. I think the the larger driver of you know, regulatory behavior on banks is the the regulatory capital requirements and the capital capital charges. That banks see if they make a loan into our market. And that's still remains punitive and is not changing. So I I just don't think the leverage lending guidance change is gonna make sense. Kenneth Lee: Got you. Very helpful there. And just one quick follow-up for me. On some of the recent deals you've been seeing or some of the new investments, in terms of the terms and documentation that you're seeing there, any changes more recently and more specifically, have you been seeing any loose loosening of example, like EBITDA add backs or any other terms there? Thanks. Greg Mason: Not really. No. If anything, would say there's probably a heightened focus on documentation terms just given some of the headlines around LME transactions in the broadly syndicated market. And the looser documentation that exists in that market. There's been a little bit more a spotlight that's been put on that. And so I think it's actually been a good thing for our space. It's woken up more of our peers to the importance of focusing on documentation. We've made that a priority here for years now, and it's a critical part of our committee process. We will walk away from transactions based on documentation terms. Not really seeing a big change to that, if anything, getting better. Kenneth Lee: Got you. Very helpful there. Thanks again. Operator: We'll take our next question from Paul Johnson with KBW. Your line is open. Paul Johnson: Yes, good afternoon. Thanks for taking my questions. I know you have been fairly conservative with the ARR structures, in the past, as you said. But is there any sense of like the number or the percent of your software book that is below profitability today. Greg Mason: Below profitability, you mean negative EBITDA? Paul Johnson: Yeah. Correct. Greg Mason: I have the numbers in front of me, but I I can't imagine that there would be another software company in our portfolio outside of those ARR loans that would be negative EBITDA. And in fact, I would also venture a guess that many of those ARR loans have positive EBITDA as well. For two reasons. Number one, when we do a new ARR loan, a lot of cases, they still have positive EBITDA, but it's not necessarily enough EBITDA to maybe justify the amount of debt so you look at it on a revenue basis. And they're growing 50% a year, and it's gonna be a lot of EBITDA in a year or two. But it's not like everyone is negative even Some of those are actually positive EBITDA at the outset. But then secondly, others are loans in our portfolio have been in there for a number of years and have achieved the growth. That they were expecting. And so now they are, you know, positive EBITDA. So, I mean, very, very, very small almost de minimis amount, I would say, of our software book. Has negative EBITDA. Paul Johnson: Got it. Thank you. That's very helpful. And then, last, would just ask, on the PIK portfolio, which has been a good portfolio for you guys historically, I'm just curious though within the on the debt side of some of the pick assets, is there a tilt toward software within that portfolio? Or has that generally been just as diversified as the broader portfolio? Greg Mason: Yeah. It's it's around the same. We did take a look at that, and the I'll say two things. Number one, the percentage of the software book had a slightly higher percentage of pick in it. But the pick in that software book is I wanna say, 99% maybe even a 100%. Structured at the upfront at the outset of the investment, not amended pick. Right? And that's an important thing on the overall pick book that we talk about all the time and try to disclose, which on a consistent basis, which again this quarter on our overall pick book, it's roughly 90% of the pick interest and dividends was structured at the outset of the investment. And purposely done Only 10% is amended PIC. And then so again, in the software book, it's almost a 100% is structured. So, again, goes back to the point that we're just not seeing weakness in the software book at all. We don't have the need to to provide any amended PIC there. Paul Johnson: Got it. Appreciate it. That's all for me. Thank you very much. Operator: We'll move next to Derek Hewitt with Bank of America. Your line is open. Derek Hewitt: Good afternoon, Court. So how large are you willing to grow both the SDLP and Ivy Hill over the next year or so kind of given the more favorable economics versus the core portfolio? And then are there assets on the balance sheet today that could potentially be sold down to those entities? Greg Mason: Yes. Thanks, So, I'd say, you know, if you look historically, we've had an investment in Ivy Hill go as high as 11% and I think SDLP as high as 7%. So those are probably good you know, estimated guardrails for now. So, we certainly value those two assets quite a bit and agree with they're very strategic to us and you're right they are pretty high yielding particularly in a low yield environment. So we certainly see you saw us grow this quarter. So, I think there's a it's really in our playbook to continue focusing on those two investments over the course of this year. And yes, we did see in the fourth quarter, did sell assets in Ivy Hill. And so that is certainly there's certainly more assets on the balance sheet we could move to look to move down to IVL over time. Yeah. And I don't think we wanna I there's not really a a stated cap or a target that we manage the business toward. Again, I think we wanna see the market develops, what kind of transaction activity there is, where spreads go, all of those factors. Work into it. The only real cap would be the 30% nonqualifying asset cap. Know? So that would be the sort of governor on the on the top end. Derek Hewitt: Okay. Great. Thank you. Operator: This concludes our question and answer session. I'd like to turn the conference back over to Court Schnabel for any closing remarks. Greg Mason: Great. Well, you all for joining us today. And for your continued support and engagement. And we look forward to reconnecting with you on our next quarterly call. So till then, stay well, everyone, and have a great day. Operator: Ladies and gentlemen, this concludes our conference call for today. If you missed any part of today's call, an archived replay of the call will be available approximately one hour after the end of the call through March 4, 2026, at 5PM Eastern. To domestic callers by dialing toll-free +1 808394018 and to international callers by dialing +1 (402) 220-2985. An archived replay will also be available on a webcast link located on the home page of the Investor Resources section of Ares Capital's website. Goodbye.
Operator: Good day, and thank you for standing by. Welcome to the Q4 2025 DHT Holdings, Inc. Earnings Conference Call. [Operator Instructions] Please be advised today's conference is being recorded. I'd now like to hand the conference over to your first speaker today, Laila Halvorsen, CFO. Please go ahead. Laila Halvorsen: Thank you. Good morning and good afternoon, everyone. Welcome, and thank you for joining DHT Holdings Fourth Quarter 2025 Earnings Call. I'm joined by DHT's President and CEO, Svein Moxnes Harfjeld. As usual, we will go through financials and some highlights before we open up for your questions. The link to the slide deck can be found on our website, dhtankers.com. Before we get started with today's call, I would like to make the following remarks. A replay of this conference call will be available on our website, dhtankers.com, until February 12. In addition, our earnings press release will be available on our website and on the SEC EDGAR system as an exhibit to our Form 6-K. As a reminder, on this conference call, we will discuss matters that are forward-looking in nature. These forward-looking statements are based on our current expectations about future events as detailed in our financial report. Actual results may differ materially from the expectations reflected in these forward-looking statements. We urge you to read our periodic report available on our website and on the SEC EDGAR system, including the risk factors in these reports for more information regarding risks that we face. As usual, we will start the presentation with some financial highlights. In the fourth quarter of 2025, we achieved revenues on TCE basis of $118 million and adjusted EBITDA of $95 million. Net income came in at $66 million, equal to $0.41 per share. Vessel operating expenses for the quarter were $17.1 million, and G&A for the quarter was $5.6 million, which included approximately $0.6 million in nonrecurring project costs. In terms of market performance, our vessels trading in the spot market earned an average of $69,500 per day, while the vessels on time-charters achieved $49,400 per day. The average combined TCE for the fleet in the quarter was $60,300 per day. For the full year of 2025, we achieved revenues on TCE basis of $369 million and adjusted EBITDA of $278 million. Net income for 2025 was $211 million, equal to $1.31 per share. Adjusted for the gains related to sale of vessels, adjusted net income was $158 million, equal to $0.99 per share, marking another strong year for DHT. We have a rock solid balance sheet with low leverage and strong liquidity. At the end of the fourth quarter, total liquidity was $189 million, consisting of $79 million in cash and $110.5 million available under 2 of our revolving credit facilities. In December, we drew on this RCF capacity to fund the final installment for our first newbuilding, which was delivered on January 2. This drawdown was repaid in January when we drew on the newbuilding facility. Following these transactions, current availability under our RCF stands at $171.9 million. At quarter end, financial leverage was 17.6% based on market values for the fleet and net debt was just under $16 million per vessel, which is well below estimated residual values. Looking at our cash flow, we began the quarter with -- sorry, $81 million in cash. From operations, we generated $95.3 million in EBITDA. Ordinary debt repayment and cash interest totaled $13.2 million and $28.9 million was distributed to shareholders through a cash dividend. $97.6 million was deployed towards vessels during the quarter, which included the delivery of DHT Nokota, our 2018 built secondhand acquisition. We also issued $169.4 million in long-term debt associated with the delivery of DHT Nokota and the delivery of our first newbuilding DHT Antelope. In addition, we invested $107.8 million in our newbuilding program. Changes in working capital and other items amounted to $19.3 million, and the quarter ended with $79 million in cash. With that, I will turn the call over to Svein. Svein Moxnes Harfjeld: Thank you, Laila. I will now go through our quarterly highlights. We entered into an agreement in June last year to acquire a large quality VLCC built in 2018 at Hyundai. We took delivery of the vessel in November and excellent timing as the freight market was roaring. She is named DHT Nokota and trades in the spot market. As we have alluded to in numerous communications, our plan has been to divest our 3 older ships built in 2007. One of the considerations was timely fleet modernization, selling the oldest vessels in a strong market and replace these vessels with our newbuilding program of 4 new vessels entering our fleet during the first half of this year. This newbuilding program was contracted some 2 years ago when the order book was about 2% of total capacity. We entered into agreement to sell DHT China and DHT Europe during the quarter for a combined price of $101.6 million. The Europe was delivered the last day of January, and we expect to deliver the DHT China later this quarter. We expect to book a combined gain of about $60 million during the first quarter. Cash proceeds should come in about $95 million. The following events took place subsequently to the quarter end. We took delivery of the first of our 4 newbuildings on January 2. She is named DHT Antelope, setting the tone for this new series called the Antelope Class. She is demonstrating excellent fuel economics during her maiden voyage, so far exceeding our expectations. The remaining 3 ships will deliver with 2 in March and 1 in June. This is a fully funded project and no new shares will be issued in this connection. We extended the time-charter for DHT Harrier with a 5-year contract at $47,500 per day. The new rate commenced at the end of January. The customer has the option to extend for 2 individual additional years at $49,000 and $50,000, respectively. Lastly, we entered into agreement to sell the DHT Bauhinia, our last vessel built in 2007. The price is $51.5 million and the vessel is debt-free. We expect to deliver her to our new owners in June, July this year and expect to record a gain of $34.2 million from the sale. Back to you, Laila. Laila Halvorsen: Thank you. In line with our capital allocation policy of paying out 100% of ordinary net income as quarterly cash dividend, the Board has approved a dividend of $0.41 per share for the fourth quarter of 2025. This marks our 64th consecutive quarterly cash dividend. The shares will trade ex dividend on February 19, and the dividend will be paid on February 26 to shareholders of record as of February 19. On the left side of the slide, we present our estimated P&L and cash breakeven levels for 2026. Our spot cash breakeven for the year is estimated at $17,500 per day, which reflects the sale of our 3 oldest vessels and 7 special surveys scheduled during the year. This figure captures all true cash costs. The difference between our P&L and cash breakeven is estimated at $6,700 per day, totaling about $56 million for this year. This discretionary cash flow will remain within the company and be allocated for general corporate purposes. On the right side of the slide, we illustrate the accumulated dividends since we updated our capital allocation policy in the third quarter of 2022. The total accumulated amount is $3.34 per share, reflecting strong shareholder returns during a period of share price appreciation. Finally, an update on bookings to date for the first quarter of 2026. We expect 797 time-charter days covered for the first quarter at an average rate of $43,300 per day. This rate includes profit sharing for the month of January and the base rate only for the month of February and March for contracts with profit sharing feature. We anticipate 1,195 spot days for the quarter, of which 76% have already been booked at an average rate of $78,900 per day. The spot P&L breakeven for the quarter is estimated to be $18,300 per day. And then I'll turn the call back to Svein. Svein Moxnes Harfjeld: We have repeatedly addressed the fleet demographics and how it creates an important and robust pillar in our constructive market outlook. We estimate the current sailing VLCC fleet to count 897 ships, net of ships engaged in permanent floating storage. Of this fleet, 427 ships or 46% of the fleet will be older than 15 years by the end of this year. Similarly, 199 ships or 20% of the fleet will be older than 20 years. And extraordinarily, 49 ships equal to just over 5% of the fleet will be older than 25 years. The sanctioned VLCC fleet counts 151 vessels, of which 105 are older than 20. 22 of the sanctioned ships that are younger than 20 are owned by NITC, the Iranian state-owned shipping line. There are discussions as to whether the sanctioned fleet can reenter the compliant market. At first, we would state that say for some very minor exceptions, there are hardly any commercial opportunities once the VLCC passes the 20-year mark in the compliant market. This is different for smaller ship classes with the general rule being that retirement age of ships gets older as ship sizes get smaller. A key message about the VLCC fleet. If and when the sanctioned oil markets become compliant, this could eventually make the sanctioned fleet redundant. Further, there are discussions whether the order book is growing into oversupply territory. We would argue no. The reasons are illustrated here with a confirmed order book of 171 ships delivering over the next 3 years. There are some discussions at letter of intent stages, which will likely add some additional orders for the very end of '28, but mostly in 2029. Delivery slots for new VLCCs on offer now are in 2029, hence, the 3-year delivery time will unlikely change. Fast forward to the end of 2029 and assuming no scrapping, we will have 528 VLCCs older than 15 and 303 older than 20. These numbers should be put in perspective with the order book. In short, we believe the supply squeeze to be real. As you may have read in the news, a fundamental shift in the fleet ownership is taking place with fleet consolidation by private actors gaining meaningful traction. We can say with confidence that this is taking place and already making an impact, both on freight rates in the spot market, customer demand for time-charters and values of secondhand VLCCs. We estimate that the aggregators to have gained control of some 120 ships, and we expect their efforts to continue and not too long to control at least 25% of the compliant tramping VLCC fleet, a critical market share. This consolidation is shifting the pricing dynamics and is putting pressure on timely availability of ships. As end users increasingly are taking note of this trend, we see rising interest from customers seeking to secure reliability, a reliability that increasingly will command a premium. As crude oil is a feedstock business, one should not expect this consolidation to be trade prohibitive. Crude oil transportation is cheap when measured as a portion of the delivered value of the cargo and slightly disappearing in the oil price. As a reflection of the constructive market view we have held for some time, we are increasing our spot market exposure for our fleet by reducing fixed income contracts, i.e., time-charters. Further, we believe the delivery of our 4 state-of-the-art VLCC newbuildings during the first half of this year to be very timely. You will note on this slide that we expect our spot market exposure to reach some 3/4 of our capacity during the second quarter. This enables us not only to participate in the rewarding spot markets to a greater extent than for some time, but also in due course, develop new time-charter contracts at improved rates. As we enter 2026, the VLCC market is undergoing a structural transformation. We are navigating a perfect storm of strong demand, geopolitical volatility, a rapidly aging global fleet and significant consolidation of the compliant tramping fleet. At DHT, we are not just observers of this cycle. We are well positioned to benefit from it. We have an excellent fleet in the water and execute a timely renewal with state-of-the-art VLCC newbuildings delivering into a strong market, financed without issuing a single share. We have increasing market exposure and a clear mandate to return earnings to our shareholders. We look forward to an exciting and rewarding 2026. And with that, we open up for questions. Operator? Operator: [Operator Instructions] We will now take the first question. And this is from the line of John Chappell from Evercore ISI. Jonathan Chappell: Svein, putting Slides 11 and 12 together, the commentary about the consolidation and then you're increasing spot exposure to 74%. The comment on the aggregator and charters looking for reliability and the premium associated with that. When I first read that in the press release last night, it sounded like that was conducive to a much stronger time-charter market. And we saw one of your Norwegian peers sign 8 ships at absurd time-charter numbers, lacking a better term. So can you help us kind of reconcile those? Do you think that there's going to be other opportunities like that even better than what you just renew the Harrier at. So that spot market exposure increase may be kind of short term? Svein Moxnes Harfjeld: I can confirm that. So I would say, basically, all end users or customers now are in the market to secure time-charters and for a variety of tenors, mostly 1, 2 or 3 years. And the rates that they are being offered are above last bump. And the aggregator, so to speak, is not really in the market to offer ships for time-charter, at least not as we have seen and we doubt that it is happening. So it's really the remainder of owners that potentially will consider this. And I think today, there are rumors of a 1-year charter at $85,000 a day. So we'll have to see if that happens. But that, I think, is on subs apparently. So that's a reflection of a step-up from the last one on 1 year. And also, we are aware of customers bidding on 3-year charters, certainly at numbers quite above what you would assume to be last on. So I think in general, customers are a bit worried about reliability and not really having access to ships or potentially be held hostage to a market where ships are being held back for some reason, right? So it's a very interesting dynamic, and it's already sort of taking shape. So we already see the contours of how this is working out. Jonathan Chappell: Okay. And then just you've done a deep dive on the supply side, so there's no reason to really rehash that. But the commentary on the last slide about demand, it looks like global oil demand growth is kind of stabilizing around 1% and there's a lot of talk about the market becoming oversupplied with OPEC production at the current levels and China really being the only kind of incremental buyer. Is that demand commentary more about ton-mile demand, more about disruption, sanctioned vessels, new trade routes? Or is it really more of a commentary on just an underlying robust consumption? Svein Moxnes Harfjeld: I think it's a bit how numbers are presented and how they're analyzed. So when the 1% figure is referred to, that's a number over total liquids, i.e., roughly 83 million barrels a day of crude and remaining being sort of liquids, taking that number to, call it, 103 million. The reality is that seaborne crude oil transportation is today roughly around 41 million barrels a day. And the additional 1 million barrels of crude oil coming to the market is now basically all of it will be seaborne. So you have to look at that number over 41 million barrels, not over 103 million barrels. And if you do that, that's roughly a 2.5% demand growth, right? And then, of course, it's the play of distances, as you alluded to. Of course, Middle East now having more oil in the market is not as long transportation distances as some of the Atlantic crude. So you see now the U.S. production this year is probably, I would say, a bit sideways, but from conversations, understanding of some of the majors and consolidation in the U.S. They are bringing efficiency and cost down, which means they will also likely expand production. Guyana, of course, is growing quite fast, and we expect also Brazil to grow quite meaningfully this year. So I think all this combined, we have reasons to be positive on the demand side growth as well. So -- but I think the details really is understanding these numbers, the total liquids demand versus the seaborne demand of crude oil. Operator: We'll now take our next question. This is from Frode Morkedal from Clarksons. Frode Morkedal: On this aggregators controlling 25%, can you maybe translate that into a vessel count or maybe clarify how you define the compliance fleet? Because when I look at 130, 120 ships, that's just like probably 18% or something like that. So just a clarification on that first. Svein Moxnes Harfjeld: Yes. So you have to knock off the sanction fleet, obviously, right, which is not really a market business. Then, there are quite significant number of ships that are state-owned controlled and that are really just running a shuttle service, basically a taxi service for their owners. So China Inc. for one, they control roughly 100 VLCCs, and quite a significant portion of that fleet is engaged in transporting oil as a cargo services from -- mainly from the Middle East for Chinese refiners. Saudi Arabia owns a big fleet. Japan Inc. owns a big fleet. So these ships are not really tramping and are open in the market all the time. Some of them might be because of scheduling issues that are free of cargo and being replaced and stuff like that. But you don't see all of those fleets in the regular spot market. So when you adjust that, I think a reasonable number is to think that the fleet is somewhere maybe 600 ships, maybe a little bit smaller even. So that's why we sort of take the risk at presenting that number. I don't think it's unreasonable to think that the 25% of the compliant tramping fleet are the one that going to be sort of exposed to this consolidation. Frode Morkedal: Okay. Understood. So you're not really saying that they will add even more ships to reach 25%. They already have that. Svein Moxnes Harfjeld: We understand in the market that they are looking to acquire additional ships. And as a company with ships, chances are maybe we also get the old phone call if you want to sell ships, and we're done selling. So I think ambitions are certainly there to do more. So let's see where it ends up. Frode Morkedal: Interesting. On that note, I guess I have 2 questions on that. First, is 25% enough to meaningfully, let's say, shift the market dynamics? And how so? What mechanism will it be? Svein Moxnes Harfjeld: I think so. I think because if you look at the types of ships that are being acquired, they're predominantly in the 10- to 15-year age bracket. And most of those ships that are being sold have been owned by owners with maybe 2, 3, 4, 5 ships. And they have occasionally a little bit different behavior in the spot market. So to -- if the -- if these aggregators are sort of getting all those ships under some sort of commercial umbrella, you will have, I think, a different pricing behavior and a different flow information, importantly to the people around, right? So if you are a big operator like DHT and some of our peers, you basically have ships in the market all the time, and you have very good information flow and you get access to pretty much all the business. But if you own 2, 3 ships, there could be quite meaningful time between every time you fix, you might not always have a full flow of information, although I don't need to be disrespective of these owners, but to be in the market all the time has a benefit, right? So I think the dynamic is certainly going to change because of this. Frode Morkedal: That's very interesting. Last question I had is basically on the same topic because this company we're discussing has clearly been a willing buyer, right? And many owners, shipowners have been willing sellers and ship values have moved higher. I guess you basically said that they will probably buy more ships, right? But one of the question I often get from investors is that are there further bringing buyers at current levels, right? And how do you see vessel values being maintained at these lofty levels, to be honest? Svein Moxnes Harfjeld: They are not the only buyer. So there are other buyers for ships in the sort of the older spectrum, I would say, ships predominantly built before 2010, '11. So there are still buyers there at sort of levels we just have sold our older ships at. There's also been, I would say, more than a handful of transactions on modern secondhand plus/minus 5 years of age. And all of those transactions were bid up on price, and there were competition, right? So there's very few modern ships to buy and some buyers have been willing to set a new market to get those ships. And those -- and these are credible buyers, right? And I don't think they are the only buyer in the market. So in general, people are very bullish, and I understand why. So I wouldn't say it's sort of the end of the buying period just yet. Frode Morkedal: That's good to hear. And I guess current time-charter rates basically justify those ship values, right? So that's good. Svein Moxnes Harfjeld: Great. There you go. Operator: And the next question today comes from the line of Greg Lewis, BTIG. Gregory Lewis: I did want to talk a little bit more about the consolidator and kind of tie it into your fleet. At least what we've seen and correct me if I'm wrong, it seems like their focus has been on some more of the older age vessels in the fleet, the 15 -- definitely the 10-plus, but even in some cases, 15-plus year-old vessels. I guess what -- I guess I'm curious, have they -- have they been looking at any more modern or younger tonnage that maybe we just haven't seen? And then tying it into your fleet, yes, obviously, you announced that we got rid of that last 2007 vessel. But at this point, we already -- I mean, time flies when you're having fun. And I guess at this point, we are starting to have 15 -- some more 15-year-old vessels just because time goes by in the fleet. And just kind of curious how you're thinking about some of those vessels that are just in that 15-plus year range now in your fleet? Svein Moxnes Harfjeld: So we are done selling for now. So these -- we have 5 ships that are built in 2011, 2012. They're fantastic ships, large deadweight, excellent fuel economics, very, very good condition, and they serviced both us and our customers very well, and they are earning top dollars in the market. So they're not going anywhere but staying in the DHT fleet. Gregory Lewis: Okay. And then has the consolidator been looking at more modern tonnage, i.e., because I guess what I'm trying to figure out is you bought the 2018 vessel not too long ago. Like how much -- like is this new consolidator -- I mean, I guess we don't want to talk about their name, but have they been -- are they looking -- are we seeing them bid into that more modern 7 and younger fleet? Svein Moxnes Harfjeld: Yes, I think so, although I don't know for a fact, but I think so. So -- but for me, it's also been quite rational in the way they've approached to sort of the age bracket, call it, 10 to 15. I'm not assuming they're religious about it. But -- so the cash return on those investments, if you can do what it seems that they are setting out to do, will be significant, right? So it's a sort of good start in their play and their strategy. I would think sitting from -- on the sideline, we have a different approach because we are truly in the long term, servicing some quite demanding customers, and we need to also renew some of our equipment and do that timely and stuff like that. So for me, it's sort of logical what they are doing. Gregory Lewis: Okay. Yes. Just maybe just because it's a private company and they're able to do things differently. And I did have a question about the broader market and realizing it's kind of only been a couple of weeks, and it's a work in progress. But just given what's happened in Venezuela earlier this year, have we started to see signs of that impacting, i.e., crude flow replacements that were previously from Venezuela coming elsewhere? And kind of curious how you see that playing out, just assuming that all that Venezuelan crude that had been heading, I guess, primarily to Asia, if that kind of has to deviate maybe more to the U.S. Svein Moxnes Harfjeld: Yes. So it's early days, right? But I think that the barrels that are going to move now initially will -- from what I read, will predominantly go to the U.S. But there are some dynamics there. One of the biggest creditors in Venezuela is China. And that sort of financing that they have provided in the past is supposed to be repaid in oil. So if they're going to sort of settle the debt, so to speak, with bonds and all these things and get that sorted, I would guess China would want their hands on some of that oil. And we have seen now read that Trafigura and Vitol are being engaged as traders or marketers of this oil. And I think we should expect that some of this will be placed in Asia. The key now, of course, is that how quickly can they ramp up production. I think the sort of lighter products that they have, which are offshore is probably easier to get going than some of the heavier stuff in the Orinoco Delta and bitumen and oil emulsion and stuff like that, and whether they're going to be able to blend into the sort of -- I think it's called the major grade. So this will probably take a bit longer time. But of course, they have vast resources, right? And it will be great for the country if they can get this or get traction on this capital invested and get the production up. So I just think this is going to be good for the markets, absolutely. Gregory Lewis: And just to that point, right, you mentioned Trafi, and I believe Vitol stepping in to kind of move some of that oil out of Venezuela, I guess, not historically, but at least the last couple of years, it's been moved on shadow fleet. Is there a process to those entities bringing online companies like DHT, hey, DHT, realizing that Venezuela has not been a place you've been going to before. Is there like a process in getting companies like you on board so that we're able to move this oil on, I guess, the mainstream fleet? Svein Moxnes Harfjeld: It has to be. But I think it's fair to assume here that say it's Trafigura and Vitol that will sell this oil, they will hold the title of that oil, right? So they will be our customer. And of course, it has to be clear that there's no OFAC risk for a company like DHT in moving that oil. So we haven't seen any of this yet, but I think everybody sort of expect and understand that, that has to be resolved in a proper fashion. Operator: [Operator Instructions] We will now take our next question. And this is from Eirik Haavaldsen from Pareto. Eirik Haavaldsen: I just wanted to ask you on your balance sheet because, of course, with the cash flows you're now generating and with the vessel sales you've announced, you're quickly getting back to even after all these investments or the investments you made now in newbuilds and Nokota, I mean, you're getting down to a level below scrap very quickly. So what's your thinking there? What's the ideal level of debt? Because on an LTV basis, I think you're down to levels you haven't really been at before? Svein Moxnes Harfjeld: I think it's important to make a distinction between book -- debt to book and debt to market value. So market values now, of course, have been going up. So then that leverage is sort of in the teens, as Laila spoke about earlier. To book, it's about 26.5% or thereabouts. I think over time, ideally, we want to continue to invest and grow the business. Right now, it's a bit hard to find meaningful investments. But to have that capacity in the balance sheet and do this organically and not being sort of reliant on printing new shares has been important target for us. I think secondly, our dividend policy, also an important pillar in structuring that is that there is a meaningful delta between P&L and cash breakeven because you always need some cash being retained in the company for other purposes than paying out dividends. And if you start to lever up too much with the lack of a better word, then you close that delta, which means you will have basically no cash flow left in the company or little -- very little. So that's not an ideal scenario. So it's not -- I cannot sort of give you or guide you on a specific percentage or a magic number. But these are sort of general things that we think about when we do this. We looked at some secondhand opportunities sort of end of last year, but prices run away from us. So we didn't do anything, obviously. But that stuff we have capacity to do to pick up a couple of modern ships without any new capital. So we want to have that capacity. Eirik Haavaldsen: I mean there's been a lot of talk, obviously, on this call as well about this consolidated pushing values higher. But I guess another thing is also shipyards and newbuild prices and weaker dollar and backlogs that are increasing and so on. So where do you see newbuild prices headed over the next year? And I guess also with regards to your fleet because you cleared out now all the Chinese-built vessels. Are Chinese vessels or I guess, vessels under construction in China of interest to you? Or will you now have a sole Korea focus, which I guess can be valuable over time? Svein Moxnes Harfjeld: We have nothing in principle against ships build the Chinese shipyard. We have potentially maybe a couple of yards that we prefer a rate or rank above maybe some others that have less experience in building ships. I think importantly now, this USTR issue between U.S. and China that postponed until November. So we'd like to see some clarity on that before we make sort of final decisions on this. But a significant portion, probably 70% now of the order book for these are in China. And I think it's going to be hard to just disregard it. So it's just a question of how we can potentially approach that going forward. But I think nothing is going to happen on our side just now. We have to wait a little bit. Eirik Haavaldsen: But the [indiscernible] vessel now delivering, I guess, first half '29, what would the price be? Svein Moxnes Harfjeld: I think plus/minus $130. One yard is just below, yard is just above. So -- and it's far out, right? So I think to sort of deploy capital now that will not work is the challenge, right? So, of course, we have some RCF capacity we can repay and save some interest expense, things like that. So it's just a question of making all this sort of work sufficiently, but at the same time, also sensibly for the company. So maybe there will be some reset opportunities at attractive price at some point. Right now, I would think chances are no, but that can change, right?. Eirik Haavaldsen: At least the earnings are too high, I guess it's a good problem to have. Operator: [Operator Instructions] We will now take our next question. This is from Geoffrey Scott from Scott Asset Management. Geoffrey Scott: Has there been any resolution of protocols for demolition of the noncompliant fleet? Svein Moxnes Harfjeld: That's a good question. So we understand now that one of the 2 largest sort of cash buyers in the demolition market is now seeking to get approvals, especially now from the U.S. and OFAC to transact then with counterparties that have been sanctioned in order to acquire these ships and get them demolished. So I don't really have an update as of today what the status is. But I think it makes a lot of sense for everyone to get that resolved and get that activity going because we have some of these ships now that are very old and in the shadow fleet that are losing out on work because conditions or maybe some crew don't want to work on them and things like that. And so they will have to go. And I think this will happen. And I think it's good news that at least one of those cash buyers are pursuing this. I would suspect that maybe the other big one is doing maybe something similar, although I haven't heard the name specifically, but I would guess that they will be looking into the same, so we can get that activity going. Geoffrey Scott: Do you think this will get resolved sooner rather than later? Svein Moxnes Harfjeld: Yes. I wish I could be more specific. I don't know. And I don't know the process with, I guess, OFAC and how it will work and what sort of political support you need or whether it's a technocratic decision. I don't know the process. So I'm sorry, I can't give you a better guidance. But I think we take some encouragement that there is a process that has started. Operator: [Operator Instructions] There are no further questions coming through, sir. So I will now hand back to you for any closing comments. Thank you. Svein Moxnes Harfjeld: Well, thank you to all for listening in on DHT, and we appreciate your interest and support and wish you all a great day ahead. Thank you. Operator: Thank you. This concludes today's conference call. Thank you for participating, and you may now disconnect.
Operator: Thank you for standing by. My name is Dan, and I will be your conference operator today. At this time, I would like to welcome everyone to the Omega Healthcare Investors Inc. Fourth Quarter Earnings Conference Call. [Operator Instructions] I would now like to turn the call over to Michele Reber, please go ahead. Michele Reber: Thank you, and good morning. With me today is Omega's CEO, Taylor Pickett; President, Matthew Gourmand; CFO, Bob Stephenson; CIO, Vikas Gupta; and Megan Krull, Senior Vice President, Data Intelligence and Government Relations. Comments made during this conference call that are not historical facts may be forward-looking statements, such as statements regarding our financial projections, potential transactions, operator prospects and outlook generally. Factors that could cause actual results to differ materially from those in the forward-looking statements are detailed in the company's filings with the SEC. During the call today, we will refer to some non-GAAP financial measures, such as NAREIT FFO, adjusted FFO, FAD and EBITDA. Reconciliations of these non-GAAP measures to the most comparable measure under generally accepted accounting principles are available in the quarterly supplement. In addition, certain operator coverage and financial information that we discussed is based on data provided by our operators that has not been independently verified by Omega. I will now turn the call over to Taylor. C. Pickett: Thanks, Michele. Good morning, and thank you for joining our fourth quarter 2025 earnings conference call. Today, I will discuss our fourth quarter financial results and certain key operating trends. Fourth quarter adjusted funds from operations, AFFO, of $0.80 per share and FAD, funds available for distribution of $0.76 per share reflects strong revenue and EBITDA growth, principally fueled by acquisitions and active portfolio management. Our dividend payout ratio has dropped to 84% for AFFO and 88% for FAD. 2025 was a great year for our team. Full year AFFO and FAD growth exceeded 8% year-over-year, driven in part by $1.1 billion in capital deployment. In addition, the credit quality of our operators continued to improve as a result of active portfolio management and the overall improvement in industry fundamentals. During the fourth quarter, we closed two RIDEA transactions totaling $80 million. We significantly expanded our Sabra relationship, and we committed capital in Canada, all of this while delevering and strengthening the balance sheet. Our momentum from 2025 should carry us forward for another strong year in 2026. We will continue to actively manage and enhance the credit quality of our operating relationships. We will continue to deploy meaningful capital across all of our geographies and property types, including our new RIDEA platform. It is likely by year-end that Sabra will be our largest source of revenue. Furthermore, by year-end, it is likely that we will have the strongest tenant credit profile and balance sheet in Omega's history. I will now turn the call over to Vikas. Vikas Gupta: Thank you, Taylor, and good morning, everyone. Today, I will discuss the most recent performance trends for Omega's operating portfolio, including an update on Genesis as well as Omega's investment activity for 2025, including fourth quarter and subsequent closings. I will also give an update on Omega's pipeline and market trends for 2026. Turning to portfolio performance. Omega has investments in 1,111 facilities consisting of 1,027 in our owned real estate and mortgage loan portfolio, and 84 facilities in joint ventures with operating partners and third-party real estate investors. Of the total number of facilities, 62% are skilled nursing and transitional care facilities and 38% are U.S. senior housing and U.K. care homes. Trailing 12-month operator EBITDAR coverage, for our triple-net and mortgage core portfolio as of September 30, 2025, increased to 1.57x compared to our second quarter 2025 reported coverage of 1.55x. Core portfolio coverage continues to trend in a favorable direction, above-industry average coverage levels, and as discussed in prior quarters, provides us with confidence that our operating partners have sufficient means to provide superior clinical service to residents. In addition to the strong credit support this provides for existing investments, these coverage levels enable Omega, and our operating partners to continue to grow our respective businesses. As reported previously, Genesis filed for Chapter 11 bankruptcy protection in July 2025. As a reminder, Omega leases Genesis' 31 facilities for annual rent payments of $52 million. Our coverage continues to be above the mean coverage for our entire portfolio. Additionally, Omega has a $129 million piece of a term loan with Genesis, which is secured by a first-lien on essentially all of the assets of Genesis other than the AR, on which we have a second lien. We believe that the loan is fully secured. While the unsecured creditors committee has challenged the value of the loan collateral among other things, as part of the proceeding, we believe these arguments are without merit. Based on our lease coverage and collateral, we believe our credit position in this portfolio is strong. The bankruptcy process is progressing with a few critical events taking place in the last few weeks, including a second auction of the Genesis assets and a related sale approval hearing. Per the judge's order after the results of the first auction of Genesis assets were not approved in November 2025, a second auction was held on January 13, and the winning bidder was a group known as 101 West State Street. This group's bid was approved by the bankruptcy court on January 26. The principals of 101 West Street currently operate approximately 60 facilities on the West Coast. As required, they have submitted a hard deposit of $54 million and have an aggregate of 85 days, inclusive of additional hard deposits needed for extensions to represent that they have procured market financing commitments, which with contributed equity, satisfies the cash portion of its bid. As previously reported, Omega committed to support Genesis by providing $8 million of a total $30 million debt-earned possession loan. Genesis continues to pay us full contractual rent each month since filing bankruptcy. Due to the delays that came with having a second auction, the bankruptcy process is now anticipated to conclude in Q3 or Q4 of 2026. If 101 West Street consummates its purchase of the Genesis assets, Omega anticipates that it will assume our lease, and the cash proceeds of the sale will be sufficient to cover the payment in full of our DIP loan and term loan. These assumptions and time line, along with all elements of the bankruptcy process are subject to further developments and events in the bankruptcy proceeding, and we cannot be certain of the outcome. There are no material open issues with any other large operators. Turning to new investments. Omega's transaction activity in 2025 was very strong with over $1.1 billion in new investments. These transactions varied in size and nature, but demonstrate Omega's ability to adapt to the evolving investment landscape in the long-term care industry. In 2025, we continue to support the growth of our existing and new operators by focusing on strong credit-backed real estate, and also closed on our first RIDEA transactions in the U.S. senior housing space. Of our total $1.1 billion in new investments, a little over $700 million, or approximately 66% was in senior housing facilities or U.K. care homes. Although, we continue to invest in the U.S. skilled nursing sector to support and partner with best-in-class operators such as Sabra. This demonstrates how we are focusing on all asset classes and deal structures to maximize returns for our shareholders. As Matthew discussed on our last call, our primary goal is to allocate capital with a focus on growing FAD per share on a risk-adjusted basis. Accordingly, we have expanded our investment structures to now include RIDEA for U.S. senior housing and U.K. care homes with the goal of achieving higher risk-adjusted returns over time. We believe we are well positioned to enhance shareholder returns by acquiring underperforming assets at prices meaningfully below replacement costs. And then, partnering with proven operators to enhance the cash flow and underlying real estate value of such assets. Our targeted return for our investments is an unlevered IRR of at least low to mid-teens not assuming any cap rate compression upon exit in our underwriting. During the fourth quarter of 2025, Omega completed a total of $334 million in new investments, not including $31 million in CapEx. These new investments included the previously announced Sabra JV real estate transaction, U.S. senior housing RIDEA transactions and various other real estate investments in the U.S. and the U.K. For our new RIDEA investments, we acquired 4 senior housing facilities located in New Jersey, Wisconsin and Indiana for $37 million. We have engaged 2 third-party managers to operate the facilities on our behalf. Additionally, we made a $43 million investment for a 49% equity interest in a Class A rental CCRC in North Carolina, which will also operate via a RIDEA structure. Our other fourth quarter investments included the purchase of a U.K. care home for $16 million and $16 million in real estate loans. These additional investments were at a rate of 10%, and the real estate loans have an option for Omega to realize upside upon a refinance or sale of the facilities. Subsequent to quarter end, Omega closed on $212 million of additional investments. As previously announced and anticipated, on January 1, Omega closed on the purchase of 9.9% of the equity interest in Sabra's operating company for $93 million. Omega will receive a minimum 8% cash return on our investment. Cash flow from the Sabra operating company is anticipated to support a greater payment, but cash will be retained for Sabra's growth, and all additional amounts due to Omega will be accrued. As a reminder, this was step 2 of our overall investment in Sabra, where step 1 was our $222 million real estate investment for a 49% equity interest in 64 facilities operated by Sabra. The completion of our investment in the Sabra operating company creates strong alignment between Omega and Sabra. With our geographic scope and capital and Sabra's operational expertise, we collectively are in a unique position to evaluate growth opportunities and have optionality for deal structures, including our triple net master lease, the Sabra Omega real estate joint venture, and the Sabra operating companies. We are actively evaluating additional opportunities to grow the Sabra Omega relationship. Also, subsequent to quarter end, Omega closed on the purchase of 13 skilled nursing facilities located in Georgia for $109 million and one senior housing facility in Alabama for $10.3 million. The skilled nursing facilities will be leased to a current Omega operator, and a lease yield of 10.6%, and the senior housing facility will be operated by Omega and managed by a third-party manager via a RIDEA structure. Lastly, we are proud to announce that we have closed on a commitment to fund up to $64 million for the development of 5 replacement long-term care facilities in Ontario, Canada. The loan has a current pay interest rate of 10% and at Omega's auction is convertible to a 34.9% equity stake in the borrower entity that owns 21 facilities. Omega's collateral for the loan is this entire 21 facility portfolio valued today at over $130 million. Based on the credibility of our development and operating partner, a strong collateral for the loan, the waitlist for long-term care facilities driven by demographics, and the overall support of the Canadian government for the long-term care sector in Ontario, we believe this is a good risk-adjusted opportunity for our initial entry into Canada. Turning to the pipeline. Similar to 2025, our pipeline for 2026 is strong. Market opportunities both in the U.S. and the U.K. continue to be substantial, and we continue to see off-market opportunities through our operating partners, including our new RIDEA partners and managers. We continue to focus on growing our Rolodex of potential operating partners. As we have done for the past 2 decades, our relationships are a key component to our growth. As mentioned earlier, we continue to evaluate and focus on purchasing U.S. skilled nursing facilities, U.S. senior housing facilities, and U.K. care homes with increased flexibility on deal structures to ensure that Omega and its shareholders are able to benefit from additional sources of income. Whether that be through variations on triple net lease structures, RIDEA for senior housing assets or U.K. care homes or strategic joint ventures. I will now turn the call over to Bob. Robert O. Stephenson: Thanks, Vikas, and good morning. Turning to our financials for the fourth quarter of 2025. Revenue for the fourth quarter was $319 million, compared to $279 million for the fourth quarter of 2024. The year-over-year increase is primarily the result of the timing and impact of revenue from net new investments completed throughout 2024 and 2025. Our net income for the fourth quarter was $172 million or $0.55 per common share compared to $116 million or $0.41 per common share for the fourth quarter of 2024. Our adjusted FFO was $250 million, or $0.80 per share for the quarter, and our FAD was $238 million, or $0.76 per share, and both exclude several items outlined in our NAREIT FFO, adjusted FFO and FAD reconciliations to net income found in our earnings release as well as our fourth quarter financial supplemental posted to our website. Our fourth quarter 2025 FAD was $0.01 greater than our third quarter FAD with the increase primarily resulting from incremental revenue related to the timing and completion of $485 million in new investments during the third and fourth quarters. Incremental Maplewood revenue as they paid $18.9 million in Q4, an increase of $200,000 compared to Q3. Lower net interest expense of approximately $1 million, resulting from bond and term loan payoffs in the fourth quarter. These were partially offset by $100 million in asset sales and $61 million in loan repayments over the past 2 quarters, resulting in a $2.1 million reduction to the fourth quarter FAD coupled with the issuance of a combined 7.8 million common shares of stock and OP units over the past 2 quarters to fund new investments. Our balance sheet remains incredibly strong as we continue to take steps to improve our liquidity, capital stack maturity ladder. In the fourth quarter, we funded $334 million of new investments primarily by issuing 5.5 million Omega operating partnership units valued at $222 million. Additionally, in the fourth quarter, we reduced our funded debt by over $700 million as we repaid $600 million of senior unsecured notes, repaid a GBP 183 million secured mortgage loan and repaid the $428.5 million term loan, all prior to their scheduled maturity dates. All 3 pieces of debt were repaid utilizing a combination of balance sheet cash, our revolver and fully borrowing on the $300 million delayed draw term loan. Our next scheduled maturity is in April 2027. In the fourth quarter, we also improved our liquidity as we entered into a new $2 billion ATM program. At December 31, we ended the quarter with $27 million in available cash on the balance sheet and over $1.7 billion of available capacity under our $2 billion revolver. Our fixed charge coverage ratio was 5.8x, and our leverage was further reduced to 3.51x. We are excited as our balance sheet and cost of capital continue to position us to accretively fund our active pipeline. Turning to guidance. As Taylor mentioned, our momentum from 2025 should carry us forward for another strong year in 2026. We are providing full year adjusted FFO guidance of a range between $3.15 to $3.25 per share, which includes the assumptions outlined in our press release issued yesterday. I'd like to take a moment to highlight a few of the guidance assumptions. It includes the impact of the new investments completed as of February 4 and does not include any additional investments not outlined in our press release and includes the impact of scheduled loan repayments and potential asset sales. Of the $213 million in mortgages and other real estate loans that are scheduled to mature in 2026, it assumes $157 million will be repaid, and the balance will be converted to the simple real estate. Similarly, of the $267 million in non-real estate backed loans that are scheduled to mature in 2026, it assumes $196 million will be repaid during 2026, which includes $137 million in Genesis loans, with the balance of the loans being extended beyond 2026. As I stated on our third quarter earnings call, we are always pruning and strengthening our portfolio through asset sales, and our initial 2026 guidance includes approximately $15 million to $25 million per quarter in asset sales. The high end of the range in our guidance includes, but is not limited to, additional cash from Maplewood as well as other cash-based operators, timing or potential extension of loan repayments and asset sales, G&A at the lower end of the range to name a few. Our 2026 adjusted FFO guidance does not include any additional investments or additional capital market transactions other than what I just mentioned or what was included in the earnings release. I will now turn the call over to Megan. Megan Krull: Thanks, Bob, and good morning, everyone. Last quarter, I mentioned the potential for an automatic 4% cut to Medicare related to the deficit caused by the OBBBA. Since then, the automatic reduction has been dealt with legislatively as has historically been the case, and is therefore, no longer an issue. Additionally, in December, HHS officially repealed the minimum staffing standards through an interim final rule, an action that we applaud as the draconian nature of the rule stood to make the provision of and access to care more difficult. Moving forward, we hope that this administration, who has been so supportive of this industry will work with industry leaders to find other ways to obtain regulatory rationalization going into 2026. Additionally, while Medicare Advantage has been a topic of conversation over the last week, with CMS proposing relatively flat rates in 2027, despite rising health care costs, I think it is important to point out that the impact to our portfolio would be minimal, if implemented as proposed. Not only are our current coverages as noted earlier by Vikas, able to withstand a certain level of expense pressure in the face of reimbursement not keeping pace. The percentage of our operators' revenue associated with Medicare Advantage is low. With total Medicare accounting for less than 26.1% of overall operator revenue when excluding non-Medicare quality mix and a Medicare Advantage penetration arguably far less than the 50% plus you see in the overall Medicare population, only a small portion of the business is impacted by this news. While we are unconcerned with this latest development, we are still carefully watching state reactions to the OBBBA as well as the impact it may have on the overall health of our operators' referral sources. We continue to support the efforts of our operators, partners and industry associations in educating lawmakers both at the federal and state levels on the importance of the services provided by the long-term care industry and the need to fund it appropriately. I will now open the call up for questions. Operator: [Operator Instructions] Your first question comes from the line of Seth Bergey from Citi. Nicholas Joseph: It's Nick Joseph here with Seth. Just wanted to dive in a little to the SHOP strategy? And kind of curious how you think of it being differentiated versus peers and the ability to grow just given the competition and the capital that has been moving into that space. Matthew Gourmand: Sure, Nick. It's Matthew here. So I think the differentiation as much as anything is on 2 or 3 different fronts. Number one, we are looking at smaller deals tend to be relatively rifle shot deals as opposed to larger portfolio deals, you tend to find a little bit better economics in that situation. I would say a lot of the deals we're looking at are deals that need a little bit of love, a little bit of turnaround either lower occupancy, lower margin. We're aligning with operators who have expertise in that specific area. Be it the asset class that we're looking at, and the region that we're looking at, and have demonstrated the ability to turn around facilities like that. So I think we're much more looking for the -- as Vikas said in his talking points, the low- to mid-teens IRRs, and the only real way to obtain that is taking assets that need a little bit more of a turnaround opportunity. And then, obviously, we've structured the promotes as everyone tries to align our interests with those of our managers to make sure that they are sufficiently incentivized to obtain the financial returns that we're looking to achieve. Nicholas Joseph: That's very helpful. As you think about kind of the turnarounds for those assets, do you assume that occupancy goes down initially? Or how do you underwrite at least the initial years of performance of those facilities? Matthew Gourmand: Sure. It's a case-by-case basis. It's going to be determined on what we think needs to get done within those facilities, the ability of the former manager to market those effectively, the ability to push rate. Each one is very idiosyncratic. But needless to say, we spend a lot of time really understanding and scrubbing the reality of those numbers and the viability of those numbers to make sure that we're conservatively underwriting. Operator: Our next question comes from the line of Omotayo Okusanya from Deutsche Bank. Unknown Analyst: This is Sam on for Tayo. I was wondering if you guys can give any update on PACS, like do you guys have any insight around the outcome of the federal investigation? Vikas Gupta: Yes, and this is Vikas. No, we don't have any more info on the investigation than what the public knows. I will say we continue to be in close touch with the PACS management team. Their buildings continue to perform strongly here at Omega, good credit, good operating results and good clinical performance. So right now, we feel generally good about that at Omega. Unknown Analyst: And I guess my follow-up would be around Genesis. I guess, how should we think about the timing and expected returns on the redeployment of proceeds from Genesis-related loans in 2026? Robert O. Stephenson: This is Bob. In the guidance, what we're assuming is sometime midyear, the loans, as I said, $137 million, that's made up of the combination of $8 million for the DIP and $129 million of what was on our balance sheet at 12/31. When that gets -- when we receive that back in, we will first pay off any balance that's on the credit facility, and the balance of that then will be invested at roughly 3.5% of overnight rates. Operator: Our next question comes from the line of Michael Goldsmith from UBS. Michael Goldsmith: First, I wanted to ask for just some color on the Georgia skilled nursing portfolio. Just given this is a little bit of a higher initial yield at 10.6% that we've seen in the U.S. of late, is that pricing more of a function of having some hair on it, or maybe more of a reflection of off-market deal flow? And am I reading it right that the facilities were transitioned to one of your existing operators from a prior operator? Vikas Gupta: Yes, Michael, this is Vikas. So just for some guidance. We are still quoting 10% for all SNF deals today. This deal was an off-market deal, and we were able to achieve slightly higher. Nothing super area about good buildings in Georgia. And yes, we are leasing this to a current Omega operator. Michael Goldsmith: Got it. And just as a follow-up here. Historically, acquisition volume upside tends to come from the portfolio transactions. So how does the outlook for portfolios look right now? Are you seeing portfolios trade? And if so, are they trading at a premium or a discount? Matthew Gourmand: Sure. This is Matthew. They're trading to the extent that they do trade, they're trading at a premium, both on the skilled nursing and the seniors housing side of things, and in the U.K. care homes. So there's not many chunky deals that we're seeing out there right now. But to the extent that they have traded over the last 6 to 12 months, we have tended to see a little bit of a premium there. Candidly, we'd rather choose selectively the facilities that we're looking to buy. And so particularly when you're paying a premium for those larger deals, they're not particularly attractive to us, but we obviously continue to look at everything. Operator: Our next question comes from the line of Julien Blouin from Goldman Sachs. Julien Blouin: Just regarding maybe the acquisitions that were closed in the fourth quarter and subsequent to quarter end. Can you give us a sense of how those were sourced, were they mostly on or off market? And then, what were the motivations of the sellers? I know you mentioned some turnarounds. So were these deals sort of mostly distressed situations? Vikas Gupta: Yes. Just looking at the deals quickly, it's really a mixed bag, some were marketed, some were not marketed. I will say there are quite a few that are off-marketed that came through current relationships, then the most notable, of course, being the Sabra deal. And then, the second question was? Julien Blouin: What the motivation -- seller motivation was? Vikas Gupta: I mean it's, again, a mixed bag. Some of it is liquidity. Some of it is exciting. There are some turnarounds here, which where we have put in new operators, such as the Georgia transaction. So once again, that's a mixed bag as well. Julien Blouin: Got it. Okay. And then, your tenant coverage, you mentioned continues to rise is the highest, I think, in recent history. Do you feel like at these coverage levels you're approaching sort of coverage levels where you might be able to re-lease that sort of positive spreads in future years? I know there's not much expiring this year, but a little bit more in 2027? Or is it really more that it just sort of increases the likelihood of renewal upon expiration? Matthew Gourmand: Yes. Unfortunately, it's much more the latter. So majority of our leases have renewal options unilaterally at the right of the tenant. So even though it might show that it's expiring in 2027, to your point, if they're covering well, the likelihood is they will exercise that option to renew, and therefore, the opportunity for incremental pickup in the near term is relatively limited. But obviously, as we continue to look out, eventually the second and third renewal options, it tends to only be a couple of renewal options. We'll also expire and that pickup will be opportunistic for us. However, we don't see anything in the next 3 or 4 years that's going to meaningfully move the needle on that front. Operator: Our next question comes from the line of Nick Yulico from Scotiabank. Elmer Chang: This is Elmer Chang on with Nick. Considering guidance assumes rental payments at the current run rate, is it reasonable to assume Maplewood returns to the contractual rate by year-end? Because I think based on the improvement in rent payments in recent quarters, maybe there was some expectation they would be at contractual rent by this quarter. Vikas Gupta: Yes. As we've said previously, Maplewood is paying us all their cash flow now. So as Bob discussed, we are getting a run rate of $76 million right now, and we assume that number will increase at a small level later this year. Matthew Gourmand: We don't really look at it so much in terms of contractual to Vikas' point. At the end of the day, they're going to continue to pay the cash flow. They obviously have some interest expense as well that is due above and beyond their contractual rent obligations. So as they continue to improve and they've demonstrated a really decent ability to improve and enhance their cash flows over the last few years, and I think, the management team is operating as well as any management team that we've seen out there right now, we will continue to benefit from that cash flow. But we don't look at it from a standpoint of contractual rent. We just look at it from a standpoint of more like a RIDEA-like model at this point in time. Elmer Chang: Maybe second question is how should we think about the cadence and potentially earnings impact of loan repayments this year and even in 2027, outside of the Genesis loans, just given the volume of investments you've done in the last couple of years? Matthew Gourmand: Sure. This is Matthew again. Yes, the loan repayments, it's tough to model. Bob has obviously given guidance as to what we think in 2026. Loans are not a large portion of our overall business, but they do represent a little bit of a headwind to the extent that they do come back. I don't think it's going to be a meaningful headwind over the longer term. Obviously, we have a fairly pronounced amount of stuff potentially coming back in 2026 that we've highlighted. But longer term, it obviously creates a little bit of a headwind until we able to redeploy the capital, but with the market being relatively robust today in terms of opportunities to deploy that capital, I don't think it's a long-term headwind for the company. Operator: Our next question comes from the line of John Kilichowski from Wells Fargo. William John Kilichowski: Maybe just to go back to Maplewood here. With the core portfolio well occupied, what are you seeing in terms of RevPOR for? what can you kind of disclose about the success of really driving the economics there? I'm just curious about I understand you're not too focused on time line to full rent, but just sort of helpful to think about what's the growth of that existing portfolio? Vikas Gupta: Yes. John, this is Vikas. Just some stats for you here. The Second Avenue building is now at 97%, and the overall core portfolio is at 96%. And as for growth, a lot of it is going to be driven by rate increases. Maplewood is shooting to do a single-digit percentage -- a high single-digit percentage increase this year. We still don't know what that's going to be net, but that will drive some growth, and we plan -- that will happen going forward in the years to come. William John Kilichowski: Okay. Very helpful. And then, just to stay on Maplewood here. For Embassy Row, I don't know what else you can talk about here, but is there -- there's a JV partner in the OpCo, correct? And are you able to give any guidelines around, maybe the remaining capital availability from them, and helping make those yield on cost payments? I'm just curious sort of what's the lease-up trajectory and sort of time line that needs to take place at Embassy Row, such that you wouldn't need to pull, let's say, capital from the outperformance on the core portfolio to make whole the yield on cost payments? Vikas Gupta: So I would say that we actually -- for the first month, we've seen a positive cash flow on that facility at the end of last year, which is great. That's obviously prior to paying any rent. The lease-up is going in accordance with our expectations. I think Maplewood is extremely focused on ensuring that doesn't create too much of a headwind for their overall portfolio performance. It's tough to say when you're in lease-up, what that looks like, we look at it holistically over the context of the overall portfolio. And as Bob has indicated, we expect a modest pickup in February and an ability to continue to pay that rate going forward. But it's just too early to tell, both in the lease-up of that building and in the rate increases that they're trying to push across the portfolio right now what that's going to look like on a consolidated basis. William John Kilichowski: Congrats on the quarter. Operator: Our next question comes from the line of Juan Sanabria from BMO Capital Markets. Juan Sanabria: Just on the SHOP investments, just curious, I know you talked about unlevered yields, but for the stuff you've done fourth quarter and year-to-date here. Just curious on the initial yields and how we should be modeling the returns on that capital? And as part of that, can you talk a little bit about the CapEx assumptions? And maybe just give a little color on how we should think about FAD relative to adjusted FFO from a guidance perspective for the full year? C. Pickett: Yes, I'll take the first part, Juan, it's Taylor. We're purposefully not disclosing initial yields because they're all over the place. We would have yields in the pipeline that have high single-digit yields right out of the box. We have some that are lower. And it all goes back to what Matthew said. Every deal is idiosyncratic, and we're looking at long-term IRRs and we're not aggressive in terms of how we underwrite to get to those. So we feel really good about what we're finding, and the operators are putting these buildings in the hands -- the operator's hands, where these buildings are going, and that's probably all I can say about it. In terms of CapEx, do you want to take that? Matthew Gourmand: Yes. So again, it's again, a little bit of a mixed bag one. Some of the facilities we've picked up really don't need a lot of initial CapEx. Other ones probably do need a little PLC. That's a little bit of the nature of the turnaround element. We tend to price that in initially within our expectations. And I would say that the yields that we're always quoting to you are yields that we think are sustainable after a decent CapEx assumption either from an initial investment standpoint or even from a recurring standpoint. I don't know what that does in terms of how that looks for all our AFFO relative to our FAD going forward. So we are primarily focused on just growing that FAD. Juan Sanabria: And just with regards to the '26 earnings guidance, any -- how should we think about the delta between FAD and adjusted FFO? Robert O. Stephenson: Well, remember -- okay, you're right. We only give AFFO guidance, but escalator will impact that as it goes along. But same with FAD, you got to remember that the asset sales and the repayment of the loan maturities also will impact that. So I would keep about the same relationship. Matthew Gourmand: Yes. I think the ratio -- I mean, you have to remember, we're a $14 billion company, and we just started investing in RIDEA. So I think that the ratio that you've seen between AFFO and FAD over the last few years is probably not going to meaningfully change in 2026. Juan Sanabria: Okay. And then, just Canada, a new market for you, and I think your first investment in the long-term care there. So just curious if you could give us a little bit of a quick one-on-one on the Canadian market versus the U.S., I'm assuming it's more akin to U.S. skilled nursing and kind of what opportunity this new sleeve potentially represents for Omega? Matthew Gourmand: Sure. I mean as you can imagine, all of these things are up pretty involved in detail. If you were going to give an analogy, I'd probably say it's closest to the U.K. care home market, more than the skilled nursing market and the fact that it's a little bit more of a socialized medicine system there, so they don't make people exhaust the financial options to the extent that they do in the U.S. At the same time, most people tend to be longer-term residents within those facilities. In terms of a little bit of a background on this, we're very excited about this opportunity. We had an opportunity to invest with a very well-established and high-quality developer and operator in the Canadian long-term care market that we've got to know over the last year. We were able to structure a deal that we think can be sustainably accretive. However, I would say this is a little bit of an idiosyncratic investment. We wouldn't expect to significantly grow in the general Canadian senior housing market, as this is traditionally offered yields that are not particularly compelling to us given our cost of capital. However, we would be open to continue to grow with this operator, assuming that they can find deals that fit within the parameters of our cost of capital and are able to be accretive deals for us. Operator: Our next question comes from the line of Farrell Granath from Bank of America. Farrell Granath: Similar, I guess, to that question is, thinking about the investment mix in '26. I'm just curious if what you've already closed in January of '26 and early February is kind of in line of how we should be thinking of a mixture of loans as well as triple net and SHOP? Vikas Gupta: Yes. I'll speak to the pipeline. I think that will help you. If you just look at our pipeline, it is strong, as both Taylor and I said. It's in lines with really where we closed 2025. And if you look at what's actionable, about 1/3 is skilled nursing, 1/3 is senior housing and 1/3 is U.K. care homes. As for structure, it's a mixed bag. I would say a lot of the U.K. and U.S. senior housing is RIDEA-focused. Farrell Granath: Okay. And also, just given the recent headlines around the CMA investigating some peers for recent transactions in the U.K., does that change any of your feelings on transactions in the U.K. or influence any of your investment decisions? Vikas Gupta: Yes. No, we are not concerned about that. We -- our lawyers do similar type of checks for us every time we would do a U.K. care home transaction. We've never ever been in breach of anything or close to it. So from our perspective, we are not worried about growing in the U.K. right now. Farrell Granath: Okay. And just one small follow-up also just on your dividend, if there's any additional updates on coverage or how you're thinking about your dividend? C. Pickett: We're getting closer to needing to increase the dividend, but obviously, it's a Board call. And typically, we'll get to the point where we're required to increase our dividend from a tax perspective. And that's going to be in the low 80s of -- in terms of FAD payout. That's how I would think about it. Operator: Our next question comes from the line of Michael Carroll from RBC Capital Markets. Michael Carroll: I wanted to circle back on the Canadian loan. I want to make sure I understand this. So I guess the initial loan, your security is these 5 long-term care developments, but you have the option to convert it into the entire operator, a 35% stake in the entire operator? Matthew Gourmand: So the collateral is actually over 20 long-term care homes that they currently own. But as Vikas said, is valued meaningfully more than the loan that we're looking to put out there about twice the value of the loan that we're looking to put out there. And yes, initially, the yields, it's a loan structure to give us the yields that we're looking for. But to the extent that over time, the operating company is able to achieve yields similar to or above the yields we're achieving from a loan standpoint, we then have the optionality to flip that over. And based on our modeling, we would expect to be able to do that at some point during the term of the loan. Michael Carroll: Okay. Can you give us an idea of what the equity stake would be, I guess, the yield on the equity stake today? And I'm assuming it's lower than the loan amounts, I guess. And then, how much growth is in the long-term care market? I mean, how fast could that yield grow? So if you do convert it into an equity stake, I mean, are we thinking about a mid-single-digit type growth rate? Or is it potentially higher than that? Are they seeing the similar trends as we are in the U.S.? Matthew Gourmand: Yes. The initial yield today is lower than obviously our 10% yield on the debt. I don't honestly know exactly what the number is, Michael, but it's cash flow positive, and it's obviously got a lot of collateral behind it. To the extent of when we convert it over, it's going to be somewhat contingent on whether there's continued opportunities to do these developments. It is nicely accretive. So I would say that mid-single-digit growth is on the conservative side of things. I think this could definitely be high single digit or even double-digit growth as they continue to develop. There's a lot of need within the Canadian market right now, and this is a proven developer and operator that we think can meet a certain amount of the need that the Canadian people have in the Ontario market. Operator: Our next question comes from the line of Alec Feygin from Baird. Alec Feygin: So first for would be when you evaluated the development loan in Canada, how would that compare to maybe similar loans in the United States? And would you expect that to be a bigger part of the investment flow in 2026? Matthew Gourmand: So it's very different. In this situation, we had a lot of collateral sitting behind our loan. A lot of the time when you're putting these loans out there, the collateral might just be the development deal itself, which has inherently more risk attached to it. This also is a known entity that has proven an ability to develop a very, very consistent cost rates relative to budget over a prolonged period of time, which gave us increased comfort, and so to that point, I don't think this is something that we're going to look to be doing. First of all, we're just not fans of loans generally to the point we were making earlier. Those loans tend to come back to you. And this really is a little bit of a loan with a vehicle to have equity interest longer term, which is obviously something that we are more interested in. But the idea of loaning into development deals is probably not something we're going to be looking to do. Alec Feygin: All right. That's helpful. And maybe now that you're in the RIDEA business, are you looking to convert any current senior housing in the portfolio to that structure? Matthew Gourmand: There's two forms of conversion here, right? There's a conversion out of the necessity and the conversion out of opportunity. You've seen a lot of people convert because ultimately, there wasn't a capacity to pay the rents. Where we sit today in our senior housing portfolio, obviously, we've talked about Maplewood being a RIDEA like model, but outside of that, all of our operators are cash flowing sufficiently to continue to pay our rent. So there's no necessity to do that. But if there were opportunistic chances to take operating exposure at a yield that is compelling to us, either in the U.S. or the U.K. We'd obviously look to do that. We understand that the nature of such operating exposure creates increased volatility, so we'd be looking for a fairly healthy yield in order to do that, but it's not outside of the realm of possibility we'd look to do so. Operator: Our next question comes from the line of John Pawlowski from Green Street. John Pawlowski: Matthew, first question on your guys' foray into RIDEA. It is -- I mean, it is a different skill set for a triple net credit investor framework from Omega of old. And just curious, what has had to change internally either on the investment team or asset management team to get ready for a more operational-intensive tougher model to underwrite? Matthew Gourmand: It's probably quicker to tell you what hasn't changed. You're absolutely right, John. This is inherently a higher risk, potentially higher return model. We don't have that credit support sitting behind in the form of coverage. And therefore, I would say that we have looked at every element of this from the standpoint of the quality of the underwriting. We brought in new members of the team who have decades of experience within the senior housing business, who have a very deep bench of operators that they know that they've worked with before. We've looked at every element of the P&L in terms of trying to understand why lower occupancy happens, what the differentiation of CapEx is between the asset classes whether we want a first-tier market, a second-tier market, looking at the demographics. We have taken an extremely, well, I think, thoughtful and intense approach to truly understand what the risks are around this, given the fact that there isn't that credit sitting behind us. We are still, I think, sufficiently conservative to understand that very much like the U.K., it makes sense for us to dip our toe into this judiciously. I wouldn't look to -- for us to be doing a $1 billion deal anytime soon, because we do think there's still more to learn, but as we've seen in the U.K., the ability to deploy capital over the course of a decade to -- for it to become not only a meaningful part of our business, but a highly accretive and valuable part of our business. I think we look at over the next decade, RIDEA being a similar opportunity. John Pawlowski: Okay. I appreciate all those thoughts. And Megan, maybe a quick one for you at the state level. Are you hearing any concerning anecdotes or potential draft legislation for staffing mandates at the state level? Megan Krull: No, nothing more than what we've heard in the past. So there's always rumblings, and there are states who are pushing the federal government to try to institute another staffing mandate, but we're not really hearing that across the board. Operator: [Operator Instructions] I will now turn the call back over to Taylor Pickett for closing remarks. C. Pickett: Thank you. Thanks all for joining our call today. As always, we're available for follow-up questions. Operator: Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.
Bilal Aziz: Good morning, everyone, and welcome to the conference call for Pandora's Full Year 2025 Results. I'm Bilal Aziz from the Investor Relations team. I'm joined here by CEO, Berta De Pablos-Barbier; CFO, Anders Boyer; and the rest of the IR team. As usual, there will be a Q&A session at the end of the call. If you could kindly limit yourself to 2 questions at a time, that would be great. Please pay notice to the disclaimer on Slide 2 and turn to Slide 3. And on that note, I will hand over to Berta. Berta De Pablos-Barbier: Thank you, Bilal, and welcome, everyone. Well, we have a lot to cover today. So, I will begin with our fourth quarter performance before outlining how we plan to reignite growth through a recalibration toward desirability-led growth. I will then cover the creative innovation, addressing high silver cost mitigation. Now, I am sure that most of you are aware that we preannounced in January the quarter 4 results. So, let's quickly see how the final and total results shape up. As a reminder, we ended the year with 2% like-for-like growth and Q4 at 0%. These results were, of course, below our expectation even against a weak macro drop, and we do see clear areas where we can drive better performance. Now on the positive side, our profitability remained very solid throughout the year, and we ended the year broadly as expected. This reflects our high gross margins where efficiency initiatives and pricing actions helped offset most of the external headwinds. Now when we combine this with very good cost control on OpEx, our EBIT margins ended the year around 24% again, 24% with the vast majority of the pressures we face. It's worth also remember how quickly the environment has changed. I mean, 12 months seems like a very long time ago now. But this time last year, our guidance assumed no tariffs and a silver price of around $32 per ounce. Now, let's move into some of the details of the quarter. So next slide, please. By collection, you will see that the Core delivered 1% like-for-like growth in 2025 with quarter 4 ending flat. Talisman, the new collection contributed positively in quarter 4, which was very encouraging to see. Now it remains a relatively small collection, but we are pleased both with its performance and the consumer attention and consumer acquisition it has generated, and we are going to continue to build on that momentum on 2026. In Fuel with more, like-for-like growth was disappointed at minus 3% in quarter 4. I will touch later on our plans on design and how we intend to reignite growth in both Core and Fuel with more. In short, this is going to be about sharpening where we focus our design efforts, bringing greater creative energy to the Core and more confidence and scale to Fuel with more. Next slide, please. Now going forward, you also will hear me speak as much about earned media impact as about reach. And this slide actually illustrates why. Over the past year, we have increased our presence at highly relevant cultural moments from major fashion awards to global platforms such as the Met gala, the BAFTAs and the Grammys. This activation have generated high-quality coverage and increased media impact value, helping to build brand desire over time, brand desirability, which is one of the most important drivers of sustained long-term growth for Pandora. In quarter 4, very specifically, we aired our Christmas campaign. It relied predominantly on traditional media and delivered a modest uplift in traffic. The learning is very clear. Going forward, we need to combine paid reach with earlier and stronger earned media impact that will be enabled through PR integration and very culturally relevant activation. Now all of this must, of course, be anchored in a strong design offering, which I will touch shortly. Let's go on to the next slide, please. While many of you are already familiar with the regional performance, so I'll just only focus on a few highlights. Let me start with EMEA, our largest region that is predominantly Europe. In quarter 4, EMEA delivered minus 1% like-for-like growth. Performance varied by country. And while some markets performed well, the overall results reinforces the need for the targeted strategic shift that I will outline. At country level, a few markets are worth calling out. Spain continued to perform very strongly in quarter 4. And this is a clear example of a mature market where sustained brand heat continues to drive customer acquisition, showing that there is no fixed ceiling to grow for Pandora. Italy, by contrast, saw a weakening in performance. Now, while some action delivered very encouraging early signal, the outcomes underlines the need for a more decisive change in how demand is activated in mature markets. I will address this later. Now, let me move to North America. Like-for-like growth was 2% in quarter 4, which was slowing versus Q3. We discussed in January the macro environment that weighed down on consumer confidence and in-store traffic. That said, brand strength in the U.S. remains very solid. And with only around 2% market share, the long-term growth opportunity remains very significant. Latin America growth was minus 7% in quarter 4. We are implementing a new pricing architecture in January. And so far, we are encouraged by the initial response. Finally, Asia, we delivered positive growth at 2% like-for-like growth, and Japan continues to perform very well and provides a positive reference point as we shape our future approach in the region. With that context, I'll move on to the next slide, please. Another area, which I will remain very consistent is the role of our stores in driving desirability and elevating brand perception. We have made strong progress over the few years and the economics of our store network remain highly attractive. By the end of last year, approximately 800 stores have been converted to the new format. In 2026, we will continue this momentum with the rollout of new digital windows displays across many stores, which are designed to improve visibility and drive traffic. That said, like any strong brand, we will not stand still. We see further opportunities as well to evolve our store layouts, increasing traffic flow and presenting Pandora more clearly as a desirable destination. With that, I will hand over to Anders to walk you through the quarter 4 metrics before we look ahead to what come next on the strategic shifts. Anders? Anders Boyer-Søgaard: Thank you, Berta, and good morning. Then please turn to Slide 10. Berta has already commented on the revenue metrics. So, I'll rather focus on some of the other metrics on this slide. And the key message from us is that despite the soft top line and the significant external headwinds, then our Core P&L, balance sheet and cash metrics remain healthy. And that demonstrates in many ways, the strength of our business model and agility on the cost base. In the fourth quarter, our gross margin ended at 78% and thereby it was down 170 basis points versus last year and that's driven by a quite heavy 310 basis points of headwinds from tariffs, foreign exchange and commodity prices. So, this means that we continue to offset quite a decent amount of the headwind through cost efficiencies in our vertically integrated value chain. And then at the same time, our price increases do support the margin as well. I also just want to touch on the working capital. And as you can see here, we have circled in 2 numbers on the slides. That's including and excluding commodity hedging. And the 4.1% net working capital includes some quite significant unrealized commodity hedging gains. So, to really understand the performance, it's better to look at the KPI, excluding commodity hedging. And here, you can see that working capital is still in negative territory, and we are quite pleased with that. Next slide, please. Here, we break down revenue growth in the quarter. Berta has already covered the key elements. And as we think the bridge is quite straightforward, we will just move on to the EBIT margin bridge on the next slide. And the short story here is that the EBIT margin played out in line with our expectations and in line with the guidance. And even though I -- in a way, I don't like saying this, then delivering an EBIT margin, which was only down around 100 basis points, that is quite a good outcome with all of the headwinds that we saw in the quarter. And those headwinds are shown in the light pink bar on the right of the bridge, the 440 basis points of in minus and being able to offset the majority of that speaks to some good discipline across the company and agility following the lower revenue growth in 2025. This doesn't mean that we don't have the ambition to offset all of the headwind, but it will take a bit of time, and we will speak more about that later today. I would also like to note that the OpEx ratio actually declined on a constant currency basis, both in Q4 and for the full year as well. So, we have been executing on the Silverstone cost program, and it's quite good to see that the savings are coming through to help the bottom line. And on that note, I'll hand back over to Berta to walk through how to reenergize growth. Berta De Pablos-Barbier: Right. So, I mentioned a few weeks back that as the new CEO, my focus is to strengthen brand desirability and to deliver sustainable long-term growth. I've been CEO for just over a month and in the business for over a year as CMO. But I want to give you today my initial thoughts on Pandora. First, it is very clear to me that Pandora has many untapped growth opportunities. I am incredibly excited of what lies ahead. Our overall goal is to continue to build the most desirable accessible jewelry brand. This is a company built on very strong foundation. We are a category leader. Our brand is healthy, and our collections are solid. When you combine that with a vertically integrated value chain and a wide array of in-house crafting capabilities, you have a clear competitive advantage that allow us for scale, speed, agility and notable cost advantages. All of this together is a recipe for a very attractive business model and good runway for profitable growth. So the question, of course, is how can we leverage off all these competitive assets to drive profitable growth well into the future. My priorities are to reignite growth and to reduce the commodity exposure to underpin our strong business model. All of this then is strictly while retaining the Pandora DNA and purpose. Now as I mentioned in January, after several years of outpacing the category and driving solid growth, we are operating in a more complex environment, and that require us to be more demanding in how we generate growth. While the current model works well in low penetration markets, we do need to be sharper when we execute in other markets. And this means that we have to course correct where momentum has softened. So, let's see some of the changes and how they look like in the next slide, please. Now it's not on this slide, so I'm just going to explain it because this shows how we are evolving Pandora growth engine for the next phase. We will remain centered on recruiting new consumers into the brand, and this has not changed. Now what has changed is our understanding of what drives that recruitment as the brand and our markets mature. Under Phoenix, we rebuilt a strong foundation for Pandora. We strengthened our Core collection. We restored brand awareness through paid media, and we delivered solid like-for-like growth. That what matter. It matters a lot because it took us to where we are today. Now it's clear that what took us here is not going to take us into the next phase. As Pandora matures, growth is increasingly driven by desirability rather than reach alone. We are, therefore, sharpening the growth engine across 3 connective things: design, brand and markets. Let me start by design. Our focus clear is on reenergizing all collections. Our Core need greater distinctiveness, greater uniqueness to reignite desirability, while our smaller and underrepresented collections need more depth, need more products, so they can scale their growth. On brand, we are evolving from a fundamentally model that it was awareness led with paid reach to cultural relevance with earned media. Earned media will be a Core KPI to drive efficiency. It's not an afterthought. It's a dedication as it increased traffic and demand activation. On markets, of course, these 2 levers means that we will be moving away from a one-size-fits-all model. We'll be calibrating the growth engine by market and brand maturity. We'll be prioritizing desirability in high penetration markets, while we will continue to invest in reach where penetration still remains low. This is an evolution. This is not a reset. It builds on what has worked and strengthens Pandora growth engine for the next phase of value creation. Now, I'm going to deep dive into design and brand with proof points that show how this approach is already working. Now you will have to indulge me because this is going to be a little bit of a detailed presentation, but I think it's important into getting the full understanding. Next slide, please. So let me start with design. So, this slide explains why design focus is such a powerful growth lever for Pandora. If you look at the left side, it shows where we operate today. The first bar is the aesthetics of the market under the $500. And you can see that a large share of our business, and by the way most of our newness is concentrated in a relatively narrow aesthetic space. This is the one that we call playful and is where the majority of our Core with moments works today, but it's also the most mature part of the portfolio. If you move to the right, the design effort column shows that we have put most of our design focus where the biggest -- where the business is biggest with very similar product repeated over time. In very simple terms, basically, we've been doing more of the same in the same place for the same people. Now the chart on the right, at the full right shows where growth actually has come from. And you see that actually underrepresented aesthetics on organic on fine, on bold is actually where the growth comes from. So underrepresented aesthetics account for a much smaller share of our newness, yet they are delivering disproportionate share of incremental growth when we actually focus creatively on them. So the issue, you might think is the number of products, but this is not. The issue is not the number of products, it's how and where we deploy them. Going forward, we will keep the same level of newness, number of devices, if you wish, but we will deploy them differently. The Core aesthetics need greater uniqueness, greater distinctiveness to reignite, to reenergize demand. Now there is plenty of playfulness and creativity that we can still bring to playful. While the underrepresenting aesthetics need more depth and more products to unlock their growth potential. So, this is not either about entering new aesthetics, it's about doing better where we have already started to play. Essence that was launched 2 years ago and Talisman just last year are very good examples of that. This is how design focus will unlock growth, not by doing more, but by doing the right things in the right places. I mean, after all, all this is simply about keeping the brand desirable and contemporary. So let me just conclude to land the message here. Pandora will become a more design-led with a clearer collection strategy and a more disciplined product development. We will ensure that design effort is focused where it creates the greatest impact. Newness will be rooted in consumer insight, trend research and commercial analysis, which will allow us to deploy the same level of new products more effectively across the portfolio. And last, greater creative distinctiveness and better deployed newness will translate into growth by strengthening desirability. It will activate demand, traffic and therefore, will support our like-for-like performance over time. You are going to start seeing the first effects of this towards the end of this year, and the impact will be more visible through 2027. Now in order to support this shift, this strategy, we are strengthening our ELT. We announced as well that we have a new Chief Product Officer. Philippa Newman will be joining in March and will oversee product end-to-end design, collection management and development. This will strengthen our ability to translate a strategy into execution and to ensure that the creative efforts are placed where it matters the most across the collection. Let's go into next slide, please. Now, I'm going to deep dive on brand as well. Now of course, with any design, any brand, anything that the brand does only works, you actually notice it. You can have great product designs, but if not one is talking about them, what is the point about the whole thing in the first place. Historically, Pandora has been very strong at driving reach, and we actually built industry-leading awareness. This is hugely important, and this has helped created the healthy brand that we have today. But as the brand matures, awareness alone is no longer the constraint. We see this very, very clearly from our assessment, and we see that very clearly from our results as well, is that the role of brands now shifts from reach to relevance and from only visibility to being part of the conversation. And this slide shows this clearly again, and I'm illustrating this with the 2 markets I mentioned before, Spain and Italy. Spain and Italy are 2 mature markets of comparable scale, but with very different media models. Spain has been more heavily into activating PR, press and influencers and as a result, has generated earned media and cultural amplification year-after-year. On the other hand, Italy has historically relied on more traditional paid reach and on traditional TV campaigns, with very little activation of the earned media generating tools. I think the outcome is very telling. Sustained earned media in Spain has driven growth year-after-year through customer acquisition and broader momentum across all collections. We are not sharing actually the same chart as well, but it's important to know that all collections generating growth in Spain, which actually core growing at plus 17% and fill with more at a high 24% in Spain. In other words, where Pandora is covered by press and influencers, they talk about all the collections. The brand shows up its full jewelry portfolio. It builds momentum and it compounds growth. Importantly, as well is that, we tried this with Italy this year with the launch of the Talisman collection. And that show us well in that market that when distinctive newness is supported by a different media approach, customer acquisition improves. So this also gives us confidence that this is not a market-specific setup is scalable in other markets as well. So let me finalize this with summarizing the conclusion about what I've been sharing with you on the brand part. We start by distinctiveness, bringing uniqueness things that create the spark. This actually gives people, our consumers something new, something that is truly worth talking about. We then use earned media that carries the story, press, influencers present Pandora wider jewelry offering, bringing multiple collections, all the products into the conversation. Conversation turns into traffic, demand and revenue. So, this is simply how distinctive designs and earned media together become leading growth drivers. So, in short, we will be moving from saying and showing the same thing to the same people to letting different parts of the brand speak to different consumers in different ways. Now of course, you will have the question about when and how we are going to be seeing these changes and how and when these changes are going to be translated into business. Listen, we are already moving at pace. And I'm basically going to keep you very closely engaged throughout the year. In the coming months, of course, we will maximize the impact of our existing collections with earned media, but the full evolution of this interdependent communication model will follow next year. So, 2026 is expected to be a year of transition, and we expect to reap the benefit of these changes in 2027. Now, this addresses 2 main areas that we'll be addressing to organic growth, and of course, now we go into how we are addressing the commodity pressures we've been facing. So, if we can please move to the next slide. Now, I'm sure you all have noticed that one of the headwinds facing Pandora is the rising silver prices. So let me address how are we tackling this situation. We are doing this while we are providing, and this is very important, a superior consumer proposition to Pandora customers. And we are doing that in line with our DNA and with our vision. We are introducing a very important innovation that we announced today. We are expanding Pandora offering with platinum-plated jewelry, proven on our unique signature metal alloy that we have trademarked PANDORA EVERSHINE. Now with this unique metal alloy EVERSHINE, it has been optimized for platinum plating, which is actually delivering certified tarnish and water resistant as well as hypoallergenic and therefore, the product is outperforming silver for everyday wear. We will be providing more details of this innovation and importantly, on the impact of the business, so we can go please on the next slide. Now with the introduction of platinum-plated jewelry on our signature metal alloy EVERSHINE, Pandora is taking a very decisive step in evolving its product platform and strengthening the long-term resilience of the business. We will be the first jewelry brand to bring platinum-plated jewelry to the market at scale, combining precious metal aesthetics with superior everyday performance. Why am I saying this? In daily wear, platinum-plated jewelry outperformed silver. It does not tarnish, as I was saying before, it is water resistant and it actually maintains brightness over time, which is actually addressing some of the key quality barriers consumers associate today with all silver jewelry. And these benefits matter a lot, because our jewelry is worn every day. We've been talking with consumers, and we have conducted a lot of consumer studies and that actually showed that platinum-plated jewelry is actually to perform at par with silver products. But most importantly, platinum itself is cited by consumers as the second most valued precious material after gold. So, while we are doing that, which is very important as well in addition to offering better consumer benefit, this fully preserves Pandora craftsmanship. Pandora design language, and also, the fact that we can continue to use our hand finished technique. So basically, they allow us to continue to deliver the quality in line with our brand DNA. Now, I'm going to let Andres to go through the financial implications in more detail. But let me tell you that strategically, this evolution is fundamental. As you can imagine, by reducing exposure to silver price volatility and enabling a more predictable cost structure, this is helping to protect our future proof our business model, which is actually reinforcing our ability to deliver meaningful high-quality jewelry at accessible price over the long term. So, this was the main area that I wanted to deep dive with you. And I think now it's a good time to move into guidance for 2026. S,o if you can please put the next slide. So, what can you expect from us for 2026? We are targeting organic growth of minus 1% to 2%. Now this comprises like-for-like growth of minus 3% to 0% and therefore, a network expansion of 2%. Now the like-for-like growth is clearly lower than what I would have liked to deliver in any given year. But of course, we have a few reasons for that. First, we actually do not expect any support from the macroeconomic backdrop right now. It's an uncertain consumer backdrop. We also -- we see the need to step change execution in the few areas that I have just spoke about. Now on the EBIT margin, Anders will give you more detail, but we are targeting 21% to 24% this year. You can read it in a different way. Basically, this is about flattish versus 2025 when we're actually excluding the external headwinds that we are facing. Another way to look into this is that we are continuing to invest in our business while we are retaining high margins. Now regarding current trading, so far this year, we are currently around flat like-for-like growth. With this, I will now hand over to Anders to talk through the details of the guidance. Anders Boyer-Søgaard: Thank you. On the organic growth, we have already commented on the overall metrics of the revenue guidance. So, I just want to comment on the first purple building block here, the network expansion. We expect a 2 percentage point contribution to revenue growth in '26. There's no doubt that network expansion is still financially very attractive. But in this year, in 2026, we have decided to redirect more focus and resources towards reaccelerating like-for-like. And we will therefore see a somewhat lower growth contribution from network expansion than last year. Next slide, please. On the EBIT margin, the key message I want you to take away here is that we expect the margin to be broadly flat when you exclude the significant external headwinds that we are facing. And you can see in the dotted box in the bridge that we will be facing between 250 and 350 basis points of headwinds this year from the combination of commodities, tariffs and foreign exchange. The introduction of platinum-plated jewelry help offset these headwinds from '27 and onwards, but it will have a quite limited P&L impact specifically here this year. I also just want to update you on 2 of the building blocks in the bridge because they have moved since we last spoke about the '26 EBIT margin back in November. And as a reminder, we said back then that the EBIT margin this year would be around 23% based on a silver price of back then $48. So first, on the commodities. We previously said that the P&L is at least 75% hedged on silver and gold for 2026. And we can now confirm that we are, in fact, between 90% and 100% hedged, which is good news. And the reasons are partly business and partly technical. On the business side, we do see continued growth in the share of business from our plated products. And on top of that, we keep shifting to designs that are less silver heavy. And on the more technical side, we have revisited the forecasting assumption on how silver consumption is flowing through from initially buying silver as a raw material and then through production and then through inventories before being sold. And all of this means that the hit from commodity prices is only between 150 and 250 basis points, as you can see in the bridge. The second bucket I wanted to update you on is the tariffs. And this is a little bit technical as well. Tariffs in the U.S. are paid based on the production cost in Thailand. And as our hedging gains sits in Copenhagen, this means that the production cost in Thailand is based on spot silver prices and not the hedge prices. So, with silver prices increasing significantly since November, the negative impact from tariffs year-over-year is now 150 basis points versus around 60 basis points back in November. You can also see in the bridge that the net operating leverage is flat 0. And underneath that lies that we do keep investing in reaccelerating like-for-like growth. We will not be compromising on that. And then we offset those costs as well as annual inflation and annual salary increases through cost efficiencies as part of the Silverstone cost program. Next slide, please. So now let's look a little bit further out and then look at the EBIT margin in 2027 as well as in the midterm as we transition a part of our business to be platinum-plated. Before talking numbers, I just want to repeat what Berta mentioned earlier on. Platinum plated is, first of all, a great proposition for consumers fully aligned with the Pandora DNA. That is the important starting point. And in that context, the lower production cost is almost just a nice side effect. But what does that then mean for the financials? First of all, after the transition to platinum-plated, then Pandora's P&L and margin exposure to commodity prices will reduce significantly. And that's because the exposure to silver will decrease far more than the exposure to platinum will increase. With platinum-plated crafting, the lower commodity exposure will be partly offset by higher labor cost as it will require more crafting time to work with platinum and plating. But of course, labor cost is a more stable and predictable element than commodities. So, a few more high-level comments to help you understand what we are doing from a numbers perspective. In very round numbers, we will reduce the silver exposure by 80% with this transition. The first 30%-ish percent will be done next year, 2027. The next 20 percentage points-ish in 2028 and then the remaining 20% thereafter. The silver exposure, which remain in place is around 20% of the current exposure and is mainly related to the part of the assortment which will remain being crafted in silver. On the part of the assortment that we convert to platinum plated, the midterm aim for us is to get to a production cost which is in line where we have been operating during the last few years with silver at $30 and below. And thereby, we will be getting to the same gross margin. Initially, the gross margin will be a bit lower and then improve as we scale, learn and optimize. But of course, the gross margin will be much better all the way from the outset than at current silver prices. While we reduced the silver exposure, we obviously get some platinum exposure going forward, but it's far less than what we used to have on the silver exposure. And again, in very round numbers, you can think of it like this. When we reduce the silver exposure by DKK 5 to DKK 6 or $5 to $6, then the platinum exposure goes up by DKK 1, and that's roughly the equation and how to think about it. So, this means that with this transition, Pandora will remain a structural high-margin company. And you can see that on the slide here to the far right, where we show that we expect to get to more than 21% EBIT margin in the midterm. And that 21% EBIT margin is based on a silver price of $82 and tied to a margin of above $21, our free cash flow generation will, of course, remain high as well. So, in essence, this means that there will be no fundamental changes to our business model. And now you will ask about when, what does midterm actually mean? And it will take us a few years to get there, and that's probably as precise as we can be at this point in time. The transition as such of a relevant assortment from silver to platinum-plated will be finalized during 2028. But before we get production scaled, optimized, fine-tuned to the level where we will be hitting the above 21% EBIT margin, we need a little bit more time than 2028. But we will, of course, keep you updated. Now on '27 specifically, the starting point on how to think about that is the guidance that we've given for this year of 21% to 22%, as you can see to the left in the bridge. And at the current silver and gold prices, we have 11 percentage points of headwind next year as a starter as the hedging runs out. In 2027, we expect to be able to transition half of the targeted silver-based assortment into platinum-plated. And this gives us enough margin uplift to keep the EBIT margin next year in '27 above 14 at a silver price of $82 before the one-off transition cost. And the transition cost, that includes some deleverage on our own crafting side as we initially use OEMs to some extent, and there will also be some remelt costs and other one-off costs. And including those transition costs -- one-off transition costs, the EBIT margin next year will be at least 12%. And finally, we would like you to note that there will be around DKK 600 million in one-off capital expenditure that we need to reconfigure our crafting site DKK 300 million, DKK 400 million, DKK 500 million of that is expected to be invested already this year. Next slide, please. Well, you all know that high cash returns have been a part of the Pandora story for over a decade. And that includes last year as well where we returned almost DKK 6 billion in cash. And since the IPO, we have been running share buyback programs consistently and bought back 41% of the shares. And significant cash distribution will remain an important part of the financial algorithm going forward, but with a temporary lower distribution as we go through the transition to platinum-plated jewelry and mitigate the impact from the higher silver prices. As we announced yesterday evening, the proposed dividend to be paid in '26 is DKK 22 per share, and that's up 10% year-over-year from DKK 20 last year. And just to repeat this important message, we do not see any fundamental changes to our business model. So, with the transition to platinum-plated, we will remain a high-margin and high cash-generating company with an annual increasing dividend and with excess cash to launch a sizable annual share buyback program. And in other words, that means that once our plans to transition to platinum plated is further progressed, we will resume our share buyback programs. And with that, I'll hand it back to Berta. Berta De Pablos-Barbier: Thanks, Anders. So, thank you all for listening so far. I just want to conclude by highlighting just a couple of things. Like-for-like is definitely not where we want it to be right now and not where I think this brand can deliver. We know why we are in this situation, and we know where to act with decisiveness and speed. We are taking decisive action already to get back on track. We will become a design-led company that uses design to drive desire. Then, we will use our strong marketing muscle across more channels to amplify. Today, we have announced our latest new innovation, the introduction of platinum-plated jewelry. This is a highly attractive consumer proposition with a gradual rollout starting in 2026. The world keeps changing. The macro remains uncertain, but we are adapting and we are moving quickly. 2026 is shaping to be a transition year for Pandora. But I do want to emphasize that we see no fundamental change to the Pandora business model. We expect midterm EBIT margins to be over 21%, and the business will continue to generate significant free cash flow. And with that, I think we can open for Q&A. Operator: [Operator Instructions] The first question is from the line of Chiara Battistini from JPMorgan. Chiara Battistini: I have 2 questions, one on 2026 and then one on the transition to platinum-plated. On the guidance for full year '26 like-for-like between minus 3% and flat. I was wondering, if you could provide us with a bit more color on how you think about that by region and notably your assumption for North America embedded in the minus 3% to flat. And then on the transition to platinum-plated, I was wondering if you could share a bit more color on how you're thinking about the communication to the consumer as you will approach the launch and the transition, how you're going to -- really the messages that you're going to try to push to the consumer. And how to think also about the pricing these new products versus the traditional silver offer? And actually, just a follow-up on platinum. Are you going to start hedging platinum now or not? Anders Boyer-Søgaard: Thank you, Chiara, for those questions. I will not go into too much detail on the performance by region. But yes, I think I'll probably just leave it at that. The -- maybe while I'm speaking on the platinum hedge, we will be hedging that exposure is not going to be very big, but we will hedge that in line with our normal hedging policy for silver and gold. Berta De Pablos-Barbier: Thanks, Chiara. And yes, what we'll be communicating to consumers is what is more appealing to them. And what is appealing to them is that we are launching platinum-plated jewelry. Consumers consider today to be a -- platinum to be high quality. We know -- they know it's a precious metal. And something that we will be emphasizing as well is the superiority performance for everyday wear, which is something they truly care about. The fact that it's tarnish-free, et cetera, everything I just mentioned before. We've done extensive consumer testing, of course, of this product, as you can imagine, and we know that it will be well received. Regarding pricing, what the consumers accept today is that it can be priced as our silver prices are today. So, one by one, basically equivalent. Chiara Battistini: And just to follow-up on the like-for-like for 2026, I push my luck. Any indication on whether we should be thinking about North America sort of in line with the group level or any reason why to think that the performance should be different? Bilal Aziz: I think, Chiara, you can assume it will be broadly within that range of 0 to minus 3, it's 1/3 of our business. So, I think that's sensible. Operator: The next question is from Grace Smalley from Morgan Stanley. Grace Smalley: The first one, Berta, would just be on the product newness you spoke through. So, it sounds like you're focused on increasing the quality of the newness coming through in order to be more on top of maybe current fashion trends and becoming more relevant whilst keeping the number of SKUs constant. How do you see the opportunity for Pandora to use data insights to -- to more quickly react to fashion trends? And is there a risk that you increase the fashion execution risk of the business that could lead to potentially more fashion misses and increased discounting or how do you think about that? And the second question -- sorry, go ahead. Berta De Pablos-Barbier: No, go, go. I was going to answer. I was the first one, but why don't you ask the second question and we can just plan them? Sorry to interrupt. Carry on. Grace Smalley: Okay. Then the second one would just be for Anders on margins, just -- so over time, it sounds like you're confident to return to at least 21% EBIT margins in the medium term. Can you just elaborate further on the drivers to get from sort of the 14% adjusted in 2027, more than 21%. Thank you for the helpful slide with the margin bridge, but in particular, that last bucket on the margin bridge where you're calling out crafting optimization and other factors. Any more color you can give on that to just help us see how you rebuild to that 21% would be helpful. Berta De Pablos-Barbier: Yes. I'll start with the first question. I think let me step back a little bit. It's very important to say that the fact that you want to be a brand that is on trend, it doesn't mean that we will be chasing trends. And it's a very subtle distinction here. Pandora is not going to become something that is chasing the latest trend, but that doesn't mean that we can be behind either. So something that Pandora has been very good at, and we will continue to be is very data-driven and consumer insights, and that is not going away. What we are adding, and I talked about in the call about bringing Philippa as the Chief Product Officer, but we are also asking Stephen Fairchild, which has an extensive knowledge of the industry and cultural relevance to be there understanding what is culturally relevant and what is on trend. So I think this is the move that we are doing. And as you rightly said, this doesn't mean launching more. As I show in this chart, we've been doing a little bit more of the same. I talk about distinctive newness, if there is any doubt about what that can be, it means that when you look about 1 year after the other, you should be able to see that there has been some change in the products that we brought from the previous year. And that is what we've been having been very good in all the collections, and that's what we are looking forward. So, it's about bringing uniqueness that is worth talking about. Anders Boyer-Søgaard: And on the other question, Grace, I'm sitting here looking at Slide 24 in the investor presentation as getting from the at least 12% next year to 21%. So those 9 percentage points, if I just briefly comment on that and especially the last one. The first 2 transition costs, they stop, okay, then we get from above 12% to above 14%. The second -- the next one, the transition of the remaining assortment is pretty straightforward, that's another 4 point-ish uplift on the margin. That's simply doing the rest of what we already do in 2027, converting that from silver to platinum-plated. And then really getting to your question, the last 3 points in the last bucket that sits there, there's 3 bigger elements. One is that, we have been perfecting for years to produce in silver. Now, we're moving into platinum-plated, and we'll probably be a little bit inefficient in the beginning or we will be, and then we will get smarter and smarter as the days, months and quarters go by. That's one element in it. We will -- when we get out of '27, still be using OEMs to some extent. So, we will get that in-house afterwards at a cheaper cost that sits in that bucket as well. And then within the -- there will also be some continued optimization of what sits in the EVERSHINE core alloy over time that will come and sit in that bucket as well. So it's all something that we have quite some visibility on how it's going to play out. Grace Smalley: Okay. And just one follow-up, if I may. On the -- you mentioned how the composition of COGS will shift away from raw materials more towards labor. Is there any way to think about -- I think it's roughly 40% of your COGS in 2025 was related to raw materials and silver was around 30% of that. If you -- as you get more towards that medium-term 21% EBIT margin, how should we think about that composition of COGS and the percentage of that, that you expect to be raw materials versus labor over time? Anders Boyer-Søgaard: If -- if okay, Grace, if I focus on answering the question on specifically on the products that we are converting from silver to platinum-plated, then roughly what -- how it's going to work out is that -- on that part of the assortment, then commodities, that's silver then in the past few years have been around 50% of the cost of goods sold and labor have been 1/3, 33%, 34% of the cost of goods sold and then the remaining 15%, 16% is sort of all other stuff. Then now as of today, silver is at a much higher price. So that 50% on silver commodities goes to 75%. That's roughly how to think about it. So that's our starting point that today when the hedging runs out, silver will be 75% of the COGS on the part of the assortment that we are converting. Now then we get into platinum-plated EVERSHINE, then that 75% being commodities drops to 25%. So, it goes down by 2/3. On the other hand, labor will go -- will be around 50% of the production cost in -- when we get to platinum plated EVERSHINE. So, I hope that makes sense. A lot of numbers here. I'm throwing at you, but I hope you can make sense of it. Operator: The next question is from the line of Mr. Chauvet from Citi. Thomas Chauvet: I have 2 questions. The first one on generally the platinum-plated move. A few questions, if I may. Just to confirm, so silver and platinum-plated products will be sold at the same price in '27 and as long as you sell silver. What is your anticipated mix of revenues if we look far out beyond '27 between silver, gold-plated and platinum-plated relative to 75% silver, 25% gold-plated today? And just so I understand, are you intending to entirely replace the silver offering by platinum-plated in the future? And if Platinum was a superior customer proposition with better economics for Pandora, any reason why it hasn't been done before? Could you perhaps talk about the main disadvantages you see of platinum relative to silver? I understand clearly the appeal and the advantages, but any difficulties that you see? And secondly, on like-for-like, just a follow-up on Chiara's questions earlier. Given your LFL guidance for the year is minus 3% to flat at the midpoint, it implies some deterioration from current trading, which is flat despite easier comps you're getting from Q2. So, what's driving this maybe more cautious outlook. Are you seeing perhaps signs of broader jewelry consumption fatigue, any brand-specific factor? You talked a little bit about design, Berta, earlier. And should we expect any particular region to be under more pressure than it was in Q4 January? Berta De Pablos-Barbier: Okay. So let me start with your 3 questions under question number 1, but I will address them all. So, on platinum-plated, when we'll be introducing in 2026, the first platinum-plated and even in 2027. The intention today is that they are at the same price that silver is today. Having said that, what will happen with our silver portfolio, that's something that we have to monitor carefully because silver price are increasing, and therefore, we cannot ignore that. The intention is not to replace our entire assortment. We will be keeping some collections on silver. So, silver will continue to be part of our basket of materials. It's just it will not be as dominant as it is today. So today, we envisage that by the time we finish the transition, 25% of our assortment will still remain in silver. If you go back to the aesthetics slide, you can assume that the sparkling aesthetics and the fine aesthetics will continue to be in silver. Why we haven't done it before? Well, if it was that easy, everybody would have done it as well. We've been working on this new metal alloy development, which started with our gold-plated products in 2011, and we have spent the last 18 months optimizing it and perfecting it so that it is better for platinum-plated. So, this metal alloy EVERSHINE has been something that has been a lot of -- the fruit of a lot of labor and high -- a lot of people working on making that possible. So now it's there. We are maximizing it. Bilal Aziz: Yes. I run the like-for-like question now basically. Thanks for the question there, Thomas. So yes, factually correct. Obviously, comps get easier through the year. I think just kind of repeating what Berta said, environment is uncertain about the early part of the year. We did obviously flag uncertainty in the Q4 release, particularly around the U.S. Let's see how that evolves through the rest of the year. And then last, but not least, just repeating what Berta has said as well, a lot of the initiatives, obviously, back end of the year, December into 2027 as well. So, the combination of those factors is what leads us to our initial thought process. Let's see how we do through the rest of the year. Operator: Next up, we have Lars Topholm from Carnegie. Lars Topholm: A couple of questions for me also. One is regarding the core of PANDORA EVERSHINE. If I look at your Golden Rose Gold, you have a Core consisting of palladium and copper and then your secret-sauce. Maybe a stupid question, but shifting to more plating, does that mean you suddenly get a relevant palladium exposure for us to consider? And then a second question, entirely different, but you're talking about a transition period where you use OEM production. And does that imply that you have to make layoffs in the production in Thailand since implicitly those crafting facilities will probably have to do less. Anders Boyer-Søgaard: Lars, I can take the first one here on the palladium exposure will go up a bit, but it's actually really tiny. So, from a commodity exposure perspective, it's palladium -- sorry, platinum, sorry, platinum, silver and gold, while the others, copper, palladium are really small. Berta De Pablos-Barbier: Yes. And on the second, Lars, let me take that one. I mean, the good thing about this EVERSHINE metal alloy is that it behaves as a metal exactly as silver in terms of the melting point, in terms of the hardness, et cetera, which means that we can continue to use the same crafting techniques that we use with silver, whether that is casting or the way that we set our stones or the way that we apply enamel, et cetera, et cetera. The plating, of course, indicates that it will be an extra step as we do today with our gold-plated product, that is the plating and the polishing of that platinum. So that is the plan. So, it's more about replacing what we have and increasing, of course, our plating capacities. We are starting already on Vietnam. And as Anders was referring before, this will be a rollout about bringing that more in-house, and it's mainly on the plating. Lars Topholm: And just a small related question to that. So the 200 bps headwind during the transition does that illustrate the margin you have to give away to OEM manufacturers? Or does it include other elements as well? Anders Boyer-Søgaard: That's a good question, Lars. There's other elements in it as well. There will be -- and that's going hand-in-hand with paying some margin to OEMs. We will also see some -- what's the right word, deleverage on our own crafting sites because we will be for a couple of some quarters producing fewer units on our own crafting site. So that sits in there as well. Then there's a little bit of scrapping of existing machines, a little bit of write-down of -- sorry, remelt of -- as we transition to -- out of silver and into platinum. But the 2 big buckets in the one-off cost transition cost is OEM margin and deleverage on our own crafting setup. Operator: The next question is from the line of Kristian Godiksen from SEB. Kristian Godiksen: A couple of questions from me as well. First of all, wondering what your view is on extraordinary price increases, especially in this market you label as a dynamic pricing environment? That would be the first question. And then the second question would be more on if you've done any or you could give some more flavor into the consumer study you made, both in terms of the differences between the ages in the consumer segment, both in terms of the newness you're contemplating, but also on the introduction of the platinum-plated products. And maybe you could also provide some commentary on the reason why in your brand funnel performance you show on your slide that the most mature segment in terms of age is sliding somewhat. Anders Boyer-Søgaard: Yes. Kristian Godiksen: I mean, mature of age, sorry, in terms of the segmentation of your consumers. Berta De Pablos-Barbier: Great. Okay. Anders Boyer-Søgaard: Yes. And maybe on pricing question, I can start out. We have included a bit of pricing in the guidance, 2% average price increase is included. So nothing extraordinary, if you will. And so how should I frame this? The silver prices and gold prices are going up quite significantly, but the competitive landscape is, as you know, very fragmented. Some players in the accessible during price points are exposed to silver like we are. Some are not at all. And then you have everything in between as well. And that means that we see that -- see and expect that pricing behavior will be very different by country. We have some markets where we see that the silver exposure is pretty much like ours. We have other markets where we see that many other players have less silver exposure than what we have. So there will be quite some differences between what other jewelry companies out there are thinking reflecting on as of today. Then, I think we also say that, this shock on commodity prices also means that the industry in itself is changing. We know that we're not the only one looking at using other metals, other materials to produce. And that -- that's what leads us to say this is going to be quite a dynamic pricing environment and where in the guidance, we assume that there will be on average 2 percentage points of average price increase. But I can't rule out that it will end up in a different way, but it's not something that we have included in the guidance, if you like. Kristian Godiksen: Okay. I guess you're mirroring what you said previously on you want to play the back end based on your hedging policy that you're hedged for the full year now for this year. And hence, I guess, you can also do a bit of wait and see on what competitors will do, and I guess we'll follow suit in terms to bring up the margin. Is that correctly understood? Anders Boyer-Søgaard: Yes. In a way -- sorry, my language, that would kind of be the lazy answer because the fact that we have been -- it's been good that we have been hedged, then that's in a way as a relevant factor on how we actually react. And when we're sitting in France or sitting in the U.S., we should look at what's the competitive landscape. So, if that gives us opportunities to increase prices, we should do that no matter whether we are hedged as not. But of course, looking at our P&L, it gives us another year of good margins before all the hedging runs out. Kristian Godiksen: But I guess -- sorry for the offset, but I guess you being a market leader in some of the countries, then I guess it would be natural that you would be the one leading such a price increase. I guess, that was -- is that a scenario as well that you would be the leader in implementing price increases? Anders Boyer-Søgaard: Of course, that's also in the relevant market, that's also one of the factors playing in how we look at it. Yes. Berta De Pablos-Barbier: Let me just take the second question. I think it was on the consumer age. So, I think a couple of things that are important to know about that is that when you look at the age segmentation, what you see is that the tendency is for to increase on the 18 to 24. We pretty much keep stable on the 25 to 40. And where we normally see declines is that the above 40. So that is a general in Pandora. Now your question was as well by collection. What is interesting is that by collection, we don't see many difference. So, I'm just going to give a couple of points on the new collections that I mentioned before, whether it's on ESSENCE or on Talisman or Minis. We see actually a very similar split on always having a majority of the younger part of the Gen Z, which about 25% of that they come to our collection. The next group is actually the Gen X, and it actually gets after lower when we get into the boomers. So very similar in terms of total Pandora and by the time that we bring newness. On the platinum-plated, we didn't see major difference on the large consumer studies that we conducted. What we did see is that it was a much higher knowledge about the different precious materials and the difference on the older consumer than on the Gen Z. So we found that the young consumers were more open to accept new materials and new metals and that we thought it was just a good idea, the best everyday wear, they were much more positive about that, but there was no barriers on the others because platinum is a precious metal. Operator: The next question is from the line of Anne-Laure Bismuth from HSBC. Anne-Laure Jamain: I have 2 questions. The first one is on EVERSHINE. So where the pilots have been conducted for the EVERSHINE? And how will you manage the perception risk around plated versus silver, especially in markets where Pandora trust was built on silver? And the second question is about cost efficiency. So, can you detail some of the biggest of cost efficiencies within the Silverstone program? Berta De Pablos-Barbier: The first question is on the pilots. Yes. So, on the pilot, we conducted that in all of our major markets. And there was no -- I mean, the consumer today is very used to gold plated products. So, there is no education needed there. They understand that it is a yellow metal called yellow gold, and they can actually buy more accessible products when they are plated. And now they understand that there is a white metal that is called platinum, which is for them is better than silver, and then we are just plating this product. So that was what actually came into that. So, actually, it is -- it was actually around nearly 25,000 participants. So, this was quite large. And as I said, it was conducted on different markets. What we also tested, and it is very important is whether that was impacting Pandora brand image, but how was impacting Pandora brand image. And everything was actually giving them much more positive impression about the Pandora brand, because it's contemporary, it's actually taking care about their needs in terms of everyday wear, as I just said, and is bringing a precious material that is highly desirable. Anders Boyer-Søgaard: Anne-Laure, on the question on cost efficiencies, there's not one big dominating bucket in the savings that are being delivered. It is spread across. But just to mention a few on store operations and store operations is obviously a big part of our P&L. There we constantly look at how we optimize store -- the roster in the stores or store staffing. The CapEx that we are spending when we're refurbishing stores, how long time is it closed down, it makes a big difference whether it's how many weeks it's closed down. And then beyond that, beyond the rental and the staffing, then you have all the small cost lines in running stores of electricity, WiFi, cleaning. Then there's been a good run on the point-of-sales material and the visual merchandising, getting those costs down. One of the single biggest buckets is crafting and supply that also through '25, and also expected going forward have been really doing well, keeping perfecting how we are producing our jewelry. Then, we have reorganized our procurement organization. And that's -- I think it's just around a year back, a little bit less than a year back, but already seeing really good results from that having a much stronger procurement muscle. Logistics is a decent piece as well where we've been looking at the distribution center footprint that has helped us also with not just reducing the logistic cost as such, but also reducing custom duties. That includes that we have opened up a distribution center in Canada that helps us reduce the custom duties as well. So many -- and it's a long list, but these are some of the areas. So I think important to say, nothing is this where we get into the gray zone of risking top line. This is all sort of tough choices, but the cost elements that are not touching what drives the top line directly. Anne-Laure Jamain: I have one additional question. So, with gold-plated jewelry, the gold rub off eventually. So what does it look like for platinum-plated, please? Anders Boyer-Søgaard: Sensitivity on gold, the gold exposure doesn't change compared to where we are today. So roughly, it's when gold moves $100, it's 5 basis points of exposure or so, yes, that's the rule of thumb you can use. Anne-Laure Jamain: Yes. But my question was more around the evolution of the product with platinum-plated over the years. So will it change because we know that with gold-plated, yes, the product can evolve. And yes, the gold contain won't be that good. So how will it be for the platinum-plated product? Berta De Pablos-Barbier: I don't understand the question, but I'm just going to -- if it's whether the designs are going to evolve with platinum-plated, the way that we are considering this is about some of them will be replacement. So, there will be no change in design. But of course, then we will be bringing more newness with platinum. If the question was about the durability of the metal, then the great thing about platinum is that it's highly durable. So silver tarnish, whereas platinum doesn't. Silver loses a little bit the brightness, whereas platinum keeps and also keeps the color. And when it age, it age, I can tell your French accents, but it's a little bit with more of a patine. So it's actually a more novel way of aging. Operator: The next question is from the line of Andre Thormann from Danske Bank. André Thormann: Just 2 for me. First of all, on the platinum-plated. Just to be sure, how flexible is this plan if silver price come back in $20 or $30 per ounce? And maybe also on the share buyback, what milestones is it you need to see on the platinum-plated in order to restart the share buyback program? And then maybe lastly, on the price elasticity, previously, you have said minus 1. Maybe it looks a bit worse now. I mean, can you give an update on where you see price elasticity? Berta De Pablos-Barbier: Okay. So let me start by the flexibility and then Anders, you can comment. So, we are not coming back. I mean, the reason why we are doing this is because we believe it's a better proposition for the consumer. And what it's doing is actually making us much less dependent in one commodity. I mean, you all know that being so dependent on only one commodity for any business, no matter which industry you play is high risk. So, this is about reducing the commodity and increasing our basket of materials. Now fundamentally, as we are not changing our crafting techniques that we could put in our facilities one or other metal that is not an impact, but it's more about why we are doing this and what is actually allowing us to do for the business. Anders Boyer-Søgaard: And then Andre, I can take the question on the share buyback, and I'll start a little bit in a different place. Our capital structure policy is to have a leverage of between 0.5 turn and 1.5 turns of EBITDA. And with the dividend that we are paying out in '26, if you do a little bit of math with the margin guidance or margin guidance we have given for '27, then you would be able to calculate that we would be slightly above the high end of that leverage range even without the share buyback next year. That's the starting point and that assuming that we land at an EBIT margin of 12%. So, I think with that, I think it was a prudent approach for us to sort of gain a little bit of time going through this transition. And then as we get further visibility on that the transition to platinum, then we will be reconsidering initiating the share buyback program. So, the trigger point is also simply a part of gaining time getting through this transition where there will be a temporary dip in EBIT, which, of course, drives up leverage. Could it be ruled out that we would do a share buyback program where we will be a little bit above the capital structure policy for some time? I guess, as long as that's sort of a clear path towards getting down towards into the leverage range. I guess that's not a stupid idea. But as of today, February 5, we think it's a little bit too early to do it. Operator: And with this, we've come to the last question from the line of Anthony Charchafji from BNP Paribas. Anthony Charchafji: This is Anthony Charchafji from BNP Paribas. Just 2 questions. The first one is very simple. It's just asking if we are going a bit more towards, I would say, luxury positioning rather than mass market. And my second question is on the project pipeline this year. So if there is any newness this year in the Core or the Fuel and also how to think about working capital and inventories in the next 2 years of transition? Berta De Pablos-Barbier: Let me start. No, there is no intention of changing the positioning of Pandora. Pandora is a desirable jewelry brand, is delivered as a desirable jewelry brand and will continue to be so. If we were moving to luxury, we might not have gone to all this hassle of changing silver because we could simply have maybe increased prices. So this is actually a move of delivering a very good consumer proposition, but actually keeping the accessible prices. So I think that is important. That is very clear. The second question was on newness on Core and Fuel with more. So let me explain a little bit how we operate at Pandora. It normally takes around 18 months from the first sketches from our creative team until we see the product in the store. So we have new team. Philippa is starting. So it's going to take us some time to shake and change and reset some of the designs that we have, specifically on our Core. We started already with some distinctiveness newness on ESSENCE and on Talisman and on Minis. So you should expect to see more of those because it was something that we started last year. And what you should expect to see more of is that we just started the year with a great collaboration with Bridgeton. We are emphasizing that to draw more attention into the products that we currently have. And of course, where you will start seeing more differences is from 2027. But we are moving with the speed and maybe by quarter 4, we'll have something more as well, but that's the situation today. Anders Boyer-Søgaard: And then, Anthony, on the question about inventories, I think the way to think about it is 2 phases. or maybe 3 phases, even there's a phase between now and this summer where we have hedged all the purchases of silver at a low price, just above $30. Then that's Phase 1, so to speak. Then Phase 2 will be in the second half of this year where we have not hedged at this point in time, the purchasing of silver. The P&L is hedged, but not the purchasing of new raw silver. That will then happen at the spot prices. So there will be a period of time where inventories will be going up because of that. And then the third phase is that we will start using less silver step by step by step as we convert to platinum. And that's then Phase 3 that eventually will end that inventories haven't modeled that all the way through, but be at the levels where they were historically, maybe even a little bit lower because we have the overall commodity exposure will go down. So we don't need as much of commodity inventories. But for this year, specifically, if we look at it from a calendar year perspective, the cash conversion will be impacted by inventories ending the year higher because we will be sitting with silver on the inventories, as of today, just around $80 per ounce. I hope that helps. Bilal Aziz: Brilliant. On that note, thank you very much for taking the time. And any questions do follow up with Investor Relations. Thank you.
Operator: Good morning. This is the Chorus Call conference operator. Welcome, and thank you for joining the Fourth Quarter 2025 BPER Consolidated Results Conference Call. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Nicola Sponghi, Head of Investor Relations of BPER. Please go ahead. Nicola Sponghi: Thank you, and good morning, everyone. I'm pleased to welcome you to our full year 2025 earnings conference call. Before I give the floor to our CEO, Gianni Giacomo Papa, please be reminded that our slide set and press release can be found on our corporate website. That said, after the presentation, our CEO and our CFO, Simone Marcucci, will take care of the Q&A session. I will reiterate that this is reserved for financial analysts whom I will kindly request to ask a maximum of two questions each so that everyone will have the opportunity to contribute to today's call. Thank you very much. I will now leave the stage to Mr. Papa, CEO of BPER. Gianni Giacomo Pope: Thank you, Nicola. Good morning to everyone, and welcome to our end of year results presentation. Before giving you details of the financial performance of BPER, I would highlight a number of key features of this last year. 2025 has been an intense year for both BPER and BPSO. Since August, the two banks have been extremely busy with the integration. Please note that the update of B:Dynamic | Full Value 2027 will be presented in the second half of this year. The combined group has been able to register outstanding results, thanks to a strong focus on commercial activities, both at revenue level and on the cost side. As you can see on the slide, despite a complicated macroeconomic context and ongoing geopolitical headwinds, we've been able to increase customer loans and TFAs to EUR 551 billion. And as you will appreciate later in the presentation, our capital position remains strong despite the BPSO acquisition, our business growth and the total return swap we implemented in Q4 '25. Financial year 2025 has proven to be a record year in terms of the bottom line, thanks to all the group companies and to all our employees. Despite the ongoing integration of BPSO, our colleagues have been able to focus relentlessly on commercial activities. NII has been resilient in spite of an acceleration of the reduction in interest rates and the progression of net commission income has been extraordinary, thanks to the effort of all our colleagues. We have transformed ourselves as a key domestic player with an 11% market share from 8% in 2023. In addition, we have achieved a very thorough presence in rich Northern Italy, where we are present with more than 58% of our branches compared to 47% in 2023. And finally, as you can appreciate on the slide, since April 2024, when the new Board of Directors took over BPER shareholders have benefited from a total shareholder remuneration, which is close to 220% versus 127% for the FTSE Italian Banks Index. Moreover, our market capitalization stands at more than EUR 24 billion, an important leap from a market capitalization of just EUR 6 billion in April 2024. As such, BPER has been included incrementally in more than 130 market indices, which have benefited the stock in terms of liquidity and purchasing momentum. Let's now move to our Q4 financials on the next slide. I would like to draw your attention to the continued progression of our dividends generation. As a result of net profit growth between 2021 and 2024 from approximately EUR 480 million to over EUR 1.4 billion, cumulative dividend payments in the same period amounted to over EUR 1.5 billion. And the payout ratio has increased in the same period from 17.8% to 60.6%. As you can see on the right side of the slide, for financial year 2025, the Board proposed a dividend distribution of almost EUR 1.370 billion, of which EUR 196 million have been paid in terms of interim dividend in November 2025, amounting to a payout ratio of approximately 75%. This follows our target dividend payout ratio following B:Dynamic | Full Value 2027. Let's turn the slide to BPER's key financial results. I'm extremely pleased about financial year 2025. In the first part of the year, both banks have focused significantly on business growth and their respective strategic plans. In a similar way, in the second half, despite the ongoing business integration, both banks performed extremely well. These outstanding results have been possible because of the remarkable commercial performance which led to continued and robust commission growth and resilient NII despite the acceleration of decreasing interest rates. This slide highlights the financials of the new group based on the consolidation of BPSO's second half results. As such, the impact of BPSO on the consolidated financials accounts for only 6 months. Please note that balance sheet items, on the other hand, include the full 12 months consolidation of BPSO. Also please note that as we mentioned in Q3, Alba Leasing has now been excluded from the consolidation. In order to ease the reading, on the right side of this slide, we have included on the bottom part of each box BPER's like-for-like results. As you can see, total revenues now amount to EUR 6.6 billion and net profit adjusted amounts to EUR 2.1 billion. The cost-to-income ratio stands at 45.7%, underlining the continued focus on cost efficiencies. Please bear in mind that on a like-for-like basis, the cost/income ratio stands at 47.2% and has improved by 314 basis points in the last 12 months. So a tremendous effort in operational efficiency has been carried out. Furthermore, the cost of risk stands at 24 basis points, while like-for-like, the cost of risk landed at 34 basis points, basically flat in the last 12 months. The return on tangible equity stood at 20% while the CET1 ratio continues to be very solid at 14.8%. Despite the acquisition of BPSO, business growth and the implementation of the total return swap in 2025, organic capital generation by BPER amounted to EUR 2.3 billion or 340 basis points in the last 12 months. In a similar way, the liquidity profile of the new group is sound with short- and long-term ratios well above regulatory thresholds. Slide 7. As we mentioned in Q3, please note that the figures reported on the left side of the table concern BPER on a like-for-like basis. We have included two columns with the consolidated financials which embed only 2 quarters of BPSO contribution. It seems to me pretty clear that BPER is reporting a set of record results. As you can appreciate, in the last 12 months, total revenues were up by over 2.5%, driven by a resilient net interest income and a very strong result in net commissions. The growth path on net commissions have been remarkable and better than planned. Moreover, the resilient performance of NII, as I will later explain, was supported, particularly by commercial efforts of our network. Our continued focus on operational efficiency ensure costs to come down by 5.1%, both in terms of HR and non-HR costs. Loan loss provisions stood at EUR 316 million on the back of our continued conservative approach. As a result, BPER's adjusted net profit almost reached EUR 1.8 billion, up by almost 27% in the last 12 months. Let's move on to Slide #8. As you can see, these outstanding results allowed us to perform better than our guidance for 2025, both on a like-for-like and on a combined basis. In this respect, I can say that we are well ahead of B:Dynamic | Full Value 2027. As far as 2026 is concerned, we expect BPER to continue this trajectory on a like-for-like basis. Further information on guidance, including BPSO will be given at the business plan update scheduled for the second half once the full integration will be completed. Let's move to the core part of the presentation. After some 15 months since the launch of B:Dynamic | Full Value 2027, a quick glance at the progress over plan is a must. The plan, I remind you, remains to date stand-alone, and the merger with BPSO is an accelerator of B:Dynamic | Full Value 2027. Here are some highlights. On Pillar 1, the strong commercial push enabled new lending to increase by 13% in the last 12 months to almost EUR 20 billion. Net commission income growth continues to be very robust, particularly in Wealth Management and Bancassurance. And our customer base continued to grow significantly with over 50,000 net new customers acquired in 2025. On Pillar 2, the following highlights are important. Digital channels now process 93.8% of the bank transactions with approximately 28% of new customer acquisition and best-in-class completion rates. Digital sales continue to increase, thanks to higher cross-selling and product penetration. And we consolidated the digital human model and completed the end-to-end digital operating platform for business and corporate, launching Digital Corporate Banking and Smart Banking Business with fully digital SME credit solutions. As far as Pillar 3 is concerned, our conservative risk approach enables BPER to boast the most conservative asset quality ratios in Italy, while at the same time, we're increasing automated credit approvals for selected retail, small business and SMEs. And finally, on Pillar 4, on technology, security and AI, the group data center rationalization process and cloud implementation of all multichannel retail applications are fully completed. In this context, CapEx is running according to plan. Our commitment to ESG-related lending continues to be strong with some EUR 3.9 billion of new ESG lending in the last 12 months. And finally, over 4,000 colleagues have already been involved in BPER's Academy and training paths. Let's now turn to our financial performance. Despite the overall scenario characterized by an acceleration of the reduction of interest rates and continued geopolitical turmoil, BPER produced a set of remarkable results. Noteworthy, our total revenues, which increased by 2.5% on a like-for-like basis to over EUR 5.7 billion and almost to EUR 6.6 billion, including BPSO. Core revenues were stable at EUR 5.4 billion, driven by continued strength in net commissions and resilient NII. In this context, the ratio of net commission income to total revenues rose from 37% to 38% in 2025, proving the high quality of our revenues. As we will see later, I wish to highlight the commercial drive of NII, which increased between Q4 and Q3. Finally, it is important to underline how our productivity index, measured as net revenues on risk-weighted assets, has continued to improve relentlessly every quarter from 9.5% at the beginning of '24 to 10.1%. This is a remarkable result, and it is among the highest productivity ratios in the industry. Let's move on to the next slide, which focuses on net interest income. Although net interest income came down by some 3.2% in 2025, I'm extremely pleased about the outcome, given the context of lowering interest rates. As you can see on the slide, commercial spreads came down from 3.7% to 3.5% in the last 12 months, negatively impacting the NII line item. In the quarter, however, NII was slightly higher by 3.5%, driven by marginally higher commercial spreads from 3.4% to 3.5%. In an opposite direction, but to a lesser extent, lower impact of average loan volume and an important contribution of noncommercial drivers related to asset liability management exercise. Please note that loan volumes in the quarter actually increased by 2.1%, driven primarily by retail and factoring. In this particular context, commercial actions aimed at increasing the quality of loan volumes have been extremely effective. This had a positive effect on credit risk-weighted assets, which we will illustrate later. As I mentioned in the slide on progress of our business plan, new lending in the last 12 months increased by 13% to almost EUR 20 billion. Finally, I would like to highlight that our NII sensitivity on a like-for-like basis to 100 basis points movement equal to EUR 176 million in the quarter versus EUR 184 million in the previous quarter. Now let's move on to the development of net commission income. The trajectory of net commission income has been spectacular. As you can see on the slide, thanks to B:Dynamic | Full Value 2027, the performance of net commission income in each single quarter of 2025 was higher than in each quarter of 2024. As such, net commission income continued its strong progress up by 5% in 2025. To date, this performance is well above the targets of our plan. The mere fact that net commission income contribution on total revenues increased to 38% in '25 versus 37% in 2024 is a clear indication of the increasing high quality of our revenues. Our focus on capital-light, high-quality Wealth Management products is proven by an increasing proportion of this versus total commissions at almost 43% of total from 41% 12 months ago. The remarkable performance of Wealth Management fees is underlined by an increase of more than 10% in the last 12 months. Please note that Bancassurance fees in the last quarter are always positively influenced by performance fees, hence the 122% increase quarter-on-quarter. That said, the most important contributor remains Banking Services Fees, which almost reached EUR 1.1 billion. Although the contribution of this fees is coming down as a percentage of total commissions, we expect this to pick up significantly once BPER and BPSO will be fully integrated. Let's move to the next slide. As you can appreciate, since the launch of B:Dynamic | Full Value 2027, TFAs, the most important driver of commission income has been growing from approximately EUR 300 billion to almost EUR 330 billion on a like-for-like basis and to over EUR 420 billion with a new group perimeter. This is primarily as a result of BPER being increasingly perceived as a relevant player in Italian asset gathering. The integration of BPSO will allow us to further strengthen our focus on asset gathering activities and will ensure the exploitation of further commission-related potential. Key drivers in the quarter have been AuCs and AuMs. An important contributor, for example, is Arca Fondi SGR, which reported over EUR 50 billion in total AuMs at year-end versus EUR 45 billion at the end of 2024. Noteworthy to emphasize the fact that asset growth between AuMs and AuCs amounted to approximately EUR 16.7 billion, of which EUR 3.9 billion related to net inflows and EUR 12.8 billion related to market effects. In Q4, there has been an important asset rotation from deposits to AuCs mainly due to the issuance of certificates as well as bond and treasury placements. This is important as we are now increasing penetration of liquidity management for both corporate SMEs and private clients. Finally, it is important to note that at year-end, the loan-to-deposit ratio stood at 76.3%, stable quarter-on-quarter. This will enable us to continue to grow the loan book and to transform client liquidity into AuCs and AuMs. Let's move on to our performance on the cost side. Before I start commenting on costs, a topic of which I'm very proud of, let me anticipate that integration costs of approximately EUR 300 million are not included in these figures in order to show cost progress on a normalized basis. I'm extremely satisfied about the cost performance. The enormous effort of the whole bank on operational efficiency is bearing its fruit. Total costs were down by above 5% in 2025, and this has been achieved for both HR and non-HR costs. Our plan actions continue to reduce the cost/income ratio, which decreased from 50.3% to 47.2% in the last 12 months. Including BPSO, the cost/income ratio would further lower to 45.7%. On the HR side, at year-end, the total accounts came down to 19,000, 700 less than in 2024. In terms of the combined group, total accounts stood at 22,600 at year-end. In addition, as a result of previous agreements, we are expecting over 220 exits in 2026. And furthermore, we expect mainly in the same year, 800 additional exits aimed at the implementation of a generational change program in the bank. As a final note, the strong improvements of non-HR costs is the result of our relentless focus on cost efficiencies. As per our plan, we have significantly reduced outsourcing and consultancy costs. Slide 17. As you can see, the trajectory of the cost of risk is very sound. LLPs came down by 2% in the last 12 months, while the cost of risk stands at 34 basis points, slightly lower versus 2024. Including BPSO, the cost of risk would stand at 24 basis points. In the quarter, our continued conservative approach translated into an improvement -- improved NPE coverage ratio, which increased from 56.3% to 57.5%. This remains one of the highest among Italian peers and will act as a further buffer against any potential deterioration in asset quality. Moreover, our conservative approach is further confirmed as we report in Q4 2025 coverage ratio on performing loans at 60 basis points, mainly driven by an improvement of the rating classes of our credit counterparts. This ratio is among the highest in Italy. As we already mentioned in Q3, please note that when including BPSO coverage ratio are somewhat lower due to a technical factor. BPSO nonperforming loans are reported only on a net basis. As a result, the total NPE coverage ratio, which decreases from 57.5% to 52.8% in Q4 is driven by this reporting difference. Also, please note that the total NPE coverage ratio, including BPSO, improved significantly by 280 basis points from 50% to 52.8%. Moving forward, once full integration will have been accomplished, coverage ratios and NPE ratios will be calculated in a homogenous way. Let's move on to asset quality on the next slide. On asset quality, let me state that Q4 was characterized by some loan disposals of single names. As a result, the gross NPE stocks were lower versus the previous quarter at EUR 2.3 billion, and the gross NPE ratio came down to 2.4% from 2.7%. In any case, as in previous quarters, the quality of our loan book continues to show a very healthy state with net NPE ratios improving to 1.1%, one of the lowest in the Italian banking system. As far as the combined banks are concerned, attention should focus on the net NPE ratio, which stands at 1% and not on the gross NPE ratio. The reason is exactly the same as previously explained, which is that BPSO only reports on a net basis. Having finished with asset quality, let's move on to the development of the bank's risk-weighted assets. As you can see, in Q4 2025, total risk-weighted assets of BPER, including BPSO, decreased to EUR 80.1 billion. Despite higher volumes, credit risk-weighted assets were down by EUR 3.1 billion, thanks to high-quality lending and the deconsolidation of Alba Leasing. On the other hand, operational risk-weighted assets increased by EUR 900 million due to the annual update of operational risks. I will now turn to organic capital generation on the next slide. Despite the acquisition of BPSO, the total return swap of the robust -- and the robust business growth, the combined CET1 ratio at year-end stands at a very comfortable 14.8%. In the last 12 months, BPER continues to generate a very high level of organic capital. Organic capital generation amounted to EUR 2.3 billion or approximately 340 basis points. This result reaffirms BPER position as a highly resilient institution. Moving on to liquidity, let me point out that at the end of 2025, the bank's liquidity ratio remained high. As of the end of 2025, the LCR increased to 172% from 165% at the end of Q3. In the same period, the NSFR improved to 134% from 132%. And finally, the loan-to-deposit ratio stood at 76.3%, stable quarter-on-quarter, one of the lowest amongst Italian peers, which will enable us to continue to grow the loan book through increased loan generation and to transform client liquidity into AuCs and AuMs, thanks to our ability to attract customer liquidity. Turning now to the bond portfolio. Italian government bonds increased to EUR 15.6 billion and accounted for around 52% of total bonds. On a combined basis, including BPSO, Italian government bonds increased to EUR 21.7 billion and accounts to 50.4% of total. In Q4 2025, the duration increased majorly due to the position of CCTs equal to EUR 4.4 billion that were repriced in mid-October. Please note that the annualized average yield of the financial portfolio was 2.5% in Q4. And now a brief look at the latest bond issuance. Throughout 2025, as far as main wholesale issuance is concerned, BPER successfully placed the EUR 500 million senior nonpreferred bond and BPSO placed EUR 500 million of covered bonds. In addition, in November, BPER successfully placed an AT1 perpetual bond for a total amount of EUR 750 million. And finally, on top of our previous upgrades, in Q4 2025, Fitch and Moody's upgraded their long-term ratings on BPER. Let's move on to the business integration between BPER and BPSO. The integration plan, which involves 23 cross-bank work streams is fully running and will be completed at the end of April of this year. The major event since our last update is the regulatory green light on the merger by the ECB. This result was achieved in advance of our expectations. For what concern business and operations, we have finalized the product catalog analysis, and we are implementing the identified actions. And finally, the alignment of group policies is well in progress, as well as the implementation of the customer communication plan. As previously stated, we confirm that we will fully achieve EUR 290 million in synergies by the end of 2027. We also confirm that integration costs amount to EUR 400 million. Of this, 72% were already booked in Q4 '25, the remaining will be booked in 2026. Slide 26, as you can appreciate on the slide, not much has changed since our Q3 2025 result call. As of today, the next step will be the extraordinary shareholders' meeting of BPER and BPSO in order to approve the merger plan in March 2026. On Slide 28, we report the divisional financials for BPER on a like-for-like basis. I would like to draw your attention to the important results achieved on total wealth commission income across our divisions, which amounted to EUR 928 million, compared to EUR 840 million in 2024, an increase of above 10%. These results underline the important focus of the group on asset gathering activities. Let's move to the final remarks. Allow me to say that BPER results have been outstanding. Firstly, we achieved a record net profit on both on a like-for-like basis and on a combined basis. This set of results will translate in a proposed dividend payout ratio for financial year 2025 of 75%, amounting to approximately EUR 1.370 billion, of which EUR 186 million already paid in November 2025. Secondly, thanks to all our units, our colleagues and customers, we have been able to continue to focus on business growth, execution of B:Dynamic | Full Value 2027 and the regulatory, IT and business integration of business. The commercial strength of the bank has been remarkable. Reported NII was better than expected despite declining interest rates, while loan volumes have grown with respect to 2024. The trajectory of net commission income has been outstanding, fueled by growth in Wealth Management as BPER is gradually being increasingly recognized by our customer base as a leading Italian asset gatherer. Cost efficiency has been very thorough on both HR and non-HR. HR costs are very much under control. We are supported by our colleagues and trade unions to enable the bank to enhance a generational change while rendering the bank linear. On the non-HR front, we have taken decisive actions on outsourcing and consultancy costs, which led to significant savings. In this context of geopolitical headwinds and political turmoil, asset quality remains one of the best in the Italian banking sector, given that we are very selective with respect to whom we lend to. On the capital side, despite the acquisition of BPSO, business growth and implementation of the total return swap, we maintain a sound capital position with a CET1 ratio of 14.8%. In addition, we boast an outstanding organic capital generation amounting to 340 basis points in the last 12 months. And finally, we are fully on track to ensure a smooth, efficient and effective integration of the two banks before end April 2026. We are now ready to take your questions. Thanks. Operator: [Operator Instructions] The first question comes from Lorenzo Giacometti of Intermonte. Lorenzo Giacometti: Congratulations for the outstanding results. And then coming to my question, I have actually two. So the first one is if you can give us some color about your 2026 expectations in terms of top line, the main top line items and bottom line. And the second question is about remuneration. So shall we keep in mind your 75% payout ratio? Or shall we expect some surprises within the business plan also considering both your capital position and the derivative contract you entered? Yes, that is all. Gianni Giacomo Pope: Thank you, Lorenzo. So as much as your first question is concerned, let's say that the outstanding results allowed us to perform better than our guidance for 2025, both on a like-for-like and on a combined basis, as I mentioned before. And in this respect, we are, and I can say that we are well ahead of our B:Dynamic | Full Value 2027. Then in as much as 2026 is concerned, we expect BPER to continue the trajectory on a like-for-like basis and probably on the consolidated. But further information on guidance, including BPSO, will be given once the business plan update will be -- that is scheduled for the second half of the year, will be delivered. And this because we want first to go through the full integration, complete the full integration, and then we'll be in a better position to do that. But let me reconfirm that we -- I believe, BPER to continue the trajectory that -- as shown in 2025. And as I mentioned, we are well ahead of our plan. In as much as remuneration is concerned, we are -- we stick to our decision to pay a good dividend to our shareholders. You know that in our plan, in our strategic plan, we indicated 75% in terms of payout ratio. But I also mentioned in other presentations that if the bank will continue, as I believe, will continue to have such a strong organic capital generation which might also be accelerated by the full integration of BPSO, then we might revise also this payout ratio. And then here, I have to stop because we are living in difficult times. We have geopolitical situations, macroeconomic situation. So we want to make sure that we produce capital, that we have organic capital generation, and then we'll decide what to do. Operator: The next question is from Matteo Panchetti of Mediobanca. Matteo Panchetti: Yes. I have two questions. One on the derivatives and one on the clarification on PPAs... Operator: Excuse me, sir. Are you able to speak without the headset because we don't hear you very clear? Matteo Panchetti: Okay. Can you hear me better now? Operator: Much better. Matteo Panchetti: Yes. so you have previously stated that you have entered a derivative position based on your confidence in the company growth prospects and delivery. Since your announcement, the stock has been rally more than 20%. What is your current intention regarding these derivatives? Are you considering partially closing it and taking some profits to roll it and maintain exposure? Any color will be appreciated. Can you also confirm how much was the contribution of the TRS to the trading line this quarter? And if the sensitivity of plus/minus EUR 200 million for each 10% share price is still valid? And the last question is on the PPAs. I've seen this quarter you have benefit 5 basis points. I'm correct assuming that you still have EUR 400 million or roughly 40 basis points capital tailwind from this? Gianni Giacomo Pope: So I will take the first question. Thank you, Matteo, for your question. I will take the first one, and then I'll put through Simone Marcucci, our CFO. So in as much as the derivative is concerned, as you know, as we mentioned, when we informed the market about the derivative, the derivative has a 3-year life. And so we are not thinking neither to expand it, not to close it or whatever. So it will stay the way it is. And therefore, we don't see any variation in the position in terms of -- in as much as our position is concerned vis-a-vis the derivative itself. I'll put through Simone Marcucci now. Simone Marcucci: Thank you very much, Mr. Papa. The profit and loss effect of the derivatives in trading, as you mentioned, is EUR 28 million in Q4 2025. it's clearly now at the moment, higher than that amount. Regarding the PPA, the effect that you have seen, that we have shown in these lines is the total effect. There will be no other effect on the capital for the next quarters. Operator: The next question is from Noemi Peruch of Morgan Stanley. Noemi Peruch: My first question is on growth and NII. Loan growth was around 2% at BPER and in the mid-single digit for Sondrio, well ahead of the market. So could you please elaborate on both banks' strategy to gain market share? And how do you see volume growth and NII evolving in 2026? And then I have a second question on distribution. How shall we -- first of all, what's the size of the equity swap right now? And how should we read this vis-a-vis a potential share buyback? And how potentially these two will kind of interact with each other? Gianni Giacomo Pope: Noemi, sorry, can you repeat the second question? Because the line was disturbed. I didn't get it properly. Noemi Peruch: Yes, absolutely. So my second question is on the equity swap. What's the current size at the minute? And how will this behave vis-a-vis a potential share buyback? Gianni Giacomo Pope: In terms of growth, so we indicated that 2025, we grew both BPER and Sondrio grew and that the two banks are proceeding based on their business plan that was presented for us in October '24 for BPSO in March '25, then it will be the integration in April. 2026, we foresee a growth, we will keep on growing. If you look at -- if you remember our presentation for the strategic plan, we indicated a growth of 3% CAGR. That is what we are delivering so far. And we believe that we'll be able to keep on growing this in -- to keep on growing on the loan side, both on the Corporate side as well as on the Retail side. So for different products, and we see constant growth there. In as much as NII is concerned, as I mentioned at the beginning, we see that -- we believe that BPER will continue the trajectory of growth on a like-for-like basis. Just one note, but we already indicated this when we presented the third quarter results. We are, as of today, based our budget on interest rates at 1.75%. So we have a conservative approach in terms of interest rates. So let's see what ECB will do going forward. But for the time being, we prefer to stay again, conservative rather than staying -- rather than projecting figures that are too aggressive. In as much as your second question is concerned, I take the second part of the question, and then I'll ask Simone to answer the first part. So buyback, as I mentioned, was the question of Lorenzo, we remain committed to our generous policy with a 75% payout ratio. That might increase in case of confirmation of our capability of generating capital. In as much as buyback is concerned, any decision will eventually be taken by the Board of Directors. Anyway, let me state that the derivative announced in October is intended to hedge a potential decision for buyback which might be then more convenient in the future. So this is where we stand today. Simone? Simone Marcucci: Regarding the TRS, we don't disclose the percentage, we disclose the effect. We have the effect in this quarter of around EUR 510 million of deduction in order to arrive to the completion of the TRS described in October. We still miss EUR 200 million of deduction that -- this will plan clearly on the price of the share. Operator: The next question is from Giovanni Razzoli of Deutsche Bank. Giovanni Razzoli: So my first question is on the net interest income outlook for the short term. I've seen that you have a very strong growth of the volumes in this quarter but the growth of the NII was mainly related to the financial component. So my understanding is that the growth of the stock has not yet translated into higher NII. So I was wondering whether my understanding is correct so that we can anticipate for the coming quarters still confirmation or even better run rate of the NII when compared with Q4. And another question is on the CET1 ratio. In 2026, you plan to complete the merger with Popolare di Sondrio. If you can share with us what could be the CET1 ratio on a like-for-like basis. So if we were to assume the completion at year-end of the merger with Sondrio, what would be the 14.8% look like? And the last question is on the asset quality, is more a broader top-down question. I've seen yesterday Credit Agricole for the first time mentioning some prudent messages in terms of acceleration of defaults in SMEs. I was wondering what are you seeing on the ground right now. You have a very strong coverage ratios. So you have overlays, so it's not a matter of cost of risk, but was more interesting to the trend evolution for 2026 in terms of potential risk from this segment. Gianni Giacomo Pope: Thank you, Giovanni, for your questions. So in as much as CET1 ratio is concerned after the integration of BPSO, we confirm that we'll be above 14.5%. So we need to go through the full integration, but the confirmation is that we'll be above 14.5%. In terms of NII, and then I will put through also Simone. In reality, we had an increase, given -- I mean if you look at NII, we have on Commercial rates on Page 13 of the presentation, EUR 10 billion increase for rates, then we had on average volumes went down a little bit, and the noncommercial, as you mentioned, is the major component on the growth. You are right in saying that we are also repricing because we are conducting also a repricing exercise of the loans. And we believe that in the next months, we will see an improvement in the NII driven by both volume side and -- on one side and the repricing exercise that we are making on the other side. Simone Marcucci: Yes. Thank you very much, Mr. Papa. Regarding the net interest income and not commercial components, as you can see, we have described in the presentation that our Head of Finance take the opportunity to decrease the cost of funding and we have repaid an instrument Tier 2, and this was a one-off effect that we have described in the presentation. There were other effect on the liability side and also on the bond portfolio you see that we have taken the moment and in the last quarter, we have slightly increased the bond portfolio, and this is also the effect that is shown in the noncommercial side of net interest income. Gianni Giacomo Pope: And in as much as asset quality is concerned, I don't see deterioration actually, but I'll pass the stage to Valerio Rodilossi that is a colleague of the CRO area. Please, Valerio. Valerio Rodilossi: Thank you for the question. I can confirm that we don't see a structural deterioration of the credit portfolio. The default rate for 2025 is in area of 1%. So comparable with the previous year. And also for the different asset classes, there are no differences with previous year. Our lending policies are very conservative. We are concentrated on the best rating classes. So at the moment, we don't envisage any deterioration of the credit portfolio. Operator: The next question is from Andrea Lisi of Equita. Andrea Lisi: The first one is kind of a broad one related to the integration of Popolare di Sondrio, in particular. In relation if you can share with us some color on how the clientele of Sondrio is answering to the acquisition after 6 months from the completion of the acquisition as well as if you have observed some elements that are a bit more tougher than what we would have initially expected or others that are going better? Then the other question is on fee. In particular, I want to ask you as regards BPER standalone, if you can indicate us why banking and Bancassurance fees are slightly down year-on-year in the last quarter and which trend should we expect going on? Gianni Giacomo Pope: Thank you, Andrea, for your questions. So in as much as the first question is concerned, I think the integration is proceeding very well. As I mentioned, we have 23 work streams that are taking care of covering all the different aspects of the integration. I would say that in answer to your question could come also by the very good results of BPSO. You saw that BPSO posted a very good net profit. And if you consider that the operation, the acquisition of BPSO was concluded in July. So you have basically 5 months in which the customers of BPSO have reacted very positively to the acquisition, to the fact that BPSO is now part of a larger group. And we believe that this will be reflected also in 2026. We have analyzed the different aspect of the integration. We don't have much overlapping. And we do see a possible growth also on those customers that are common with BPSO. In as much as fees is concerned, so banking services, the fees, the banking services commission are down in terms -- if I understood correctly your question, are down in terms of percentage because we are growing very much on the wealth management Bancassurance fees. But we have a growth that is year-on-year of 0.6%. And this on the back of the fact that we are growing the number of customers. So we are talking about 50,000 net new customers in 2025 and the fact that we are also shifting -- we have been shifting in the last couple of years our activity on the corporate side, and we have become, in more situations, a bank of reference rather than the pure relationship bank. And therefore, we see more commercial activity coming also from corporate customers. In as much as Bancassurance is concerned, year-on-year, we have a slight decrease. But in reality, financial year on financial year, you see we grew by 7.5%, which is, I think, is a healthy growth. And because we go from EUR 128 million to EUR 138 million financial year on financial year. And therefore, I see also here if we look also the volumes of our Bancassurance products that have been sold in 2025, we are on a very good trajectory in terms of growth there. So it might depend also on the fact that in certain cases, we are selling products where we have fees that are paid not upfront but are paid on different tiers. And therefore, you might see this as a difference. But in reality, we have a growth in terms of volumes. Operator: The next question is from Adele Palama of UBS. Adele Palama: Yes. Couple of questions from me. So the first one is on the NII. Just a clarification. Can you tell us the impact in the quarter of the Ecobonus, maybe in the quarter, also in the full year. And how do we need to think about this impact going forward? Then the second question is on cost evolution. So looking only at BPER standalone, so you had like quite an impressive reduction. I want to understand how sustainable is this reduction like going forward? And then if there is any consideration around the cost synergies that you're expecting from Sondrio, if there is room for higher cost synergies than what has been announced previously? And then the last one, sorry, is on the capital. So I just want to double check that there is no other moving parts left in the capital in terms of regulatory headwinds, or I mean, probably there is only the last part of the restructuring costs, but you are basically taking everything related to the Sondrio acquisition. So from now on, we should just expect organic growth of the capital and if there is any impact from RWA optimization left? Gianni Giacomo Pope: Thank you, Adele. So I take the question on cost. So we, I think, have performed a fantastic job on the cost reduction. We started in 2024. You might remember that a couple of years ago, 2, 3 years ago, we were at around 62%. If I take BPER stand-alone, we are at 47.2%; on combined basis, around 45%. We keep on working very much on cost reduction. In terms of HR costs, as I mentioned, we do expect to have a further reduction because we have more than 200 FTEs that will -- head count that will leave the bank based on previous agreement with the unions. And as you know, we reached an agreement in December for the exit of an additional 800 accounts based on this new agreement, and most of this will be exiting the bank by year-end. Now we are collecting the request coming from the colleagues that want to leave the bank and we are talking about retirement or preretirement schemes. In as much as non-HR cost is concerned, based also on our B:Dynamic plan, we keep on reorganizing ourselves, bringing back activities that we had outsourced as we had done in 2025. And therefore, we will keep on, I believe, reducing also non-HR costs in order to further improve our position in this case. But, if I look at the combined basis, today, we are already at 45%. And considering that we are a bank only based in Italy basically and not having subsidiaries in Eastern Europe or other countries where the cost are lower than in Italy, I think that we have already reached quite a good percentage in terms of cost/income. Now I put through Simone for the other two questions. Simone Marcucci: Yes, sorry. Regarding the Ecobonus, we have the EUR 260 million in 2025. More or less EUR 270 million, EUR 224 million in the quarter was more or less constant. Clearly, in the next years, the Ecobonus will tend to decrease a little bit more in '26 and more then in '27 and clearly '28. Regarding the component of CET1 ratio for the next year, we clearly, we will have the benefit from the merger of Popolare di Sondrio. We will have the effect of the TRS that I mentioned before, EUR 200 million, then we will have the positive effect clearly of the deal of Nexi. And then we will have the usual operative risk at the end of the year for around 20 bps. This is what we see at the moment. We don't see other particular effects that you mentioned. Operator: The next question is from Luis Manuel Grillo Pratas of Autonomous. Luis Pratas: My first question is on the PPA information on Slide 33. So essentially, you mentioned that post tax fair value adjustments were slightly above EUR 700 million. I was wondering what is the expected P&L effect from the reversal of these fair value adjustments in the coming years, how much shall we expect per year and how many years this will be a negative in the P&L? And then on the tax rate, if you could please provide the guidance on the tax rate in 2026, considering the increase on the IRAP part of the budget law. And then just a small clarification. How much of Bancassurance performance fees did you book in Q4? Simone Marcucci: Yes. Thank you very much for your question. I'll start from the last one. Bancassurance one-off, the usual one-off is EUR 27 million, at the level of last year, more or less. Regarding the PPA, Page 33, we will have an effect of around 2 mid-digit, still clarifying, but it should be 2 mid-digit negative per year for the next years. And then tax rate guidance, you know that -- you see that we have now 31%, this is our correct tax rate for the year. Clearly, 25% in the fourth quarter, but is -- or let me say, a one-off, an adjustment, but 31% is correct one. For the next year, you have to take in account there is 2% IRAP, so around 33%, 34% is the guidance. Luis Pratas: Just a quick follow-up. Like when you say 2 mid effect, do you mean like EUR 200 million per year? Simone Marcucci: No. Two mid-digit. Two-digit, not EUR 200 million. Luis Pratas: Around EUR 50 million? Simone Marcucci: We are still look at something more, but two-digit, not EUR 200 million. Operator: The next question is from Ignacio Ulargui of BNP Paribas. Ignacio Ulargui: I have three questions, if I may. I mean the first one is on NII on the noncommercial part on the wholesale funding. How should we think about that in terms of your rating is improving the issuance that you need to refinance into 2026, how that should be supportive into NII, if there is any tailwind from there in 2026? Linked to that, just a clarification on the EUR 22 million of the quarter. You see it as a one-off, so it will come back down into the coming quarters? Or it's kind of a jump because of the lower funding or lower cost of the Tier 2? The second question is on deposit growth. How do you see the deposits growing into 2026? And how should we think as a trade-off between leaving that deposits in terms of liquidity financing lending versus in reinvesting in AuC or AuM, given that profitability probably is better in the former in keeping that on balance sheet? The third question is, if I just look to the cost growth and the cost targets, I think, Mr. Papa, you said that you don't see much more scope for a decline in the cost to income. But if I just see your revenues should grow ahead of cost. So intuitively, your cost to income should keep on improving as you keep on accelerating commercial activity. What do I am missing there? Gianni Giacomo Pope: Thank you, Ignacio. I take the last two questions, and then I'll ask Simone to answer the first two. Deposit growth. But in reality, if you look at our presentation on Page 15, you see that quarter after quarter, we have been growing the deposits BPER stand-alone. And obviously, with the integration, the full integration of Sondrio, we see a progression also under this point of view. There is a lot of attention. We pay a lot of attention to liquidity. All the teams, all the commercial colleagues are very much pushing on gathering liquidity from customers, both retail and corporate, because -- and this is of paramount importance for us. We have been concentrating on that in the last couple of years, and we will keep on going like that. Why? Because this will allow us to transform liquidity into Asset under Management or Asset under Custody, which is what we have been doing in the last couple of years. And at the same time also to grow on the loan side without -- always keeping a loan-to-deposit ratio that, as you see, is stable at around 76%, which give us ample room to in case accelerate even further the growth both on asset management as well as loan growth. So -- but we want to stay at this level of loan-to-deposit ratio in order to make sure that we have always a reserve or liquidity to further push for business. In terms of cost target, I didn't say that we are not going to lower the cost. In fact, on the HR cost, I believe that this will be lowering for the simple reason that we have, as I mentioned, and we know we have over 200 people that will be exiting the bank, BPER stand-alone, based on previous agreement with the unions. BPSO never had any agreement with the unions. Then in December, we signed a new agreement with the unions for the exiting of an additional 800 colleagues. Let's see what is the number we are going to reach. We are in progress now, as I said, of collecting the request from the colleagues. And most of these colleagues will be leaving the bank, the new group by year-end. You know that -- you know also that in the agreement with the unions, we will hire one new colleague for every two colleagues that are exiting the bank. So the net-net will be minus 400 because -- but this will be done across the years, not this year, not only next year. And then we keep on monitoring and pushing very much also on non-HR cost. One of the activities that allow us to reduce the non-HR cost has been the reinsourcing of activities that were outsourced in the past years. This has been done in 2025. We keep on doing this. So we see also further reduction on non-HR cost on, as I said, reinsourcing of activities as well as reduction of costs related to consultancy and so on. So hopefully, we'll be able to further lower the cost/income ratio. What I mentioned before is that I believe that the 45-ish is already quite good, considering that, as I said, the bank is based in Italy, doesn't have subsidiaries in countries with much lower cost of both HR costs and non-HR cost. But there is a relentless activity to reduce cost driven also, obviously, by the fact that we will be pushing on the revenue side, and we see a progression also on the revenue side. Simone Marcucci: Thank you so much for the question. Regarding the EUR 22.8 million on Page 13, as we have stated in the page on the top right, 11 -- EUR 13 million is a one-off. So of the remaining EUR 10 million, we cannot say that each quarter will have a EUR 10 million on the -- positive on the noncommercial. But as you mentioned, for sure, we will have a benefit on cost of funding coming mainly from the positive effect of the merger of the two banks. Operator: The next question is from Juan Pablo Lopez Cobo of Santander. Juan Lopez Cobo: I got a follow-up on OpEx regarding the 800 exits that you mentioned. Could you clarify if this is already included, let's say, in the BPSO synergies, or this will be on top of? And also the savings in euros that we could expect from this 800 that you mentioned, it's going to be 400 net? And my second question is related to capital. If I look to your presentation in Slide 19, you mentioned positive impacts coming on risk-weighted assets from the active portfolio management, around EUR 600 million, and also models around EUR 400 million. If you could provide a bit more color regarding this, it will be useful. And also, if you are planning to execute any SRTs. We have seen other banks in Europe quite active in Italy as well. We know that your capital position is very strong, so there is no need for that. But still, given the relatively cost of capital of SRTs, I was wondering if you are planning to do something. Gianni Giacomo Pope: Thank you, Pablo, for your questions. So in as much as OpEx is concerned, the 800 exit are already included in the synergies, cost synergies that we've been indicated as synergies coming from the integration of BPSO. We -- as you know, we indicated EUR 190 million, of which around 40% to 45% come from the HR costs. So we will see a reduction. Obviously, you will see this impact in 2027, because as I mentioned, most of these colleagues will be exiting by year-end. But when I say by year-end, it means year-end, so not across the year. In as much as the 400 hirings that we are going to perform, this will not happen in neither this year nor next year, will happen in the year to come. So we will have an increase coming from that. Nevertheless, you have to consider the fact that whoever exit has a much higher cost than whoever comes in. Because we are hiring younger people out of university for this generational change that you want to bring also to the bank. And therefore, there will be eventually an increasing cost, but it will happen throughout a few years. In as much as the asset -- the risk-weighted assets, I'll let the colleague to answer. Valerio Rodilossi: Yes. Thank you for the question. With regard to the RWA dynamic in the quarter, under the label of active portfolio management, we observed a reduction of corporate and financial bond securities with a positive impact on the RWA. And on regulatory models in October, we received an authorization by ECB to extend our internal model to some corporate portfolios previously not covered by internal model and treated under standardized approach, for example, the exposure inherited by Carige. And also this positive impact, and then we had the business dynamic due to the increase of the volumes. Regarding the SRT, it was one of the pillar of our plan. We have created the structure. We are ready in any moment. When we will need, we will execute it. For the time being, nothing planned. Operator: The next question is a follow-up from Giovanni Razzoli of Deutsche Bank. Giovanni Razzoli: Yes. Just a follow-up to one of Simone' answers about the moving part on the CET1 in 2026. You mentioned that you're going to have EUR 200 million from the TRS next year. And you also mentioned the agreement with Nexi. So I'm not -- it's not clear to me whether this is going to be an impact in 2026 or not because I've seen that in Slide 33 that you have already booked EUR 100 million as a merchant acquiring impact in the PPA. So I was wondering whether there is something else or what was you referring to in this answer? Simone Marcucci: Yes. Thank you very much for your question. As you correctly mentioned, on Page 33, this is the PPA accounting, not the CET1 effect. We have EUR 105 million of merchant acquiring that is Nexi. This has been taken account during the PPA, but we still don't have the effect in the CET1, and this will happen in 2026 when the deal will be finalized. Operator: [Operator Instructions] Gentlemen, at this time, there are no questions registered. Gianni Giacomo Pope: Okay. Thank you very much to all. Thank you. Operator: Ladies and gentlemen, thank you for joining. The conference is now over, and you may disconnect your telephones.
Operator: Ladies and gentlemen, thank you for standing by. I am Katie, your call operator. Welcome, and thank you for joining QIAGEN's Fourth Quarter 2025 Earnings Conference Call Webcast. [Operator Instructions] Please be advised this call is being recorded at QIAGEN's request and will be made available on their Internet site. [Operator Instructions] At this time, I'd like to introduce your host, Daniel Wendorff, Vice President and Head of Relations at QIAGEN. Please go ahead. Daniel Wendorff: Thank you, operator, and welcome to our call for the fourth quarter of 2025. We appreciate your time and interest in QIAGEN. Joining the call today are Thierry Bernard, our Chief Executive Officer; and Roland Sackers, our Chief Financial Officer. Also joining us is Dr. Domenica Martorana from our Investor Relations team. As always, today's call is being webcast live and will be archived in the IR section of our website at www.qiagen.com, where you can find the press release and presentation accompanying this call. Please also note that this call will include forward-looking statements. Actual results may differ materially from those projected due to a number of factors outlined in our most recent Form 20-F and other filings with the U.S. Securities and Exchange Commission. We will also refer to certain financial measures not prepared in accordance with U.S. generally accepted accounting principles or GAAP, that provide additional insights into our performance. Reconciliations to the most directly comparable GAAP figures are in the release and presentation. All references to earnings per share refer to adjusted diluted EPS. With that, let me hand the call over to Thierry. Thierry Bernard: Thanks a lot, Daniel. Hello, and good morning, good afternoon or good evening, depending on where you are in the world, and thank you once again for joining us. I am very pleased today to confirm that QIAGEN continued to perform and delivered a solid finish to '25 with results in the fourth quarter, again above outlook. We exceeded our targets for both sales and adjusted earnings, once again placing QIAGEN among the fastest-growing companies in our industry. This reflects continued execution across the business and the trust our customers place in us even in a challenging environment. I also want to recognize the dedication of our teams around the world. Their work has been essential in delivering those results. So let me walk you through our key messages for today. First, we exceeded our outlook for the fourth quarter, and we also delivered solid full year 2025 results at the high end of our expectation with adjusted earnings again above our guidance. Net sales were $540 million in the fourth quarter, growing 1% at CER and exceeding our outlook for flat sales development against the fourth quarter of '24. Adjusted diluted EPS was $0.62 at constant exchange rate, exceeding our outlook of about $0.60 constant exchange rate again. For the full year of 2025, net sales were $2.09 billion, up 5% at CER and at the upper end of our outlook of about 4% to 5% growth. Adjusted diluted EPS increased to $2.40 at CER. This was above our outlook, which we increased twice during the year and reflects our ability to deliver in a challenging environment. Second key message, we reached important milestones across our portfolio. We want to highlight here that across our growth pillars, Sample technologies, QuantiFERON, QIAstat, QIAcuity and QIAGEN Digital Insights, they all achieved combined sales of $1.49 billion at CER in '25, delivering 8% growth at CER again. The current trajectory keeps us on track for at least $2 billion in combined sales from our growth pillars by 2028. This reflects continued demand across our portfolio and the increasing relevance from areas where we have decided to invest for the long-term growth. Sample technologies continue to grow with sales up 5% at CER in the fourth quarter and 2% CER again for the full year. This is an indication of the demand for automated consumables as laboratories continue to push to automated sample prep. In addition, during the year, we completed the acquisition of Parse Biosciences, extending sample technologies into single cell analysis and adding exposure to this very rapidly scaling field. QuantiFERON delivered continued growth with sales up 5% at CER in the fourth quarter and 10% CER again for the full year, supported by ongoing conversion and a large and still underpenetrated latent TB testing market. We are executing here on a clear strategy to drive further conversion. QIAcuity, our digital PCR solution delivered double-digit growth in consumables and an installed base that exceeded 3,200 instruments globally since we launched it as digital PCR continues to gain relevance in applications requiring high precision and reproducibility. QIAstat grew 15% at CER in the fourth quarter and 24% CER for the full year 2025. Growth was supported by menu expansion and the growing installed base that exceeded 5,200 instruments. Last, our bioinformatic business, QIAGEN Digital Insights, delivered continued growth in 2025, supported by demand across both discovery, research and academia and clinical customers and the integration of Genoox, which further strengthened our clinical interpretation offering. Third message for today. We made further progress on profitability and cash flow while continuing to execute on disciplined capital allocation. For 2025, our adjusted operating income margin increased 80 basis points to 29.5%, reflecting continued efficiency gains across the business. Those improvements more than offset headwinds from tariffs or adverse currency movements and the previously disclosed dilutive impact from recent acquisitions. We also generated solid free cash flow of $453 million in 2025. This supported investment into the business, including the rollout of our upgraded ERP programs. At the same time, we continue to return capital to shareholders. Since 2024, QIAGEN has returned more than $1.1 billion to shareholders to date and introduced an annual dividend payment while pursuing selective bolt-on acquisition to support our future growth. So as we are heading into 2026, we clearly remain focused on execution, disciplined cost management and continued investment into our growth pillars. Before handing over to Roland, I would also like to briefly acknowledge a change in our Supervisory Board. We are very pleased to welcome Mark Stevenson, who joined our Supervisory Board in January. Mark brings deep operational and global life sciences experience, and we really look forward to working with him. At the same time, I would like to sincerely thank Ross Levine for his many years of contribution to QIAGEN. Ross stepped down from the Supervisory Board after taking on a new leadership role at Memorial Sloan Kettering in New York, but we are grateful that he will continue to serve QIAGEN as Chair of our Scientific Advisory Board. With that, I'll hand it over to Roland for more details on the financials. Roland Sackers: Thank you, Thierry. Hello, everyone. Thank you as well for me for joining our call. We are pleased with our performance in the fourth quarter and full year '25 as we delivered results above our outlook for the fourth quarter on both sales and adjusted diluted EPS at constant exchange rates. 2025 was overall another solid year for QIAGEN in terms of execution and delivering on our commitments. Let me frame our performance around 3 key messages. First, we delivered solid results with sales for '25 at the high end of our outlook with continued strength in consumables and our growth pillars amid a cautious funding and capital spending environment. Second, we improved profitability, expanding the adjusted operating income margin by 80 basis points over '24 on efficiency gains and operational discipline. These actions more than offset material headwinds from tariffs and currency movements. And third, we continue to deploy capital in a disciplined manner. We are investing to support future growth while increasing returns to shareholders. Our strong free cash flow enabled us to make investments into bolt-on deals like Parse and Genoox, while also returning over USD 1.1 billion to shareholders since 2024. With that context, let me focus on the financial drivers behind our results. For the fourth quarter, net sales grew 1% CER and exceeded our outlook for flat sales development against the same period in '24. Adjusted diluted EPS was $0.62 at CER and above our outlook for about $0.60. For the full year, sales increased 5% CER, and this was at the high end of our outlook. Our growth pillars delivered 8% CER growth for the year and reached our goal for $1.49 billion of combined sales at CER. So we are on track to achieve our '28 goal for at least $2 billion of combined sales from these products. Adjusted diluted EPS for the full year were $2.40 at CER for '25, which was $0.12 above our initial outlook for the year and compares with $2.18 in '24. Let me now provide some additional insights into sales trends for the fourth quarter and for '25. Among our product groups, Sample technologies delivered mid-single-digit CER growth for the fourth quarter, and this was complemented by low single-digit growth in Diagnostic Solutions and Genomics, while sales in our PCR product group declined at a single-digit rate. In Sample technologies, sales grew in the fourth quarter was driven by higher demand for automated consumables used on our instruments and results are included first-time contributions from the Parse acquisitions that was completed in December. For the full year, Sample Technologies delivered 2% CER growth, in line with our expectations as trends improved over the course of the year. In Diagnostic Solutions, sales increased 1% CER in the fourth quarter. QIAstat-Dx sales were up 15% CER, driven by double-digit growth in consumables as we continue to benefit from the full core menu in the U.S. QuantiFERON delivered 5% CER growth and supported by continued conversion from the skin test. In the PCR product group, sales declined 9% CER in the fourth quarter. Consumables for use on the QIAcuity digital PCR system continued to deliver double-digit growth as we continue to place over 100 instruments per quarter in a challenging capital spending environment. Sales of other PCR consumables, however, declined due to factors that included the challenging funding environment and lower OEM contributions compared to the '24 period. In the genomics and NGS product group, sales grew 2% CER in the fourth quarter, driven by double-digit growth in the QIAGEN Digital Insight bioinformatics business. At the same time, sales of NGS consumables were under pressure. Turning to the regions. Sales in the Europe, Middle East, Africa region led the performance and were up 5% CER for the fourth quarter. Top-performing countries included Belgium, the Netherlands, Spain and the United Kingdom. In the Americas, sales declined 1% CER with results in the United States being flat at constant exchange rates. A factor reflecting this was the U.S. government shutdown. In the Asia Pacific, Japan region, sales were flat in the fourth quarter. Results in China declined at a low teens CER rate for the fourth quarter over the year ago period. But keep in mind that this country represents only about 4% of total sales in '25. Turning to the full year results. For '25, the adjusted operating income margin rose 80 basis points to 29.5% compared to '24. And this was achieved despite facing about 120 basis points of combined headwinds from tariffs and adverse currency movements. In other words, the underlying profitability strengthened meaningful during '25. Excluding these external headwinds, the margin expanded by roughly 200 basis points in '25, and this was well above our initial target for at least 150 basis points of improvement, and this was before the tariffs were announced. This performance reinforced our confidence in exceeding our '28 target for a margin of at least 31%, and we are reviewing this target with plans to provide an update. For the full year, we raised our adjusted EPS outlook twice during '25 and ultimately delivered results of $2.38 on a reported basis and results at CER of $2.40. Turning to cash flow. Operating cash flow in '25 was $654 million compared with $674 million in '24, reflecting strong earnings generation. The results for '25 also absorbed about $54 million of cash payments for the efficiency initiatives. Free cash flow was $453 million for '25, reflecting higher capital expenditures related primarily to IT investments that include the SAP system upgrade. We continue to deploy capital in a disciplined manner, balancing investment in the business with returns to shareholders. As you know, we completed the purchase of Parse in December, while in January, we returned USD 500 million to shareholders through a synthetic share repurchase. On a pro forma basis, net leverage stood at about 1.3x net debt to adjusted EBITDA in January '26 as our leverage improves. We have financial flexibility to support continued investment in organic growth and targeted bolt-on acquisitions while also increasing returns to shareholders. And that also includes our annual dividend payments planned again from mid-'26. Taken together, our '25 performance reflects solid execution on sales growth, margin expansion and disciplined capital deployment as we look for another year of solid profitable growth in 2026. With that, let me hand the call back to Thierry. Thierry Bernard: Thanks a lot, Roland. And let me share with you a bit of perspective on our product portfolio. Starting with sample technologies, as you know, a key focus for QIAGEN. In December, we completed the acquisition of Parse Biosciences, extended our sample technologies portfolio into single cell analysis. Parse has a scalable, differentiated chemistry that strengthens our Sample to Insight workflows and opens a long-term growth opportunity. Recent launches such as Evercode Whole Blood Fixation enable immediate fixation at collection and extend Parse's reach into translational and clinical research workflows. Alongside this expansion and acquisition, we execute on our next-generation automation road map. In 2025, we successfully launched QIAsymphony Connect, took initial orders for QIAsprint Connect and remain on track for the launch of QIAmini. Within Sample technologies, strategic high-value applications to continue to gain traction. One example is our liquid biopsy sample preparation portfolio, which grew by more than 30%, reflecting this increasing relevance in Sample technologies. Despite cautious capital spending, our sample technologies installed base grew to around 31,400 cumulative placements. Looking 2026, we will launch QIAsprint Connect and QIAmini together with additional kits, supporting automation across more than 30 applications for QIAsprint Connect and more than 15 applications for QIAmini. Over time, this will increase instrument use and recurring consumables. Full IVDR launch for QIAsymphony Connect remains on track for mid-2026. QIAsprint Connect is planned for February and QIAmini for fall of 2026. Moving to QuantiFERON, where we continue to invest, enabling laboratories to manage rising testing volumes with higher throughput and more efficient workflows. A key step here is the next generation of QuantiFERON TB Gold Plus second assay developed in collaboration with Diasorin. Last year, we completed the European launch of this high-throughput assay. This new generation of chemistry enables laboratories to test up to 75% more patients per hour while reducing turnaround time by around 25%. Building on this European launch, we are planning a U.S. launch of this higher throughput chemistry in 2026. In parallel, we are also exploring how AI-based approaches can support clinical decision-making in latent TB infection, particularly in the context of increasing testing volumes and the need to guide preventive treatment. Turning to QIAstat, where we expanded the menu and the installed base over the year. In '25, we submitted our first blood culture identification panels for clearance in the U.S. and in Europe. These submissions extend QIAstat diagnostic into bloodstream infections and sepsis-related applications, building on panels across respiratory, gastrointestinal and meningitis testing. We also expanded the installed base with cumulative QIAstat placement exceeded 5,200 instruments worldwide in 2025. We continue to invest in new panels, particularly a panel for complicated urinary tract infections where QIAGEN will be the first with a comprehensive syndromic solution. At the same time, we are also advancing our work on the pneumonia panel. In parallel, we continue to develop companion diagnostic with our pharma partners on QIAstat. Next, QIAcuity, digital PCR continue to see steady adoption as customers convert from qPCR and NGS to digital PCR. In '25, cumulative QIAcuity placement exceeded 3,200 system worldwide. This reflects continued uptake of digital PCR where higher precision, absolute quantification and more standardized results are required. Our focus remains on expanding the assay portfolio and improving workflows. Gene expression remains an important use case for QIAcuity alongside applications such as cell and gene therapy. Automation is another key focus with the launch of a nanoplate handling solution co-developed with Hamilton on the Microlab Star platform, enabling walkaway automation and more standardized workflows for regulated environments. Last, QIAGEN Digital Insights, where we continue to develop bioinformatics portfolio to support both research and clinical use. This includes progress with Franklin, following the Genoox acquisition, integrated QIAGEN's curated knowledge with AI-enhanced workflows to support genetic interpretation and clinical reporting. AI has been embedded across QDI, and we are continuing to support research, data science and commercial solutions by improving workflows, consistency and the use of high-quality genomic content. For the next 2 years, our focus is to continue developing at least 14 AI-enabled software solutions within QDI. We are also preparing to integrate large-scale single cell data sets from Parse Biosciences into the QDI portfolio, connecting single cell data with downstream analysis to support predictive modeling across research and transnational. And now back to Roland for the outlook. Roland Sackers: Thank you, Thierry. Let me now provide some additional perspectives on our outlook for '26 and for the first quarter. Our ambition remains to deliver solid profitable growth as we continue to navigate a challenging macroeconomic environment. Against this backdrop, we remain on track toward our '28 ambitions of around 7% core sales CAGR from '24 to '28 and adjusted operating income margin of at least 31%, at least $2 billion of sales from our growth pillars and sustained shareholder returns, having already delivered more than $1 billion since '24. For the full year '26, we are initiating an outlook for sales growth of at least 5 percentage points CER and adjusted earnings per share of at least $2.50 at CER. Turning to the first quarter. We expect net sales growth of at least 1% CER compared with sales of $483 million of the first quarter of '25. The growth rate for the first quarter compared to the full year target reflects 3 temporary factors. First, we are absorbing the year-over-year impact from the discontinuation of NeuMoDx and Dialunox, which represents a headwind of about $10 million or about 2 percentage points in the first quarter. We will see the same impact in the second quarter of '26, but then it rolls off since these products were discontinued in June '25. Second, and like others in our industry, we continue to see cautious life science customer spending trends carrying over from '25 into the beginning of '26. We have reflected an estimated impact of about $10 million in the first quarter or about 2 percentage points of growth. At the same time, we continue to expect an improvement in the funding environment over the course of the year. And third, QuantiFERON faces a strong comparison to results in the first quarter of '25 when sales rose 16% CER and supported by tender activity in the Middle East and Latin America. As a result, we expect QuantiFERON to grow at a low single-digit CER rate in the first quarter of '26, representing a headwind of about $6 million to $7 million or about 1 percentage point of headwind to a normalized full year run rate for '26 of about 6% CER growth. Turning to earnings. Our outlook for the first quarter is for adjusted earnings per share of at least $0.54 at CER compared to $0.55 in the first quarter of '25. Operational efficiency remains a priority in '26 and continues to support profitability. At the same time, earnings for the first quarter of '26 are expected to absorb the $0.02 dilutive impact of the Parse acquisition as well as an adverse impact of about $0.02 from U.S. tariffs that were implemented later in '25. For the first half of '26, we currently anticipate sales growth of about $0.02 to $0.03 CER, followed by an acceleration in the second half of the year. The acceleration in the second half reflects various factors, and let me provide a bridge to our full year outlook. As a first point, the comparison impact from the roll-off headwinds from NeuMoDx and Dialunox contributes about 2 percentage points of incremental growth. New product launches, including the 3 new sample prep instruments as well as new offerings for QIAstat-Dx and QIAcuity are expected to add an additional 2 percentage points of growth. As a next point, acceleration year-over-year growth from QuantiFERON starting in the second quarter of '26 is expected to provide about 0.5 percentage point of incremental growth and improving U.S. academic and governmental funding trends, together with a higher contribution from Parse in the second half are expected to add approximately another 0.5 percentage point. Taken together, these factors fully explain the bridge from approximately 1% growth in the first quarter to at least 5% growth for the full year. Turning to margins. We expect the adjusted operating income margin in '26 to remain at about 29.5% of sales as efficiency gains and broad-based growth are expected to offset margin headwinds of about 160 basis points from the Parse acquisition, adverse currency movements and tariffs. This underpins our full year '26 target for adjusted EPS of at least $2.50 CER and a step up from our '25 results. Let me also provide some perspectives on the currency trends against U.S. dollar. For the full year, our currency expect a tailwind of about 1 percentage point on sales and a neutral effect on adjusted EPS results. For the first quarter, we currently expect a tailwind of about 2 to 3 percentage points on sales and a neutral impact on adjusted EPS results. Overall, we have taken a prudent approach in setting our outlook, reflecting current market conditions and known headwinds while positioning QIAGEN to continue to rank among the fastest-growing companies in our sector. I would like to now hand back to Thierry. Thierry Bernard: Thank you, Roland. And before we go to the Q&A, let me quickly summarize our key messages for today. First, looking back on 2025, QIAGEN delivered another solid quarter and closed the year with consistent execution across the business. The growth pillars grew at 8% CER, and this is among the fastest in our industry. This once again reflects the strength and balance of our portfolio across Life Sciences and Diagnostics. At the same time, we remain obviously mindful of our environment. We continue to operate amid macroeconomic uncertainty, cautious capital spending and ongoing volatility, which requires discipline and focus in how we manage the business. Looking ahead, our growth pillars are positioned to continue growing in 2026, supported by a very strong pipeline of new product launches and portfolio additions. While we continue to see a cautious life sciences funding environment and softer capital spending, we expect conditions to improve gradually over the course of the year. Keep in mind, that our outlook for the first half of 2026 is clearly impacted by many base effects from last year, and we are relentless about the contributions ahead from the upcoming new product launches. We expect our growth pillars combined to step up again in '26, targeting growth of around 9% at CER. Sample technologies is targeting sales of around $720 million CER. QuantiFERON around $535 million; QIAstat around $160 million; QIAcuity around $100 million; and QDI around $125 million. As you clearly see, our focus remains on disciplined execution and operational excellence. In 2025, adjusted diluted EPS grew to $2.40 at CER, and we continue to return capital to shareholders. With the completion of the $500 million share repurchase at the beginning of 2026, we delivered on our commitment for solid profitable growth. Those results are keeping us on track against our 2028 ambitions of about 7% sales CAGR, at least 31% adjusted operating income margin, at least $2 billion of sales from our growth pillars and the shareholder returns of at least $1 billion, which, as I just said, we already exceeded. With that, I'd like to thank you again for your attention and hand back to Daniel and the operator for the Q&A session. Thank you. Daniel Wendorff: Thank you very much, Thierry. Operator, I think we can now go into the Q&A session. Operator: [Operator Instructions] We'll take our first question from Tycho Peterson with Jefferies. Tycho Peterson: I want to start out on some of the new product launches. QIAcuity, QIAstat adding 200 basis points to growth in the back half of the year. Maybe just give us a little more color on the products. Is this about new markets or deeper penetration? And what gives you confidence they'll contribute to growth out of the gate? And then on QIAcuity, help us bridge to the $250 million target by 2028 because you have missed your targets there in the last couple of years. So talk about what you think really gets you to that target by 2028. And then just one follow-up on QuantiFERON on the assumptions for the back half of the year bridge. I think you previously said growth targets would include competitive entry. Is that still baked in and by how much? Thierry Bernard: Thank you, Tycho, and I will try to make sure that I'm not forgetting any of your questions. On the new products and the impact of at least 2% extra growth from H2 to -- compared to H1 of '26. The way you need to see it is that at least 3 of those new launches are opening completely new markets from QIAGEN. Of course, the new panel of QIAstat, the blood carrier panel is opening new segment of customers, new needs. So it's an add-on. In Sample tech, QIAsprint marks the entry of QIAGEN into very high throughput sample technologies, where we are not at the moment. Therefore, new market. QIAmini is offering or will offer automation for low throughput labs or very small volume research, new markets. So you can see that it's justified and realistic to add growth in the second half of the year because of those impacts. QIAsymphony Connect will be not only upgraded QIAsymphony, but probably also convince other customers to adopt this technology. So that's why we are confident in this number. On QIAcuity, you are perfectly right, Tycho. Over the last 2 years, because our sales on digital PCR are mainly directed at the moment in research and academia, we have disclosed that we have been impacted by a more sluggish environment of capital expenses in research and academia. So that created a bit of delay in revenues coming from instrumentation from Digital PCR. The consumables have been good. For the last 3 years, we systematically grew at double digit, but instruments were a bit below our expectation. But again, what are we talking about here? When we see or when we say below our expectation, if I take 2025 as an example, we still put more than 500 new QIAcuity on the market. If you look at Q4, we put more than 100 systems in Q4, 100 new QIAcuity. Those systems will obviously generate consumables tomorrow. So we have indeed given a target of $250 million revenues by '28 for digital PCR at QIAGEN. We might have a slight delay because of the sluggish capital expense environment, but what is important to us is that we continue to grow, we capture new market and we grow consumables at double digit while still placing a significant number of instruments every year. Now for QuantiFERON, we explained the profile of the growth for '26. H1 is impacted by base effect coming by tenders and significant contract in Q4 of '24 and Q1 of '25. You will see QuantiFERON picking up in Q2. And obviously, those base effects will progressively disappear, and you'll see QuantiFERON accelerating to achieve probably above 6% growth, let's say, between 6% and 7% growth in 2027 -- in '26, I'm sorry, which is perfectly aligned with the target that we gave during our Capital Market Day in June '24, QuantiFERON will be $600 million revenues by 2028. Operator: We'll take our next question from Jack Meehan with Nephron. Jack Meehan: Thierry, I wanted to get your thoughts. There were headlines a few weeks ago around QIAGEN as a potential deal target again. I was wondering what comments, if any, you can share on that? Thierry Bernard: Thanks for the question, Jack, and I was expecting a question on this. I mean it's fair to say that our market is still and will still going through consolidation. That's point number one. At the same time, QIAGEN is delivering and focusing on delivering on our solid plan for the coming years, the plan that we disclosed in New York in June '24, 7% CAGR on the top line, at least 31% EBIT margin, $2 billion from our pillars of growth. So this is where we are focusing. At the same time, we do not comment on rumors. We are always open for discussion that could create value for shareholders, and I cannot say more at this stage. Jack Meehan: Understood. And I appreciate the execution has been really solid, and you still have your hand firmly on the wheel, but also did want to ask about the CEO succession search. Just was wondering when you think we might have an update on that? Thierry Bernard: What is important for the Board and for the company is to find the best person for the job. So we have a search ongoing. As we said in Q4 of '25, this is both an external and internal search. It's advancing very well, but we need to take the necessary time once again to find the best person for the job. In the meantime, we do have the management fully dedicated to QIAGEN. It's not only Thierry, it's the entire executive committee and also 5,700 of QIAGENers all over the world. We will obviously update you as we can progress. Operator: We'll take our next question from Casey Woodring with JPMorgan. Casey Woodring: I wanted to ask on the margin expansion piece. The bridge to 2026 didn't seem to include any operating margin improvement this year outside of the efficiency program, which will [indiscernible] tariff headwinds, unless I'm misinterpreting your comments there. So maybe just can you walk us through how you're thinking about organic operating leverage across the business and how some of the new product volume is expected to contribute to the bottom line this year? Roland Sackers: Again, I do think actually that '26 will be another significant margin improvement year for QIAGEN because I think it's clearly fair to say that we do expect -- we announced headwinds from the acquisitions of Parse. As you know, that is an acquisition where we're doubling up on the R&D -- doubling down on the R&D investment. So there's clearly a certain dilution for us to expect for this year, and that is around 100 basis points for 2026. In addition to that, we have a combined headwind again also from tariffs and FX in '26. So there will be a net margin improvement or gross margin improvement for around about 160 basis points for this year, which again will be compensated, as I said, from Parse and tariffs and expected currency headwinds. So 160 basis points, how does this break down? A larger part actually this year comes and we talked about that in the past from gross margin improvements. I would say probably somewhere between 75 and plus basis points in '26 comes from gross margin improvement. Have in mind, you will see an acceleration -- quite significant acceleration in sample prep growth -- sample preparation growth. And clearly, sample preparation is also one of the product groups, which has a significant gross margin contribution to QIAGEN. So that should be helpful. And in addition to that, we still continue to see outstanding growth trend around QIAstat. And you also know that we in the past talked about that we're still running on an underutilization in terms of production utilization for QIAstat. So also here, better utilization will drive gross margin improvement. Last but not least, we still have ongoing 40 QIAefficiency program on the operational expense side. They all will contribute not only in '26 also beyond. So again, we expect margin improvement this year. We expect to continue that in '27, '28. And as Thierry said in his remarks, we clearly do believe we will be -- see a significant step-up north of the 31%, which was announced for '28. Operator: We'll take our next question from Aisyah Noor with Morgan Stanley. Aisyah Noor: My one question is on China. So can you confirm if you are exposed to VBP or any large tender renewals that we should be aware about? And what's the China growth outlook embedded in your guidance? Thierry Bernard: Thanks for the question, Aisyah. We keep the same attitude and consideration towards China. As we have said for the last 3 years, it's not significant in our revenues anymore. Our exposure is 4% to China. It's a large market. It's too large of a market to be ignored. At the same time, it's too specific and too politically driven as a market to make it an investment case. We are not specifically more impacted by VBP because VBP has been implemented across molecular solutions, at least for the last 3 years in China. So it's nothing new for us. Last year was negative. We continue to think that China will be between low single digit to negative to at very best flat. And we do not expect in the current political situation, economic situation and market situation of China to see a return of growth in the visible future. But again, our exposure is very limited, as I said, 4% of sales. Operator: We'll take our next question from Odysseas Manesiotis with BNP Paribas. Odysseas Manesiotis: Firstly, on QIAstat, you finally have a complete menu, a high-volume platform during what seems to be a material year for replacing such instruments. Is it fair to assume that you'll do much better than the 600 placements you did in '26 -- in '25? Thierry Bernard: Well, I appreciate that you always want more, but more than 600 placements in 2025, it's already a good performance. So I prefer to leave it like this. We grow at 25% for Q4. We grew at much more than double digit for '25. We gave you an objective of more than $160 million for '26, which shows, again, a double-digit growth. We are a solid #2 on this market. This is exactly what we wanted to achieve. And if we can beat our objective on new placement, we will do it. But let's execute first on the $160 million. Let's execute on the product launches, on the market penetration, and that will be already good. Odysseas Manesiotis: And a follow-up on QuantiFERON. Could you give us a bit of additional color on the Q1 guidance here? I mean, is there any price component to your conservativeness there? And how exactly were these one-off tenders given the low shelf life of the kit? Thierry Bernard: Yes. I think it's not a question of shelf life. It's a fair question, but it's just a comparison quarter-on-quarter on deals that we have been able to include in our sales. It's a base effect. If you look at QIAGEN recent communication on QuantiFERON, it did include over the last 3 years, some press releases sometimes of significant tenders in Middle East, the contract with Oman was one of them. In Latin America, the contract in Brazil was another one of that. So those are creating a base impact compared to Q1 2026 because of their date of signature or renewal. As Roland explained during his comments, growth of QuantiFERON for Q1 2025 was close to 16%. We need to compare this with a normalized growth of QuantiFERON over the year, which is 10%. In other words, we grew in Q1 of '25, 6 points above the normal growth of QIAGEN. It creates necessarily a base impact. This is not a conservative guidance. It's just a realistic guidance. Regarding prices, we were very clear when we issued the guidance for QuantiFERON early '25. We know that competition will increase on that market. We factored that in our number, $600 million for 2028. And we always said that our plan commercially is to move even more customers to pre-annual contracts. This is good for the business. This is good for the franchise. If this sometimes goes with a bit of pricing flexibility, it's a good thing to do. Operator: We'll take our next question from Michael Ryskin with Bank of America. Michael Ryskin: I want to ask a little bit more in the 1Q outlook outside of QuantiFERON. You talked about some of the moving pieces there in terms of the comps, in terms of the NeuMoDx shutdown, things like that. I want to dive into your expectations for end markets. You had some comments on you expect end market improvement as you go through the year. But maybe if you could just expand on that a little bit of how much of that is built into 1Q specifically, maybe as far as U.S. government shutdown or broader markets in general? And just what the degree of improvement you're embedding as you go through the year to sort of like hit that back half ramp? Thierry Bernard: So the first comment, Michael, is that the overall market, if I look at some of our main competitors' recent earnings calls, we see that they are in the same ballpark of guidance for Q1, most of them, not to say all of them. It is clear, and we already said that last year that if we consider the funding environment, especially for research and academia labs and especially in the U.S., we believe that the situation is better now than it was 6 months ago. Why? Because 6 months ago, most of the comments were targeting a significant decrease of budget like NIH, for example. When now we know that we are going to be probably seeing a slight increase in '26 of the NIH budget, let's say, max around 1%. This is good for the business. At the same time, we said today that we believe that many research and academia labs are still in a kind of wait-and-see attitude. Once they get more visibility, we believe and it's embedded partially in our H2 expectation that capital expense, especially in Research and Academia will improve. Because they will have more visibility. So we think that it's fair to assume that progressively throughout 2026, the total market can come back to a growth of mid-single digit. Michael Ryskin: Okay. Okay. That's helpful. And then maybe I can dig into Sample tech a little bit. In the slides, I think you called out a $720 million target for 2026. Just to confirm, that includes Parse contribution in it of about $40 million. And then just confirming that. And then the second part of that question would be just how much of that do you expect to be contribution from some of those new automation solutions in Sample tech? Is that a meaningful contributor to 2026 in that part of the portfolio? Or is that just going to take a little longer to ramp? Thierry Bernard: So you're perfectly right for your numbers. We said $720 million total Sample tech. It includes indeed around $40 million contribution from Parse. And as we discussed you and I yesterday, Parse contribution will be higher. If you compare H1 to H2 for Parse, we are probably at 40% for H1 and 60% for H2 in terms of weight in their revenues. So you're perfectly right on that. Now if you consider the new launches, QIAsymphony Connect, QIAsprint Connect and QIAmini, they are fully embedded in the 2% extra growth coming from the new products that we are planning H2 to H1. Operator: We'll take our next question from Kavya Deshpande with UBS. Kavya Deshpande: Just a couple on QIAstat, please. So firstly, on the guidance for 2026, is there anything you might be able to share on what you're assuming in that guide for the U.S. respiratory season in 2026? And then secondly, I think you shared a couple of years ago that at the point of your last CMD, over 50% of QIAstat customers were using more than 2 panels. Would you have any update on this? It would be good to get that just given you've done a lot of menu expansion since then. Thierry Bernard: That was our first question. I think we have seen that, again, the respiratory season was significant from December '25 to probably now. We'll see what is going to happen in the coming weeks. You perfectly read, I believe, that there are harsh winter condition in the U.S. as we speak, but it's too early to say. What I can tell you is that I believe that respiratory issues will remain significant for the years to come. And that's why the respiratory panel on syndromic like QIAstat are so important. I think people are more aware, they are more aware of flu, whether it's A and B, RSV, obviously, COVID or other respiratory pathogen. So I believe that it's going to become a well-established panel and testing for the years to come. That's why it's key to have this panel. And as you know, in the U.S., not only we have it in a long format, large number of pathogen, but we have it also on a short format -- a more reduced number of pathogen. So to your second part of your question, what's the proportion of customers using more than one panel? It's clear that the 50% continues to increase because that's the relevance of adding panel consistently year after year. And as you know, those panels are very coherent. They address mostly infectious diseases laboratories. So yes, this number is improving as well. Operator: We'll take our next question from Harry Gillis with Berenberg. Harry Gillis: I have 2 on the midterm guidance. Could you just confirm whether your target for 7% sales growth through to '28 or the $2 billion from your growth pillars stands excluding the contribution of Parse? And then secondly, you've previously talked about being well ahead of your 31% margin target in '28, but I noticed you haven't really talked about that recently. And obviously, you talked about 180 basis points of negative FX impact from tariffs over this year and over '25 and '26. Are you still well ahead of this target despite these headwinds? Or should we now assume that's not the case? Thierry Bernard: So we mentioned that, and I will also ask Roland to chime in at a point. So first of all, to your first question, the 7% CAGR. We gave that CAGR in June of 2024 in our CMD, Capital Market Day in New York. You will agree with us that since 2024, the economic environment have become even more volatile, tariffs, volatility in currency evolutions, geopolitical instability, funding difficulties for research and academia. Confronted with those difficult and volatile market condition, this is the role of management to take the necessary capital allocation to defend our growth profile. And this is perfectly what is behind the acquisition of companies like Genoox and Parse, fully synergistic with our portfolio accretive to our top line and financially accretive in a reasonable time frame. So because our environment has worsened, it's fair to say that the 7% now fully include also the recent acquisition. If the market improves quicker, we might even beat that. But at the moment, let's focus and execute on the 7% all in. To the second question, Roland alluded to it, and I will also invite him to give his opinion. We believe we can beat the 31%. At the same time, we say the market is still difficult around us. So let's see what could be a new guidance analyzing different factors before we come to the market. Roland on this point? Roland Sackers: Yes. Thank you, Thierry. And again, just to give you some further thoughts to that. Again, as I said before, we clearly do expect that the growth in '26 is particularly driven by a very strong growth of our pillars of growth, right? Pillars of growth are going to grow 9%. Sample prep is going into high single-digit area. QIAstat, nice significant double digit, QIAcuity, significantly double digit, QDI double digit as well. These are all high-margin products for us. So we will see an impact here as well. I do think -- and again, also just looking on '25, it's a proof of evidence, right? Sorry that we didn't know that the U.S. is implementing tariffs. But if I exclude that and again, putting currency movement at the side, we gave out a target of $150 million, and we were achieving $200 million. Again, we were not -- just for a single year, that's a significant improvement. We're not standing still this year. And I'm quite sure that we have with our 40 operational efficiency program, a lot of things which we still can move. So it's not that we have to generate a day. It's about execution. And I do think that, that is well on its way. So yes, there will be something north of 31%. I do think it's fair that -- also to say that we will take the time to announce it because we're still alluding out, we're in a management transition here. It doesn't mean that the guidance and the numbers are going to change. But I think it's also fair that whoever comes in has to review the number and has the opportunity to review the number and then we go to the market. Operator: We'll take our next question from Dan Brennan with TD Cowen. Daniel Brennan: Maybe just first one, just back to QuantiFERON, if you don't mind. Just on the pricing comment, Thierry, has this been consistent with what's been happening in the market over the last couple of years? Or is this kind of more of a newer strategy just to try to lock in some customers, maybe making some price concessions? Just wondering if you can kind of elaborate on that. Thierry Bernard: No, no, it's not a new strategy, Dan. We disclosed that very transparently more than a year ago. We see an evolution of competition, and we need to fight also to make sure that we can move an already important base of customers who are -- that are on a pre-annual contract to more customers on pre-annual contracts. So it's always a negotiation. We just disclosed last year that we need to be ready also to make some concessions. But if it secures a deal for 2 or 3 years more, I think those are interesting concessions. Obviously, they have to be reasonable. What I can guarantee you then is that overall, we continue to pass price increase every year on QuantiFERON as well. So if you look at the performance on pricing 2025 for QuantiFERON, it was positive. I was just saying that when it's necessary, we need to be flexible. That's it. Daniel Brennan: Terrific. And then maybe just a follow-up. I know there was a question earlier back on like strategic landscape, things like that, which I'm sure you're limited in what you could say. But maybe can you speak to a little bit the market environment? You've been delivering on your plans and kind of ahead of plans in some cases, for the '28 targets. But when you look at like where the market sits today, you've got some pressure on academic and pharma, even though things might be getting better and unclear if customers want to deal with less players. So while you're executing when you think about QIAGEN's ability to win or to be successful to create shareholder value as a stand-alone versus maybe as part of a bigger company like has anything changed over the last year or 2 just given the market dynamics? Thierry Bernard: We have all seen that the market dynamic has been impacted by volatility and uncertainties over the last 2 years and 3 years, especially in research and academia. I think clinical has been a bit better. To your question, QIAGEN has a clear plan for sales, all our pipeline for new launches for profitability. We disclosed that plan in New York in June '24. And so far, we are executing as per this plan. This is where we focus. Yes, the market has become more difficult. But as I said, we found also a solution to continue to support our growth in addition to our organic growth. Those are the acquisition of very interesting technologies, Franklin or Parse. We will continue to do that. QIAGEN invests and will continue to invest on average between 9% to 10% of our sales into research and development. This translates into launches of new products. 3 new system, for example, in Sample tech this year. This is unprecedented. So it's clear that should laboratory in research and academia start again to invest in capital expense, we are coming with new solution, QIAGEN will probably will be one of their priorities. This is what I can say is that the market has not been easier, more volatile, but the fundamentals of the market, both life science and clinical remains extremely strong. When we will have more visibility on economic evolution and funding, I think it's fair to say single-digit -- mid-single-digit growth profile for this market is perfectly acceptable and realistic. Operator: We'll take our next question from Doug Schenkel with Wolfe Research. Douglas Schenkel: One on guidance and then one on disclosure requirements. Simply put, I'm having a hard time getting the math to work. It could be me, but let's for a second, assume it's not. If we grow revenue around 5% reported, if operating margin remains flat net of deals, FX, if we keep nonoperating items about flat year-over-year and we reduced share count to 209 million, I think those are all your key guidance assumptions as well as you provided tax rate. If I put this together, you end up actually above $2.60 per share, if I'm doing the basic math right. You guided to $2.50 or better. What are we missing? So that's the first question. The second on disclosure requirements. Keeping in mind that you cited, I think it was German disclosure requirements as one of the key reasons that you disclosed this plan when you did. I'm wondering what would be the logical next required disclosure. Obviously, a new hire would need to be disclosed, but is there anything else under regulations that you would likely have to disclose in advance of that event? Roland Sackers: I do not want to disappoint you, Doug, on your numbers, but I do think you looks like that some of your team is missing one number because one number, of course, is significantly going to change with is the net interest contribution because we clearly did an acquisition, we clearly did a significant share buyback program with $500 million. So the net interest number is probably somewhere between $40 million and $45 million down. So that is probably the number you are missing in your calculation. And yes, on disclosure requirement, again, German law is complicated. So I'm lucky enough, I was never becoming a lawyer. And we're clearly working with our lawyers on this topic all the time. Again, the general rule is if there is material news in the market regardless of which topic and you have the feeling that there is information in the market, which is clearly based on, call it, leak information or exchange the share price into a significant extent, the company has to comment on that. And that is regardless of any topic, right? And so I would say that is the framework. As I said, we typically leave these decisions to our lawyers to judge and again, any kind of information if that is an important event, which we have to preannounce or not, you haven't seen anything from QIAGEN so far. Operator: Thank you. That will conclude our question-and-answer session. At this time, I'd like to turn the call back over to Mr. Wendorff for any additional or closing remarks. Daniel Wendorff: Thank you very much. I would like to close this conference call, and thank you for your participation. If you have any questions or comments, please do not hesitate to contact us. Thank you very much. Operator: Ladies and gentlemen, this concludes the conference call. Thank you for joining, and have a pleasant day. Goodbye.
Operator: Hello and thank you for standing by. My name is Regina, and I will be your conference operator today. At this time, I would like to welcome everyone to the Phibro Animal Health Corporation Second Quarter 2026 Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star then the number one on your telephone keypad. To withdraw your question, press star 1 again. I'd now like to turn the conference over to Glenn C. David, Chief Financial Officer. Please go ahead. Glenn C. David: Good day, and welcome to the Phibro Animal Health Corporation earnings call for our fiscal second quarter ended December 31, 2025. My name is Glenn C. David. I'm the Chief Financial Officer of Phibro Animal Health Corporation. I am joined on today's call by Jack Clifford Bendheim, Phibro's Chairman, President, and Chief Executive Officer, Daniel M. Bendheim, Director and Executive Vice President of Corporate Strategy and recently announced our CEO designate, and Larry L. Miller, Chief Operating Officer. Today, we will cover financial performance for our second quarter and provide updated financial guidance for our fiscal year ending June 30, 2026. At the conclusion of our remarks, we will open the lines for your questions. I would like to remind you that we are providing a simultaneous webcast of this call on our website, pahc.com. Also, on the investors section of our website, you will find copies of the earnings press release, quarterly Form 10-Q, as well as the transcript and slides discussed and presented on this call. Our remarks today will include forward-looking statements, and actual results could differ materially from those projections. For a list and description of certain factors that could cause results to differ, I refer you to the forward-looking statements section in our earnings press release. Our remarks include references to certain financial measures, which were not prepared in accordance with generally accepted accounting principles or US GAAP. I refer you to the non-GAAP financial information in our earnings press release for a discussion of these measures. Reconciliation of these non-GAAP financial measures to the most directly comparable US GAAP measures are included in the financial tables that accompany the earnings press release. We present our results on a GAAP basis and on an adjusted basis. Our adjusted results exclude acquisition-related items, unusual, non-operational, or non-recurring items, including stock-based compensation, other income expense, as separately reported in the consolidated statements of operation including foreign currency losses gains net, and income taxes related to pretax income adjustments in unusual, or non-recurring income tax items. Now let me introduce our Chairman, President, and Chief Executive Officer, Jack Clifford Bendheim, to share his opening remarks. Jack Clifford Bendheim: Thanks, Glenn. In the second quarter, we delivered 26% growth in animal health sales and a 41% increase in Animal Health adjusted EBITDA. A clear sign our strategy is working. Medicated feed additives led with 34% growth supported by strong gains in nutritional specialties and vaccines. This reflects our continued success integrating the MFA portfolio into our operations. While our total legacy business continues to perform with a 3% growth, beyond animal health, we saw continued growth in minerals with a decline in our performance product segment. Consolidated sales were up 21% in the second quarter, while EBITDA was up 41%. As Glenn will discuss in more detail, we are raising both our full-year sales and earnings guidance. Results are encouraging, but what's impressed me just as much is what I have seen firsthand from our people and our customers in the past few weeks. It's one thing to see performance in the numbers, another to hear directly from the teams and customers while living this momentum every day. Earlier this month, more than 150 of our global leaders came together in Barcelona. The largest meeting of this kind in over a decade. The energy and alignment were outstanding. I heard a consistent message across regions. Our teams remain deeply focused on customer partnerships. We are sharpening our innovation agenda with stronger global coordination. We are executing better and more consistently across the business. And the unity across our leadership team has never been stronger. I left Barcelona feeling incredibly proud of our people and confident in the direction we are heading. When you see the level of alignment and enthusiasm, from long-tenured leaders to newer faces, it tells you that the culture is strong and the strategy is working. Last week, I was in Atlanta for the IPPE, the annual poultry show. While it was a very cold Atlanta, the conversations there were warm and optimistic. IPPE is always a great pulse check on the protein sector. This year, the tone was upbeat. Producers across poultry and the broader protein markets are seeing more stability. Events remain strong. Customers are prioritizing performance, reliability, and cost efficiency. All areas where we are delivering real value. We heard a lot of positive feedback about the MFA integration and the strength of our technical support. It's clear that the work our teams have done over the past year is resonating where it matters most with customers. Taken together with our financial performance, Barcelona and IPPE make it clear that Phibro has real sustainable momentum. And as I look at that momentum, the strength of our business, the alignment of our people, and the opportunities ahead, it's also clear that this is an opportune moment for a leadership transition. And with that, I turn it over to Daniel M. Bendheim. Daniel M. Bendheim: Thank you. Before we move into our results, I want to share how honored I am to be stepping into this role in July. I'm deeply grateful for the trust the board and the entire Phibro team have placed in me. I'm especially pleased that my father will continue as Executive Chairman. The culture and foundation he has built over five decades are the bedrock of this company. I think his continued guidance and experience is a significant advantage for Phibro, and incredibly meaningful to me personally. Equally important is the stability of our broader leadership. Our full management team remains in place. These are the leaders who know our customers and our global operations. That continuity across every region and function is one of our greatest competitive strengths. Ensure this leadership transition is occurring from a position of momentum and operational excellence. I'm stepping into this role at a dynamic moment for our industry. We are seeing genuine momentum in the protein markets. Producer confidence is rising, and global demand remains resilient. The energy we felt at IPPE recently confirmed this. Our customers are moving forward, investing, and planning for growth. Looking ahead, we are entering a new era of opportunity. Producers today are under pressure to do more with less. At Phibro, we see sustainability and profitability as one and the same thing. In our gut health, improved feed conversion, and reduced disease pressure, they drive profitability. They don't just support sustainability. By investing in R&D and our digital capabilities, we are positioning Phibro to lead the next wave of breakthroughs in animal health. These efforts are central to our Phibro Forward strategy, and build on the strength of our core business and our unified leadership team. With that, I'll hand it over to Glenn to discuss our performance for the quarter and our outlook for the remainder of the fiscal year. Glenn C. David: Thanks, Daniel. Starting with our Q2 performance on slide four. Consolidated net sales for the quarter ended December 31, 2025, were $373.9 million, reflecting an increase of $64.6 million or a 21% increase over the same quarter one year ago. The animal health segment grew 26%, while nutritional specialties grew 9%, and performance products declined by 10%. GAAP net income and diluted EPS increased significantly. Driven by the successful integration of the new MFA business, increases in demand, improved gross margin due to favorable mix, partially offset by increased SG&A due to higher employee-related costs. After making our standard adjustments to GAAP results, including acquisition-related items, foreign currency losses, and certain one-off items, the second quarter adjusted EBITDA increased $19.9 million or 41% versus prior year. Adjusted net income increased 60% and adjusted diluted EPS increased 58%. Increased gross profit driven by sales growth was partially offset by higher adjusted SG&A and higher adjusted interest expense. Moving to segment level financial performance. The animal health segment posted $290 million of net sales for the quarter. An increase of $60.6 million or 26% versus the same quarter prior year. Within the animal health segment, we reported legacy MFA's net sales decrease of 5% driven by the timing of inventory purchases from a particular large customer. Excluding the impact of this timing, our legacy MFA growth would have been a positive 3%. The new MFA business contributed a full quarter of sales of $94.1 million versus a partial quarter last year. Driving the total MFA and other growth to 34%. The nutritional specialty net sales increased $4.3 million or 9% due to increased North America demand for dairy. Vaccine net sales growth of $4.5 million or a 13% increase driven by continued growth of poultry products in Latin America and higher international demand. Animal health adjusted EBITDA was $82.2 million, a 41% increase driven by the new MFA business, higher gross profit from improved mix in the legacy business, partially offset by higher SG&A. Moving on to second quarter financial performance for our other business segments on Slide six. Starting with nutrition. Net sales for the quarter were $68.9 million, an increase of $5.7 million or 9% due to an increase in demand for zinc and trace minerals. Looking at our performance product segment, net sales of $15 million reflects a decrease of $1.6 million or negative 10% as a result of lower demand for the ingredients used in personal care products. Mineral Nutrition and Performance Products adjusted EBITDA was $6.4 million and $800,000, respectively. Corporate expenses increased $3.7 million driven by higher employee-related costs. Turning to key capitalization related metrics. On slide seven. We generated $47 million of positive free cash flow for the twelve months ended December 31, 2025. We generated $93 million of operating cash flow and invested $46 million in capital expenditures. Please note, our cash generation has been negatively impacted by a buildup of inventory in advance of tariffs, and to meet increasing customer demand. We expect inventory to stabilize in the coming quarters. Cash and cash equivalents and short-term investments were $74.5 million at the end of the quarter. Our gross leverage ratio was 3.1 times at the end of the quarter, based on $737 million of total debt and $235 million of trailing twelve-month adjusted EBITDA. Our net leverage ratio was 2.8 times at the end of the quarter based on $662 million of net debt and $235 million of trailing twelve-month adjusted EBITDA. On interest rates, there are no changes to our current swap agreements. Turning to dividends. Consistent with our history, we paid a quarterly dividend of 12¢ per share or $4.9 million in aggregate. Let's turn to slide eight, which lays out our updated guidance for fiscal year 2026. Based on our strong performance year to date, and continuing momentum, we are raising our revenue, EBITDA, and income guidance. Our guidance for fiscal year 2026 is as follows. Net sales increased from a range of $1.425 billion to $1.475 billion to a range of $1.450 billion to $1.500 billion. This represents a growth range of 12% to 16% and a midpoint of approximately 14%. Total adjusted EBITDA increased from a range of $230 to $240 million to $245 to $255 million. This represents a growth range of 33% to 39% and a midpoint of approximately 36%. Adjusted net income increased from a range of $108 million to $115 million to $120 million to $127 million. This represents growth of 41% to 49% with a midpoint of approximately 45%. GAAP net income and EPS assumes constant currency and no additional gains or losses from FX movements. Also included in our GAAP net income and EPS are one-time costs related to our Phibro Forward income growth initiatives. In closing, we are excited about the continued strong performance in fiscal year 2026. We are confident in the demand for our products around the world and look forward to seeing continued strong performance in our business. With that, Regina, could you please open the lines for questions? Operator: We will now begin the question and answer session. In order to ask a question, simply press star followed by the number one on your telephone keypad. Our first question will come from the line of Ekaterina V. Knyazkova with JPMorgan. Please go ahead. Ekaterina V. Knyazkova: Congrats on the results. So first question is just on gross margins, obviously a very strong number this quarter. You've touched upon this, but what are the main drivers of this and how much is mix or anything potentially one-time in there? And how should we think about gross margins over the next few quarters? Then second bigger picture question just on the guidance update. Can you just elaborate a bit what's kind of doing better than expected as you kind of think about the EPS and the EBITDA upside? How much of this is Phibro Forward versus mix versus commercial execution versus anything else? Thank you. Glenn C. David: Sure. Thanks for the question, Ekaterina. So in terms of the gross margin, there are a number of factors that are driving it, particularly in this quarter and also on a year-to-date basis as well. So, a, we've been successful in taking additional price particularly on the Zoetis portfolio, which has exceeded our expectations and helps drive improved margin. We've also seen very positive mix. We continue to see strong performance in our nutritional specialties, our vaccine products, which do come in at a higher margin as well. So really strong mix, strong price, and strong overall performance. And also just a focus internally on driving growth on the higher margin products as well has helped. In the quarter in particular, I think I mentioned in last quarter's call, that we should have some returns coming as part of our transition from what we call tier three markets to tier one markets. Those returns came at full cost, so the price of sales the price of cost was the same. So that partially elevated the gross margin as well for that quarter, but that's less than, call it, a 100 basis points. But overall, really strong underlying performance from a gross margin perspective. And from an EPS and guidance perspective, a number of factors that have driven the positive view that we have for the rest of the year. A strong revenue performance, as I mentioned, a really strong performance in our acquired portfolio. Really exceeding our expectations in how we're performing there. And our ability to leverage our existing infrastructure without building, you know, as quite as much additional staff or resources to support the new business as well has continued to perform positively, and the improved mix that we mentioned as well that helps us for the full year guidance as well. So a lot of factors that are going in the right direction and helping our performance for the first half of the year. But also for our guidance for the full year. Operator: Our next question will come from the line of Michael Leonidovich Ryskin with Bank of America. Please go ahead. Michael Leonidovich Ryskin: Hi. This is Alexa on for Mike. Thank you so much for taking our question. I was wondering about if you could talk about the impact of the timing on the MFA business. If you could give any details on what happened there and if it will slip into 3Q and how should we think about legacy MFA business and Zoetis MFA and those normalized growth rates going forward? For both businesses given some of the lumpiness in recent quarters? And then I have a follow-up question. Thank you. Glenn C. David: Okay, sure. So in terms of the customer timing that we mentioned for the legacy MFA business, that's one customer that we do a significant amount of business for. They hold different inventory levels at different times, so sometimes within a quarter, we'll have pretty significant fluctuations. That ends up varying throughout the year and evening out through the year. It was roughly $10 million in this quarter. We do expect it to improve as we move into the next quarter, so we don't expect that significant negative hit as we move into the second half of the year. In terms of the legacy MFA and the Zoetis MFA, as we move into the second half of the year, we'll have a full comparative. Right? So this is the last quarter we sort of had a partial quarter of the previous year. So as we move into the second half, we'll have a full comparative for both the legacy portfolio as well as the recently acquired portfolio, which will obviously slow growth. And, you know, I think what we talked about for the long term is we expect this business to grow sort of in the low to mid single digits, you know, with the strength that we have from a field force perspective and technical expertise, we'll look to drive that greater. But overall, you know, we expect this business to be a low to mid single digit growth business. Operator: Okay. Got it. Thank you. That's super helpful. And then my follow-up question is on end markets. So they've been really favorable in my livestock in recent quarters with very strong results. Can you just talk about how sustainable this is for it being a cyclical upside? Thank you. Glenn C. David: Yeah. Larry, you want to address the protein markets and the sustainability? Larry L. Miller: Yeah. Sure. Thanks for the question. So you know, the demand for high-quality clean proteins continues to be very strong. And we see benefits, for that, particularly in our beef sector, our chicken broiler sector, pork, turkey, dairy, and also for eggs. We certainly see continued favorable feed costs which is obviously the largest input cost of producing animals. And that's helping to maintain margins. We'll probably expect to see a little bit of some shift, you know, in trade between certain countries which is sometimes driven by tariffs. And also some disease outbreaks. But I want to emphasize, we really feel good about our amongst our livestock species as well as geographic presence in all the key global livestock production markets. Including many markets which are increasing their domestic production to be more food secure and less reliant on imports. Our diversity has certainly been enhanced with the MFA acquisition. Operator: Great. Thank you. And if I can just ask one quick follow-up, on the MFA business again. I want to talk about share gains. Are you taking share from others given the stronger combined portfolio? And my final question, and thank you, and congrats on the great results. Larry L. Miller: Thank you. So, Larry, you want to address the share gains? So I would say that we in the quarter and in the first half, we've certainly seen strong performance in our poultry anoxidil range. We are able to offer a much more complete portfolio of offerings particularly in broiler coccidiosis management. Often people, you know, change and rotate every few months on these, so it's allowed us to have, you know, more opportunities to participate in those anoxidil programs. We've also seen good growth in our swine enteritis business. Operator: Great. Thanks. Again, for any questions, press 1. Our next question comes from the line of Navann Ty Dietschi with BNP Paribas. Please go ahead. Navann Ty Dietschi: Good morning. Thanks for taking my questions. What drove the outperformance of the Zoetis MFA portfolio specifically? And a clarification on the legacy one. So shall we expect $10 million to come back in Q3, just to make sure? And then I'll have a follow-up. Thank you. Glenn C. David: Yes. So just in terms of the legacy business, and the negative impact to the quarter, we will expect that to come back in the second half of the year. How much of it comes between Q3 and Q4? That will depend on the orders that we receive, but we do expect it to come back within the second half of the year. I'll start on the drivers of the Zoetis MFA. But, Larry, you know, if you could add as well. In terms of the outperformance. I think, A, it's been tremendous execution. From the team in terms of the integration. We've built a very strong team that's been extremely effective in their interactions with our customers. We have been able to take share on some, you know, particular products in the marketplace as we continue to gain momentum, and we expect that, you know, hopefully to continue as well. But, Larry, I don't know if you have additional things to add on the Zoetis MFA outperformance. Larry L. Miller: You know, I think, you know, our team has done a really good job of focusing on these. We've got a lot of shifts, particularly in the segments and people are our customers are growing animals to larger heavier harvest weights. And so that's changing some of the dynamics that they have to deal with, and our team is really doing a great job in promoting the and reminding customers of the indications and claims that we have for these new products and how those fit some of these trends and challenges of feeding animals longer. So, you know, we're really seeing good receptivity from our customers. Obviously, the value of animals are at historic highs, so customers are very interested in investing to protect their animals to keep them healthy. And healthier animals are more efficient. And help optimize the margin and opportunities for returns. Jack and Daniel talked about our presence at the International Poultry and Egg Conference last week in Atlanta. I'm actually at the National Beef Cattlemen's Association right now in Nashville. Where we're able to have a presence, you know, in the trade show and in a lot of the activities here. And, we're meeting a lot of great customers here that are in the beef production segment. And I have to say their interest in these products how they can fit and help them solve the challenges they're facing, really are excited to see us with representing these products, owning these products, and investing in these products. And, enthusiasm for this beef segment is really high right now. Obviously, consumption of beef has grown for the first time in quite a long time. And so people are feeling really good about this acquisition as are we. Navann Ty Dietschi: Thank you for that. And then in companion animal, can you maybe expand on the commercial traction and the vet feedback of Restore since the launch? Daniel M. Bendheim: So hi. It's Daniel. I'll take that. So we launched it, obviously, late last year, you know, into the holiday season. It's actually gone more or less according to plan. I don't know if you had a chance to be in Orlando for VMX. We actually had our first time that we have been an exhibitor. A lot of foot traffic, a lot of interest. We've seen a boost since then. We'll be continuing, you know, on the circuit. We'll be in Vegas for the Western Veterinary Conference, and overall, there is a lot of excitement within the vet community for what Restore offers. Operator: Thank you. And a final reminder, to ask a question, simply press star followed by the number one on your telephone keypad. Our next question will come from the line of Erin Wilson Wright with Morgan Stanley. Please go ahead. Erin Wilson Wright: Hi, good morning. This is Linda on for Erin Wilson Wright. Thanks for taking our questions. So could you please provide an update on the Phibro Forward initiatives, specifically what's been realized to date versus what may remain ahead? Also how much of the margin expansion embedded in the latest outlook is driven by structural cost initiatives versus cyclical or mixed related benefits? Glenn C. David: Sure. So on the Phibro Forward, as in the past, we haven't given specific dollar amounts in terms of the contributions or the expectations. What we have said is it continues to be a significant driver of our growth. You know, we are now halfway through, you know, fiscal year 2026. And we expect sort of the optimal or the max coming, you know, from a full year fiscal year of '27. Let's say, you know, we're sort of halfway through the process. You know, we expect the contributions from Phibro Forward to continue to accelerate as we move through the end of fiscal year 2026. And then, you know, we'll get a full annualization of benefits as we move into fiscal year 2027, and that will be, you know, a key contributor to growth in fiscal year 2027. I'll turn it to Daniel to see if he has anything additional to add. Daniel M. Bendheim: Thanks, Glenn. What I'd say is Phibro Forward really touches upon all parts of our company. So there are the structural changes and we are seeing it in our higher gross margin. I think we're seeing it in some of our revenue strategies, but, you know, it's also overall on how we approach R&D on how we approach technology. We've laid the groundwork for future growth with these initiatives. And it puts us in a really strong place both for today and as we enter kind of the next era. Operator: Thank you. That's helpful. And then also, there have been a number of innovation developments across companion animal, notably oral health. Is this a meaningful contributor to 2026 or more so going forward? Glenn C. David: So that'll be more so going forward. So within the quarter, it was a limited contributor. We'll expect, you know, a little more in the second half of the year. I think we'll start to see more material contributions in fiscal year '27. And then beyond. Operator: Great. Thank you. And that will conclude our question and answer session. I'll hand the call back to Glenn C. David for any closing comments. Glenn C. David: Thank you, Regina, and thank you, everyone, for listening in on today's call. We really appreciate your time, attention, interest, and support of Phibro Animal Health Corporation. Have a great day. Operator: This will conclude our call today. Thank you all for joining. You may now disconnect.
Operator: Hello, and welcome to the Omnicell Fiscal Year Fourth Quarter 2025 Results. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. And if you would like to withdraw your question, press star one again. And please note that this call is being recorded. I will now turn the call over to Kathleen Nemeth, Senior VP, Investor Relations. You may begin. Good morning, and welcome to the Omnicell full year 2025 and fourth Quarter Financial Results Conference Call. On the call with me today are Randall Lipps, Omnicell Chairman, President, CEO, and Founder; Baird Radford, Executive Vice President and Chief Financial Officer; and Nnamdi Njoku, Executive Vice President and Chief Operating Officer. This call will contain forward-looking statements, including statements related to financial projections or performance, end market or company outlook based on current expectations. These forward-looking statements speak only as of today or the date specified on the call. Actual results and other events may differ materially from those contemplated due to numerous factors that involve substantial risks and uncertainties. For more information, please refer to our press release issued today, Omnicell's annual report on Form 10-K filed with the SEC on 02/27/2025, and other more recent reports filed with the SEC. Except as required by law, we do not assume any obligation to update any forward-looking statements. During this call, we will discuss some non-GAAP financial measures. Reconciliations of these non-GAAP financial measures to the most comparable GAAP financial measures are included in our financial results press releases. Our results were released this morning, and our financial results press releases are always posted in the Investor Relations section of our website at ir.omnicell.com. With that, I will turn the call over to Randall. Randall, Randall Lipps: Good morning, and welcome to Omnicell's fourth quarter 2025 Earnings Call. We are pleased to report a solid finish to 2025, with the fourth quarter total revenues, bookings, and ARR each coming in above the midpoint of our previously announced guidance ranges. We executed nicely in our core Point of Care business and saw strong demand for our flagship point of care connected devices, including XT S10, which drove our robust top-line performance during the quarter. We are happy to see the ongoing customer focus on our innovative solutions leading to recent wins at major health systems and government health care facilities. We continue to advance our transformation efforts into an end-to-end medication management platform technology company. Looking ahead, we remain focused on delivering innovative solutions that aim to continuously improve the customer experience and enable the autonomous pharmacy vision. We believe that our commitment to operational excellence, as well as customer and patient-centric outcomes, positions us to drive long-term value for all of our stakeholders. As we have outlined previously, we expect our future growth to continue to be driven by three core pillars, which include expanding our market presence, scaling recurring revenue, and accelerating our technology platform. Randall Lipps: First, expanding our market presence. We are actively working to grow our product footprint across the inpatient and outpatient care environments, including nursing units, operating rooms, and a full spectrum of pharmacy settings. We believe that the recent customer wins and increased platform adoption underscore the strength of our solutions and the trust we are building across the health care continuum. As part of this expansion of market presence, we introduced Titan XT, our transformational enterprise-wide automation dispensing system, at the ASHP annual meeting in December. Titan XT is designed to unify proven automation and powerful intelligence and will deliver a more efficient medication management experience to support a growing health system. With the Titan XT launch, we continue to focus on extending the power of Omnisphere, Omnicell's cloud-based high-trust certified medication management platform, into inpatient nursing care areas. This should deliver greater control of medication inventory management for pharmacy while providing nurses with more confidence when administering medications. At the ASHP annual meeting, we connected with over 4,000 pharmacy leaders who had the opportunity to see firsthand how we are working to empower autonomous medication management to deliver improved patient outcomes, a superior clinical experience, and greater visibility and security. We are encouraged by the early positive feedback that we are receiving from pharmacists and nursing as our sales team discusses Titan XT and Omnisphere with customers. Second, scaling recurring revenue. We are focused on expanding our base of predictable recurring revenue, cloud-based offerings, software subscriptions, and revised service contracts, which is anticipated to provide greater predictability for our business while delivering long-term value to our customers. As Baird will discuss in a moment, our strong fourth quarter performance was driven in part by continued strength in annual recurring revenue, which exited 2025 at an annualized run rate of $636 million, an increase of 10% from our 2024 exit rate. Lastly, accelerating our technology platform Omnisphere. Omnisphere is our cloud-native platform designed to unify all Omnicell products under a single secure infrastructure intended to make it simpler, safer, and more connected to manage medications within a growing health system. Designed to be the connected backbone for medication management, Omnisphere offers a single command center for automation and intelligence that is engineered to provide enterprise-wide visibility into medications and supply inventory. As previously announced, Omnisphere achieved high-trust CSF I one certification in 2025, demonstrating our commitment to cybersecurity and adherence to high industry standards for data protection and medication management. Recognizing this recent example of our commitment to customer-centric solutions, Omnicell was once again noted among the top 50 health care technology companies by the health care technology report for a continuous focus on innovation that is designed to help health care organizations deliver safer and more precise care. We believe the power of Omnicell's products and services portfolio to support safety and efficiency across all care settings is resonating with the market as large health systems across the country select Omnicell during the quarter as their medication management partner. Competitive convergence during 2025 included leading health systems serving Louisiana, Mississippi, a large Texas-based academic health system, and a New England integrated health delivery network, all of whom had indicated that they plan to leverage Omnicell's central pharmacy automation, point of care dispensing solutions, and Omnicell's inventory optimization service in an effort to drive patient safety, improve clinician and pharmacy staff efficiency, and support an optimized pharmacy supply chain. This was also another strong quarter for our point of care solutions, including XT Xtend, which has helped to drive significant wins across the US and Canada, including leading health systems in Western New York and Honolulu, Hawaii, along with Canadian providers in British Columbia and Vancouver. During the fourth quarter, the Department of Veteran Affairs selected Omnicell point of care dispensing and IV workflow solutions to support medication management at a number of hospitals across their network. As we look at the broader economic environment influencing customers' capital decisions, we are encouraged by early reports from publicly traded health systems and industry reports, which suggest increasing patient volumes and improving financial performance. While hospital fundamentals have been strong, potential uncertainty still exists, particularly around regulations and tariffs. Nonetheless, I am excited by the momentum we have coming out of 2025, driven by our commitment to empowering autonomous medication management. As hospitals and health systems continue to navigate the dynamic cost and regulatory environment, we remain dedicated to our mission to be their most trusted partner, helping empower them to achieve better patient outcomes, lower costs, and improve staff efficiency. Now at this point, I would like to turn the call over to our Chief Financial Officer, Baird Radford, for a review of our financial results. Baird? Baird Radford: Thank you, Randall. And good morning, everyone. As we report our 2025 results and look forward to 2026, Omnicell enters the new year with strong momentum anchored by a solid fourth quarter 2025 finish and continued customer confidence in our business strategy and product roadmap. For the full year 2025, we delivered bookings, annual recurring revenue, and total revenue above the midpoint of our most recently provided guidance. We believe this performance reflects resilient customer demand and solid execution across our business. We also ended 2025 with the successful introduction of Titan XT at ASHP in early December. The initial response from customers has been positive, which we believe validates both the introduction timing and the strategic importance of this next-generation automated dispensing platform. Titan XT, powered by our cloud-based Omnisphere platform, is designed to bring enterprise-wide visibility, centralized inventory management, guided workflows, and a modern infrastructure that is engineered to support the shift toward autonomous medication management and reinforces our confidence in the potential multiyear product refresh opportunity ahead. Additionally, customers appear to be appreciating the optionality created by our flexible financing options and are recognizing the innovation embedded in our product roadmap. These dynamics, combined with the early signals we are seeing in pipeline activity, should position us well as we continue to advance towards sustainable profitable growth in 2026 and beyond. Now moving to our fourth quarter 2025 results. Total revenue was $314 million, representing an increase of 2% from 2024 and an increase of 1% compared to the previous quarter. Fourth quarter 2025 product revenue was $180 million, representing a decrease of 1% compared to 2024 and an increase of 1% over the previous quarter. Service revenue for 2025 was $134 million, which increased 8% from 2024 and increased 1% over the previous quarter. Non-GAAP gross margin for 2025 was 43.2% compared to 2024 of 47.4% and 44.2% in the previous quarter. Our fourth quarter 2025 GAAP earnings per share was a loss of $0.05 per share compared to a profit of $0.34 per share in 2024 and a profit of $0.12 per share in the previous quarter. Our fourth quarter 2025 non-GAAP earnings per share was $0.40 compared with $0.60 per share in 2024 and $0.51 per share in the previous quarter. Fourth quarter 2025 non-GAAP EBITDA was $37 million compared with $46 million in 2024 and $41 million in the previous quarter. Moving on to the balance sheet. Our cash and cash equivalents totaled $197 million as of December 31, 2025, compared to $369 million as of 12/31/2024. As a reminder, the year-over-year decrease reflects the repayment of debt with a principal amount of $175 million that matured in September 2025 and the repurchase of approximately $78 million of our common stock during 2025. The company continues to generate solid free cash flow, with fourth quarter 2025 free cash flow of $18 million compared to fourth quarter 2024 of $43 million and $14 million in the previous quarter. In terms of accounts receivable, days sales outstanding for 2025 were sixty-five days, which compares to seventy-seven days in 2024 and seventy-four days in the previous quarter. Inventories as of 12/31/2025 were $101 million compared to $89 million at 12/31/2024 and $107 million at 09/30/2025. Turning now to a review of our full year 2025 results. Product bookings for full year 2025 were $535 million, landing above the midpoint of our previously provided guidance of $500 to $550 million and compared to product bookings of $558 million in 2024. Product backlog as of 12/31/2025 was $640 million, down 1% compared to our 2024 exit. Our 2025 exit backlog includes $435 million categorized as short-term, which we anticipate converting into revenue in 2026. Exiting 2025, annual recurring revenue or ARR was $636 million, compared to our previously provided guidance of $610 to $630 million and compared to ARR of $580 million exiting 2024. Our full year 2025 total revenue was $1.185 billion, in the upper range of our previously issued guidance of $1.177 billion to $1.187 billion and compared to $1.112 billion in 2024. Our full year 2025 product revenue was $666 million compared to $631 million in 2024. Our full year 2025 service revenue was $519 million compared to $482 million in 2024. Within the full year 2025, service revenues, technical services revenue was $260 million, and SaaS and expert service revenue was $259 million. Our full year 2025 GAAP earnings per share was $0.04 per share, compared to $0.27 in 2024. Our full year 2025 non-GAAP earnings per share was $1.62 per share compared to $1.71 in 2024. For the full year 2025, non-GAAP EBITDA was $140 million compared to $136 million in 2024. Before we move on to 2026 guidance, I would like to walk through some of the key insights from our fourth quarter 2025 full year 2025 performance. For the full year 2025, we delivered product bookings of $535 million, which is in the upper half of our most recently provided guidance, and we exited 2025 with a product backlog of $640 million. Fourth quarter 2025 closeout was driven by XT orders, and as expected, there were no Titan XT orders placed in 2025. The state of our competitive pipeline exiting 2025 continues to give us confidence that our focus on providing reliable products while at the same time advancing our platform innovation through Omnisphere is resonating with our customers. We delivered $314 million of total revenue in 2025 and $1.185 billion for the full year 2025, with both results landing in the upper end of our most recently provided guidance. As expected, the movement in total revenue from Q3 to Q4 was more linear than in prior years as we continue to see the benefits from improved customer scheduling and coordination leading to more predictable connected device implementations. During 2025, we also saw solid performance in our consumables and specialty offerings. Fourth quarter 2025 non-GAAP gross margin was 43.2%, reflecting a one percentage point decline compared to the third quarter driven by declines in product margins partially offset by improvements in service margins. Compared to 2024, non-GAAP gross margins declined by approximately four percentage points, which primarily reflects the impact of $7 million of tariff costs in 2025 along with shifts in product and customer mix. In the quarter, going a layer deeper into non-GAAP gross margins, compared to 2025, product margins in 2025 reflect shifts in product and customer mix associated with connected device implementations completed in the quarter. As we shared our outlook during our third quarter earnings call, service margins for 2025 improved driven by the progress we made in the third quarter on software upgrades for our customers. Moving on to operating expenses. The fourth quarter 2025 increase versus the third quarter largely reflects costs associated with the American Society of Hospital Pharmacists annual meeting in December where we announced our new automated dispensing system platform Titan XT. Additional costs incurred during the fourth quarter funded opportunistic investments in customer experience and human capital initiatives. We believe these investments will benefit us as we transition from XT to Titan XT in Omnisphere. Despite fourth quarter, total revenue landing at the higher end of our guidance. Fourth quarter 2025 non-GAAP EBITDA was at the lower end of our guidance. Fourth quarter non-GAAP EBITDA reflects the investments highlighted in my operating expense remarks, which we believe were important to support the long-term health of the business. As we previewed on our second quarter 2025 earnings call, you will see that our non-GAAP earnings per share results for the full year 2025 reflect an approximately $0.21 per share headwind compared to 2024, due to the reduction in interest income in 2025 resulting from our repurchase of a significant portion of outstanding convertible senior notes in 2024. Now turning to 2026 guidance. For 2026, we are providing the following guidance. We expect first quarter 2026 total revenue to be between $300 million and $310 million, with product revenue anticipated to be between $171 million and $176 million, and service revenue expected to be between $129 million and $134 million. We expect first quarter 2026 non-GAAP EBITDA to be between $27 million and $33 million, and non-GAAP earnings per share to be between $0.26 and $0.36 per share. As a reminder, the first quarter normally includes some seasonally higher expenses, including payroll taxes, and benefits reset. For full year 2026, we are providing the following guidance. We anticipate full year 2026 product bookings to be in the range of $510 million to $560 million. For full year 2026, we expect total revenue to be in the range of $1.215 billion to $1.255 billion. Full year 2026 product revenue is expected to be in the range of $690 million to $710 million, with service revenue expected to be in the range of $525 million to $545 million. Year-end 2026 ARR is expected to be in the range of $680 million to $700 million. Non-GAAP EBITDA for the full year 2026 is expected to be in the range of $145 million to $160 million, and full year 2026 non-GAAP earnings per share is expected to be in the range of $1.65 to $1.85 per share. This guidance includes our current estimate of tariff costs hitting our P&L in 2026 of approximately $15 million. We recognize that the regulatory environment surrounding tariffs remains fluid, and our guidance reflects tariffs in place as of today. Our guidance also includes an estimated effective tax rate of approximately 13% in our non-GAAP earnings per share guidance. Before concluding my prepared remarks, I would like to share a bit of additional context that informs the guidance that we are providing today. Our full year 2026 product bookings guidance was developed in recognition of where we are in the XT life cycle. As we shared in December, with the announcement of Titan XT and the Omnisphere platform, 2026 is the tenth year of use for our initial cohort of XT cabinets, which were first shipped in 2017. As we transition from the late stage of XT hardware to the early stage of Titan XT hardware, we also recognize that health system capital budget approval cycles tend to range from several quarters to a few years. Therefore, it was important for us to announce Titan XT in 2025 to give our customers sufficient time to incorporate our new product offering into their planning cycles and prepare for implementations. As for the potential size and pacing of the hardware replacement cycle, we shared with investors in December that we estimate this replacement cycle opportunity to be in excess of $2.5 billion. Regarding pacing of product bookings and product revenue, it is important to balance considerations such as our current XT installed base being not as old as the G series installed base was when we announced XT, creating a near-term potential headwind. Additionally, it is important to consider the potential customer benefits of the software workflows, as well as the data and AI-enabled analytics enhancements that are expected to be offered in our Omnisphere platform, creating a potential tailwind. For these various reasons, our 2026 product bookings guidance reflects a midpoint in a similar range to our reported actual 2025 product bookings. As you look to build out your P&L models for 2026, I will remind you that we shared with investors in December that we anticipate 2026 incremental revenues from 2026 and the improved software functionality in Omnisphere to be available in 2027. Additionally, we anticipate that the increased level of revenue linearity that we experienced in the later quarters of 2025 will likely continue through 2026, which should result in a 2026 quarter-over-quarter revenue pattern that is flatter in absolute dollars than our past historical patterns. Moving on to our cost structure. Omnicell's management team continues to be focused on balancing the importance of making investments for the benefit of the long-term health of our business with our commitment to expanding profitability for investors. The midpoint and high end of our 2026 guidance reflect non-GAAP EBITDA expansion at a rate of approximately 2x the rate of total revenue growth. At the same time, this guidance reflects anticipated investments to ready Titan XT and Omnisphere for commercial adoption, as well as advance other enhancements to the customer experience. Also included in our 2026 guidance is spending associated with the transformation of our back-office systems and workflows, including a multiyear update and refresh of our enterprise resource planning or ERP systems, which are coming off vendor support in 2027 and will result in approximately $10 million of associated expenses in 2026. As I reflect on 2025, I am grateful for the level of commitment and execution by the team here at Omnicell. We delivered a solid fourth quarter and a strong closeout of 2025. As I look ahead, I am excited to have joined the Omnicell team and am optimistic about the future and positive feedback that we have received from health systems following our announcement of Titan XT and the Omnisphere platform. With customers responding positively to our continued emphasis on innovation and execution against our product roadmap, we believe we are well-positioned to drive sustainable, profitable growth in 2026 and beyond. We would now like to open the call for questions. Operator? Operator: We will now begin the question and answer session. If you would like to ask a question at this time, simply press star followed by the number one on your telephone keypad. We will pause for a brief moment to compile the Q&A roster. And our first question comes from the line of Allen Lutz with Bank of America. Allen, please go ahead. Deb on behalf of Allen Lutz: Hey. Thanks. This is Deb on for Allen Lutz. Baird and Randy, you know, I just want to step back and take a look at this product's booking expectations and the cycle and just get a sense of how we should be viewing this. You know, I think you mentioned the G series maturity versus where XT stands today. I guess, you know, as you look at the Titan cycle and the ramp over the next couple of years, is it sensible to take the typical eight to ten-year replacement cycle and consider how you lap placements if XT was between 2017 to 2020? Or is there, you know, some sort of other variables that make this ramp a little different? I think you mentioned that maturity of G series is one. Would just love to get an understanding of how you're thinking about this ramp in particular based on kind of the internal data you have around placements in the price cycle over the next few years, not just in 2026? Baird Radford: Yes. Thanks for the question, Deb. I think the starting point here that's really important to keep in mind is that we believe that the refresh cycle is in excess of $2.5 billion. We continue to feel really good about that opportunity. And you laid out factors about how do you consider the XT refresh that took place as a guide. I think broadly, you're in the ballpark. I think the tricky part is always, you know, customer to customer, how do you land those? But broadly, we see a similar level of rollout over the course of, call it, the next eight or so years. So I think you're thinking about that. Right? Randy, anything you'd want to add? Randall Lipps: Yeah. I think it's a broader discussion. Obviously, when we go to see our customers, they're really excited about not just the hardware, but the platform. And to access the platform and all its capabilities, you have to be on the Titan. So that becomes the overwhelming discussion, not about, oh, this is my hardware and how new is the new hardware. It's about all the things that we're bringing. Many of our customers are very complex organizations that have built up a large portfolio of inpatient and outpatient institutions that are complex and hard to manage. And so they really need this enterprise-level single enterprise-level connected point where they can manage all these things in a rational manner. It's the only way they're going to be able to manage their true cost. And so the discussion is much broader and much more enthusiastic about the platform than just focus on the hardware. And because the platform allows us to bring in other technology solutions that we can bring in that we can't bring in today on our current hardware. So I would just say that from the trade show to now, which has only been forty-five days, the top of our pipeline is full of activity, not only internally, $2.5 billion is within our own customer set, but just the general market in general, which is even larger than that. We have engaged fairly, I think we even saw a little of that in the fourth quarter where we had a fairly large contingent of competitive upgrades there. So that momentum has started, and we believe it will continue. We're early on in the year here, and we've just introduced the product. And so I think we put out, you know, what we knew today, but, I mean, it's only forty, I don't even know, forty-five business days from when we made the announcement. But the excitement has never been better. I mean, 2025 was a year of innovation. We opened the innovation lab. We launched Titan XT. We relaunched Omnisphere at the next level. I mean, it's just excitement around here both internally at the company and externally in the marketplace. I we couldn't be happier. Deb on behalf of Allen Lutz: Got it. That's very helpful. And then just one last one for me. Just on, you know, there's been some rightsizing efforts over the last couple of years. Do you look ahead for this Titan cycle and as well as Omnisphere and the rest of the product suite? You know, do you see a need for incremental investments around the Salesforce, around clinical education, marketing, support individuals, how should we kind of think about the SG&A spend line item over the next few years relative to, I guess, how that's grown into 2025 here? Baird Radford: Yes. I think, Nnamdi and I will tag team this. From a sales perspective, you know, we've signaled in the past calls the competitive environment that we're seeing brewing and being in those deals is super important. Randy alluded to some investments we made during 2025 to increase the sales force to make sure that we're well-positioned to capitalize on this market opportunity in front of us. So you'll start to see some of those come through. And then on the clinical side, do you want to share anything? Nnamdi Njoku: Yeah. Just broadly speaking, as Randy talked about, we're excited about the response we're getting from our customers, and we know that this is a pivot point for the company. So we are investing in our Salesforce and how we go to market, particularly around pricing and how we package all the solutions that we've just announced. On the clinical side as well, we'll continue to make investments in the field with regards to how we engage our customers from a clinical standpoint. So overall, I would say we're making the right investments in the right areas to make sure that, you know, customers really understand the value of what we're bringing in the marketplace. Deb on behalf of Allen Lutz: Fantastic. Thank you. Operator: And our next question comes from the line of Matthew Hewitt with Craig Hallum. Matt? Please go ahead. Matthew Hewitt: Good morning and thanks for taking all the questions. Maybe first up, given the launch of XT coming shortly on the heels of XT Xtend, I'm just curious, those customers that had gotten into queue, maybe had signed contracts for Xtend, what has been the feedback from them? Are they pushing ahead with Xtend with plans to upgrade to Titan at some point in the future, or are you having some of those pipeline candidates come back and say, oh, hold the line. We, you know, maybe we want to go with Titan. Can we get in queue for that maybe in the back half of the year when that platform is available? Nnamdi Njoku: Thanks, Matt, for the question. So if you take a step back, one of the principles we've operated under here is really, you know, meeting customers where they are. So think about it from the standpoint of customers that have an aging fleet. Obviously, have a compelling reason to go to Titan XT, and for all the reasons that we've articulated. For those customers that you're calling out that have made the investment in XT Xtend, they still have the ability to access cloud capability once we have that generally available. So it's not an investment that goes to the wayside here. Those will get the benefit of accessing our cloud capability through Omnisphere. Because the XT Xtend consoles are essentially a cloud-enabled console. So as we think about it here, we have the ability here to engage about every customer out there with the path to the cloud. Matthew Hewitt: That's super helpful. And then maybe just to follow-up on the gross margins. You're facing some tariff costs, get that. Is there anything that you can do from a mitigation standpoint to reduce those costs? Maybe not immediately, but over the course of this year so that you could get those product gross margins back to where they should be. Thank you. Nnamdi Njoku: Yeah. So there are a couple of things wrapped in there that I want to share. As it relates to the fourth quarter, we definitely saw the impact of the customer and product mix. So based on those installations in the product side, during the quarter, was a little bit more unfavorable mix than we had seen in the past. I think that is a little bit more of a Q4 thing than a broader reset of what the margins would be. As you talk about tariffs, we are looking forward in the mitigation efforts completed by the team during 2025, and they really did scramble well following the implementation of those tariffs. We're exiting the year with roughly $6 million in the fourth quarter of tariffs, and we signaled $15 million in tariffs over the course of the entirety of 2026. When you think about how that'll roll out, you know, it's probably a little more front-end weighted than back-end weighted next year, but we'll start to see some natural benefits from the efforts that the team has undertaken on tariffs. So those are two points to flag. I think the third point to flag is that the supply chain team is very committed to finding ways to manage our use of the global supply chain network to optimize the cost structure. How do we make sure we have a resilient, available supply chain, and how do we do that through the lens of optimizing on cost to try to yield better margins? So we continue to remain very focused on that area. Matthew Hewitt: Understood. Thank you. Operator: And our next question comes from the line of Scott Schoenhaus with KeyBanc. Scott, please go ahead. Scott Schoenhaus: Hey, team. Thanks for taking my question. Randall, I believe you mentioned the first question about seeing traction from the competitive wins with your conversations with customers. Maybe can we dig more there, you know, your largest competitor in this kind of duopoly hasn't done a refresh cycle in a long time, and there should be a lot of pent-up demand. Can you comment on what you're seeing and then maybe what embedded in the guidance for bookings in terms of the competitive wins? Thanks. Randall Lipps: Yeah. I think, obviously, the timing of this announcement was very good for us. As it also was timed with the marketplace. In our marketplace, everyone is looking at refreshing their systems over the next few years. And it's allowed us to get in a lot more conversations that we would not have had had we not announced the product at this time. And so it really hats off to the Omnicell team for getting this product out and ready and announced. And, you know, so we know we're in more fights than we've been. The top of the funnel is really strong and fresh. And it's really our opportunity to take more market share. Now, in general, it's hard to put these accounts into permanently into the backlog until you sign them. So I'd say we've kind of built our forecast based on what we see today. I don't know, Baird. Did I describe that the right way? Baird Radford: Yeah. We definitely felt the momentum as we were exiting 2025. The vibrancy of the competitive environment. As Randy alluded, it is difficult to bake those into a guidance, but we have assumed, you know, a modest step up reflecting our confidence of where we're positioned in that space. And, you know, we don't shy away from the competition. We're excited to have our outstanding products, the reliability, and our innovation roadmap considered by competitive customers. So we're looking forward to the fight. Scott Schoenhaus: Perfect. Thanks for all that color. Maybe just as a follow-up, Baird. You talked about mix shift pressures on the margins this quarter, but maybe talk about that maybe as a potential tailwind as you unroll the Omnisphere product in terms of mix shifts on margins? Thanks. Baird Radford: Yeah. So as we think about Omnisphere, we'll be releasing for general availability those software workflow enhancements in 2027. I'd love to share more with you about where that is. We're pressure testing with customers at this time. Our thoughts around how to go to market in that area, and we signaled in December that we'll look to, in the back half of this year, provide you a more complete and comprehensive review of where that product and offering set of offerings stands. And how we think that'll roll ourselves forward. So just need a little bit more time on that, but definitely will share. Operator: Great. Thanks. Your next question comes from the line of Bill Sutherland with The Benchmark Company. Bill, please go ahead. Bill Sutherland: Thank you. Morning, everybody. Your ARR was very strong. And you're guiding strong. Maybe some granularity there in terms of the growth drivers? Thank you. Baird Radford: Yeah. I think, Bill, are you thinking historically, or are you thinking guidance-wise? Bill Sutherland: Both, actually. I was a little surprised at the strength that you reported. And you followed through with a similar kind of growth trajectory for this year? Baird Radford: Yeah. On the ARR side, historically, we had a really nice run-in 2025 on the technical services. So the traditional break-fix for our connected devices. The team did a very nice job in that space of making sure that contractually available pricing opportunities were secured. And so the team did a very nice job over the course of the last eighteen months, and that yielded us some benefit. Also baked into that ARR are consumables and our specialty businesses. And those continue to perform nicely. We're encouraged by the momentum in both of those businesses. And what you see are you see those three factors carrying forward in the guidance that we were setting for ARR in 2026. Bill Sutherland: Great. Thank you. And then one thing I've been thinking about with the success that you're seeing with Xtend, and your customers excited, that that is gonna provide them an on-ramp with Omnisphere. Does that change the calculus in terms of the number of or the of the cabinet that are gonna be just refreshed versus, you know, replaced by Titan? And just trying to think about kind of the impact of this new go-to-market strategy. Thank you. Randall Lipps: Yeah. It's a great question. One of the goals, of course, is to lean into recurring revenue. As we're able to connect to the Omnisphere either with Titan or with an XT platform, a newer XT platform only. The older ones can't connect, but the newer ones can. It really allows us to garner subscription fees. We no longer have the back end. You don't have the cost of running on-prem servers or on-prem licenses and cybersecurity, that's all done in the cloud by us. So as we move those connections over to Omnisphere, it really allows us to generate a, I would say, a new and healthy source of revenue for our customers who don't want to run on-premise equipment, so to speak, in these large enterprises. So I think while you're looking at the hardware opportunity, it might be a little less, a little more. It's really the opportunity to garner this new revenue stream from Omnisphere that it's gonna be a big driver in our future. Bill Sutherland: It really is about accelerating adoption of Omnisphere is how you guys are thinking about it, of course. Randall Lipps: Exactly. Exactly. Bill Sutherland: Good. Good. Good extraction. Okay. Everybody. Operator: Thanks, Bill. And our next question comes from the line of Jessica Tassan with Piper Sandler. Jessica, please go ahead. Jessica Tassan: Hi, guys. Thanks for taking the question. So my first one is just, can you give us a sense of how Omnicell contends with the lease structure that we believe kind of dominates your competitors' ADC installed base? Does Omnicell need to wait for lease expiry? Do customers upgrade early? And then just are lease terms or the duration of leases going to constrain the rate of competitive conversions you're able to achieve over the next, you know, two or three years? Randall Lipps: Well, thanks, Jess. There's a lot tied up in there. Let me try to unpack that. One of the things that we've always done is we've offered third-party leasing to customers. And we found that that program has helped some but has also created a bit of an administrative burden for others. So as we were working our way through 2025, it became apparent to us that the market opportunities that are presenting themselves in some of these competitive arrangements would benefit Omnicell if we were to have an Omnicell-financed leasing opportunity for customers. We've introduced this into a number of conversations, and we found that it's allowed us to stay in those conversations longer. And I think it comes back to the company has always desired to meet the needs of customers where they are. And the extension of an Omnicell-driven financing program is just one more extension of that kind of ingrained culture here. Some customers, I think, will take the option. I think some will not. And so I don't see a wholesale shift in the way we do business, but I do see it as a great opportunity for us to remain competitive in competitive bid situations and potentially pick up a few additional customers because we're willing to use our balance sheet. So pause there and see if anything you want me to go deeper or want us to talk about more, Jess. Jessica Tassan: I think I'll follow-up offline on that one. I guess my just follow-up would be we saw the CommonSpirit Conifer announcement earlier this week. I guess, is there a risk? Or have you all contemplated the risk that AI tools potentially allow health systems to consider, you know, sort of home-growing pharmacy inventory management and procurement, you know, platform, and that that could, you know, compete with or undermine the Omnisphere launch in '27. Randall Lipps: Well, we think AI is a great tool, and it will be used for supply chain. But you need to have an infrastructure to operate it across in order to get the right results. And so our infrastructure, particularly as you look at Omnisphere, is all geared toward AI, so we don't have to garner the toolsets that everybody needs to use to get the optimal returns on their supply chain, but they need an infrastructure that is enterprise-wide, that is reliable, that's secure, that you can exercise whatever types of AI you want to, both those that we offer and maybe even some that some of these institutions might have. So we think it's a net net plus for us. Because people really want access to real-time data in a very large enterprise manner in order to do the right kinds of modeling. And that leans toward us. Jessica Tassan: Thank you. Randall Lipps: Thanks, Jess. Operator: And your next question comes from the line of Stanislav Berenshteyn with Wells Fargo Securities. Stan, please go ahead. Stanislav Berenshteyn: Yes. Hi. Thanks for taking my questions. First, I'd love to get an update on the robotics. I was wondering if you could maybe give us what percentage of product revenue were accounted for by robotic products in 2025? And any changes in expectations for that mix to differ at all in 2026 and any changes in expectations for bookings? Nnamdi Njoku: Yeah. I'll hit the revenue component of the b. You know, we have not yet disclosed the robotic platform. I will say, in any given period, it has not been a material amount. We are encouraged by the momentum of the XR2 offering. But it is a discrete set. Gotta have the space for it, and you gotta have the needs and purpose for it. So, you know, that is a lower volume product. Stanislav Berenshteyn: Got it. Thanks. Maybe on the services side, would love an update on EnlivenHealth and 340B. I know EnlivenHealth, I think, you had some pressures earlier in 2025. What are the expectations as we think about next year and or this year, I should say? As well as if you can comment on how 340B has been performing and what your expectation is. Thank you. Nnamdi Njoku: So the EnlivenHealth side, as we know, there's headwinds in the retail segment. And that's continuing to sort of unfold out there. Within here, we're still the solutions that that business provides into that retail segment we still feel like long term, it's the right suite of solutions. But there are some headwinds in that market right now that we're continuing to watch, and what we're focused on right now is just, you know, helping our customers navigate through those headwinds. So that's kind of where things are right now, and that's kind of the focus of that business. With respect to 340B, that is part of our specialty offering at this stage. We feel it's a compelling part of our specialty business and a big contributor with regards to how we go to market on specialty. And as you know, there's a lot of chatter out there in the marketplace with regards to the pilot program with the top 10 specialty drugs. But as we connect with customers, they're definitely watching it. But at the same time, those drugs tend to be replaced by generics or newer drugs that come onto the marketplace. So overall, from a net standpoint, customers are watching it, but we still feel like there's not a material change to our revenue expectations with the specialty business. Stanislav Berenshteyn: Got it. Thanks. And maybe one quick follow-up here for Baird regarding the comments related to the ERP platform implementations. I think you called out $10 million incremental expenses for 2026. Is that supposed to just come off like, in 2027 all else equal, or is there some other things we should be contemplating, improved efficiencies that are gonna help margins as you continue to grow the business? Thank you. Baird Radford: Yes. It'll definitely be a multiyear system implementation that we'll be experiencing. But like any large initiative, we have assumed that we are going to be able to drive efficiencies through the use of the system. I would stop short of saying it's anywhere near dollar for dollar. Some things you just have to do to maintain a corporate structure. But we definitely are planning that these system investments will yield benefits to our business. Particularly as we clean up the way in which we work with our customers and satisfy their needs. That should provide opportunities on the commercial side for us. Stanislav Berenshteyn: Great. Thank you. Operator: And your next question comes from the line of Eugene Mannheimer with Freedom Capital Markets. Eugene, please go ahead. Eugene Mannheimer: Oh, thanks. Good morning. Congrats on the great progress. When we think about the Titan adoption cycle, do you envision the same bell curve type of shape that we saw during the last cycle, right, in which it peaks and the corresponding revenue peaks in years three to five and then tapers off? Or do you envision more of a linear pace of adoption? Randall Lipps: Well, hey, Eugene. Maybe less. I think, yes, it's more typically the bell shape, but I think what is different this time is we will have a lot more additional products to add on to the Omnisphere. That fill in some of those gaps. So we're not just selling Titan. We're able to plug and play small, medium, and large, some with software, some with hardware, additional products off the Omnisphere that really deemphasizes just the sort of the bell curve profile of the business. Because we really want to move toward a business that's much more sustainable, much more higher margin than we are today. With recurring revenues. And I think we're getting ourselves set up for that with Titan being the initial product that plugs and plays off of Omnisphere to bring great value to customers. But as we add more products, they will just plug and play off the Omnisphere and continue to build out their own, I guess, bell cycle bell curve cycle as well. So it's gonna be a wave of products, just not a product. Way cycle. I think that's the difference we're doing here. We're gonna lean into the Omnisphere revenue generation portion of the future as well, not just sort of the hardware moment if you will. Eugene Mannheimer: Got it. Makes a lot of sense, Randy. And my follow-up would be, you know, you implied that you're bullish, obviously, on your ability to gain share vis-a-vis your primary competitor. So, again, looking back to prior product cycle, you think your experience in competitive conversions will be similar to that which you witnessed in their last product cycle that they embarked on, you know, ten or twelve years ago? Randall Lipps: I just think our opportunity in the market has never been better. I think, like, the key here is we have the right product for these complex customers who have evolved from, you know, five, ten, or twenty hospitals to fifty to a hundred hospitals. And so the solution sets are enormously different for those types of customers. And the only way to really reach these customers would be solution set is to have an enterprise cloud-based single app, multi-tenant product that really allows a customer to get big as they need in every area they need and to shift and move quickly with plug and play resources that can track the medication management wherever they go. And so when we talk about our solution resonating with the customer, it's the same chief pharmacy officer or operational who said, yeah. We just acquired twenty-five, a hundred clinics. Now I gotta manage those medications. What do you have? And so we have our MedVision software-only product for clinics. You can just plug that in and start running. You don't need to have to do a whole bunch of other things. Oh, great. So it's this broadened conversation about these institutions that are really big that are looking for true platform players. And I just feel like we're so far ahead out there that as long as we can get those discussions right, we're gonna win more than our fair share. Eugene Mannheimer: That's great. Thanks again. Randall Lipps: Thanks, Eugene. Operator: And our final question comes from the line of David Larsen with BTIG. David, please go ahead. David Larsen: Hi. Can you talk a little bit about the 1Q revenue guide? It's very good relative to what we were expecting. Did any deals maybe push from 4Q into 1Q? And is that a positive indicator for the volumes we're seeing in hospitals and demand from hospitals? Thanks. Baird Radford: Yeah. We, you know, on the push, we did not see anything material push from Q4 to Q1. As it relates to Q1, we're seeing a little more linearity in the business right now, and I think that's really just important to recognize. The business is not only growing, but it's become increasingly predictable. That certainly helps us with implementation. It helps us manage costs. It helps us manage customer expectations in a very positive way. And so yeah, we're happy to see the results as well. David Larsen: And then when we use the phrase cloud and Omnisphere, does that mean that Omnicell is gonna host all of the data for all of your clients with Omnisphere and Titan, and then the clients will kind of use the software to access that data, and you'll charge a hosting fee and you can update the software overnight, immediately, in real-time, across the entire network. Just does that mean you're gonna be hosting the data or will, like, Amazon host it? Thanks. Randall Lipps: Yeah, David. Exactly. No Omnicell will host it. And we'll be providing the oversight and of all the data and just as you said, David, you've described it perfectly. Customers do not need to manage either compute power, the storage power, or access power to their systems. We will make that easy, simple, and safe for them. David Larsen: Okay. And then just the last quick one. So at some point in time over the next, call it, decade, your clients are gonna have to convert from XT to Titan at some point, XT will not be supported even if that's, like, in ten years. Is that correct? Randall Lipps: Well, for sure. Probably sooner. But yeah. Probably sooner. David Larsen: Okay. Alright. Thank you. Randall Lipps: Thank you, David. Operator: That concludes our question and answer session. I will now turn the call back over to Randall Lipps for closing remarks. Randall? Randall Lipps: Hey. Well, thank you for joining us. A shout out to the Omnicell team. We had an amazing year last year in innovation and launching new products. We opened this brand new innovation center in Austin. We launched our new product, Titan. We've got the Omnisphere in more locations. It's just, you know, it's just one of those pivot moments for the company that in thirty years only comes around once in a while, and it's really a pleasure to see the enthusiasm there, and this launch as we move toward the autonomous medication management world. Which is not that far off. It's closer than you think. And tech is available. Customers are ready. And Omnicell's got the products and people to make it happen. Thank you very much. We'll see you next time. Operator: That concludes today's call. You may now disconnect.
Operator: Thank you for standing by. The conference will begin momentarily. Until such time, you will hear music. Thank you, and please continue to stand by. Thank you for standing by. The conference by. Good morning, and welcome to Crown Holdings Fourth Quarter 2025 Conference Call. Lines have been placed on a listen-only mode until the question and answer session. Please be advised that this conference is being recorded. I would now like to turn the call over to Mr. Kevin Clothier, Senior Vice President and Chief Financial Officer. Sir, you may begin. Kevin Clothier: Thank you, Elle, and good morning. With me on today's call is Tim Donahue, President and Chief Executive Officer. If you do not already have the earnings release, it is available on our website at crowncourt.com. On this call, as in the earnings release, we will be making a number of forward-looking statements. Actual results could vary materially from such statements. Additional information concerning factors that could cause actual results to vary is contained in the press release and in our SEC filings, including our Form 10-K for 2024 and subsequent filings. Earnings in the quarter were $1.31 per share compared to $3.02 per share in the prior year quarter, which included a $2.32 per share gain from the sale of Eviosis. Adjusted earnings per share were $1.74, up 9% compared to $1.59 in the prior year quarter. Net sales in the quarter were up 8% compared to the prior year quarter, reflecting a 3% increase in global beverage can volumes, $189 million from the pass-through of higher raw material costs, and $58 million from favorable foreign exchange. Segment income was $420 million in the quarter, compared to $428 million in the prior, reflecting strong performance in European beverage, offset by lower volumes in Transit Packaging. For the year, the company delivered record adjusted EBITDA of almost $2.1 billion compared to the prior year record of $1.9 billion in 2024. The improvement was driven by strong commercial and operational performance across the beverage and tinplate businesses. The company generated record free cash flow of $1.146 billion in 2025 compared to the prior year record of $814 million in 2024. The $332 million improvement was largely driven by the 8% improvement in EBITDA and lower pension contributions. The company maintained its net leverage target of 2.5 times, which we achieved in September 2025, and that is down from 2.7 times in 2024. We delivered on our commitment to return excess cash to shareholders with $191 million of shares repurchased in the fourth quarter. For the year, the company returned $625 million to shareholders, consisting of $505 million in share repurchases and $120 million in dividends, compared to a total of $336 million in 2024. Looking ahead, we remain committed to compounding earnings, investing in the business, maintaining a strong balance sheet, and returning excess cash to shareholders. For the first quarter of 2026, adjusted earnings per diluted share are projected to be in the range of $1.70 to $1.80, with a full-year range projected to be $7.90 to $8.30 per share. The adjusted earnings guidance for the full year includes net interest expense of approximately $350 million to $360 million, depending on the timing of share repurchases, exchange rates at the current levels with the euro at $1.17 to the dollar, a full-year tax rate of approximately 25%, depreciation of approximately $330 million, noncontrolling interest expense of approximately $140 million, while dividends and noncontrolling interest are expected to be $110 million. We currently estimate 2026 full-year free cash flow to be approximately $900 million after $550 million of capital spending to support our growth objectives, including capacity expansions and facility upgrades in Brazil, Greece, and Spain. We expect to maintain our net leverage at our targeted level of approximately 2.5 times. With that, I'll turn the call over to Tim. Timothy Donahue: Thank you, Kevin, and good morning to everyone. As reflected in last night's earnings release and as Kevin just summarized, the company delivered another solid quarter to complete an outstanding year. The company performed well across virtually every metric, generating more than 20% earnings per share growth while also achieving our long-term leverage target of 2.5 times. Fourth quarter global beverage can unit volumes were up 3%, helping to deliver level global beverage segment income against a very strong prior year fourth quarter. Operationally, the teams performed very well to minimize the impacts from tariffs and the border conflict between Thailand and Cambodia. Volumes in Americas Beverage were up a bit more than 1% in the quarter as North American gains of 2.5% were offset by a 3% decline in Brazil. For the full year, volumes in North America were flat while Brazil was down 3%. Compared to a very strong prior year, the segment delivered record income of over $1 billion on the back of exceptional operating performance and positive mix. When adjusted for the pass-through of higher aluminum costs, margins were within 30 basis points of last year's fourth quarter. As we look ahead to 2026, we expect North American volume gains of 2% to 3% but offset by inflation and start-up costs. European beverage volumes increased 10% in the fourth quarter with shipments remaining strong across the Mediterranean and The Gulf States. For the full year, volumes were also up 10%, generating record segment income more than double what it was only a few years ago. With the can continuing to win share, we expect further growth in volumes and income in 2026, more than offsetting start-up costs in Greece and Spain. Sales unit volumes across our Asian operations were down 3% in the fourth quarter, owing entirely to the border conflict between Cambodia and Thailand. While consumer purchasing power across the region remains subdued in the face of ongoing tariff concerns, we expect that our low-cost regional structure will allow commercial adjustments to drive volume growth in 2026. As expected, income across Transit Packaging was down in line with lower industrial activity. Plastic and steel strap volumes held up well, while higher margin equipment and tool offerings continue to be impacted by ongoing tariff adjustments. Despite overall industrial softness and tariff headwinds, the Transit business continues to generate significant cash flow while at the same time continuing to earn double-digit to low teens margins. With the focused cost reductions and operational improvements made over the past several years, the business is well-positioned for future income growth when industrial demand returns. Our North American tinplate businesses benefited from 5% food can volume growth, offsetting softness in steel aerosols during the fourth quarter. For the year, Income and Other was up 80% against an easy prior year comp and supported by food can volume growth and improved operating performance across newly installed capacity. In 2026, we expect further gains largely driven by strong food can demand and increased can-making equipment orders. With net leverage at our long-term target of 2.5 times, we remain focused on responsibly investing to support our partners' needs to grow their businesses, and we also remain committed to paying a dividend that grows over time and returning the capital to shareholders through disciplined share repurchases. In summary, 2025 was another year of improvement for the company. Margins across our businesses remain healthy and demonstrate our ongoing focus on earning appropriate returns on capital employed. With a strong balance sheet and substantial free cash generation, the company remains well-positioned to consistently deliver value to shareholders. And with that, Elle, we are now ready to take questions. Operator: Okay. Timothy Donahue: Maybe we're the only ones here. Kevin Clothier: Peace and harmony. Al, we're ready to take questions. Operator: Apologies for that. I was on mute. Participants, if you'd like to ask a question, please press star and then the number one. Please unmute your phone and record your name clearly when prompted. Your name and company name are required to introduce your question. To cancel your request, please press star and then the number two. Our first question will be coming from George Staphos. Your line is open. George Staphos: Thanks very much. Hi, everyone. Good morning. Thanks for the details. Good, George. Timothy Donahue: Congratulations on the progress. Free cash flow, aside from being a record for you all, was I think, one of the strongest free cash flows we've seen in the sector, you know, maybe top five for the last ten years. So congratulations on that. I guess the first thing that we had for Americas EBIT for the outlook for this year. Tim, you said I heard you correctly, North America is going to grow 2% to 3%. And then you mentioned it would be offset by inflation start-up costs for 2026. So in total, should we expect Americas EBIT to be flattish, up a little, down a little versus 2025? In our view, be relatively flat, but want to hear what your thoughts are there. And then second question, then I might have a follow-on. Did you mention specifically what you expect European volume to be growing at this year based on your intelligence at this juncture? And if you had that and could share it, we would take that. Timothy Donahue: Okay. I'll take them in order, George. So I think America's Beverage, we expect income in the segment currently to be down a touch. And that'll just be the ongoing inflationary impacts from labor tariffs, what have you, combined with some start-up costs in Brazil for the new line in Brazil, offsetting the volume gains that we mentioned that we see in North America. Two to 3%. European beverage, to your question, we did not give you a forecast for volume growth on I'm hesitant. You know, we had 10% in '25. I you know, if you want to pencil in four to 5%, let's start there. And we'll see how the year progresses. But things look very strong in Europe right now as you're hearing in the marketplace, not only from us but from others. And we'll see how the year progresses. But we're very bullish on Europe. George Staphos: I appreciate that, Tim. If we think specifically about North America and Europe, and, you know, whenever you talk about end market questions, a lot of times it winds up being all of the above. Are there particular end markets, though, or events you think will help to drive the volume, you know, World Cup, you know, America's two fifty was mentioned on another call. You know, what do you think will be an important driver of the volume growth you see in both regions in 2026? And if you could talk about what's happening. Timothy Donahue: Starting with Europe, I you know, Europe doesn't have the beer problem that we seem to have in North America. So we continue to see beer growth in cans, conversion from glass to cans. And we do see to the extent there is new filling capacity installed, it's more likely being can filling capacity installed as opposed to plastic filling. So when you look at all the other products, soft drinks and other, we see the substrate shift continuing to accelerate can demand across Europe. And so you know, that would be the answer to your question almost all products. In The United States, again, what we're looking at is energy being very strong. We're not a big player in energy, but where we do participate in energy, our customers are doing well. Flavored alcohols, doing exceptionally well, and sparkling water doing well with carbonated soft drinks appearing to hold their own in cans. And, you know, at some point, beer is going to return to flat or gross. So again, not a very big market for us in North America, but when it does you know, we're actually quite big in beer in Canada. Shouldn't say that. But and Canada doesn't have the same problems as The US. So again, spread across numerous products. And or end markets, but to your point, I don't know if America two fifty really drives much, but certainly the World Cup will especially as it's based in The United States and there's so much focus globally on The US anyway. And being in the same hemisphere as South America and Mexico, I think we look forward to that as well. George Staphos: Got it. My last one, I'll turn it over. You know, again. Free cash flow is a record. Next this year, obviously, you called out, understandably, maybe down a bit. As we look forward, do you think you can grow free cash flow in line maybe pick the middle of the two ranges call it $1 billion between what you did last year and what you'll do this year in guidance. Do you think you can grow from that level in line with volume? Or do you think we've more or less reached kind of a plateau because the growth that you'll see in volume will require investments spending? How should we think about your ability to get free cash flow to the bottom line given the volume growth that you see in the sector? Thanks and good luck in the quarter. Timothy Donahue: Thank you, George. I think Kevin Kevin stared at me. I think that what Kevin would tell us is that $1 billion seems like a reasonable and sustainable free cash flow number as we look to the future with a moderately reduced capital number, you know, we're looking at $550. But if we think about $450 to $500 on an ongoing basis that supports fairly good growth opportunities into the future that a billion dollars is not unreasonable. George Staphos: So you should be able to grow off that level then if you hold the CapEx where it is and you get the volume growth. Yes. Thank you, guys. I'll turn it over. Timothy Donahue: Thanks, George. Thank you. Our next question will be coming from Phil Ng of Jefferies. Operator: Your line is open. Philip Ng: Hey, guys. Congrats on another strong quarter. Kevin Clothier: Tim, it was helpful to give us some perspective that perhaps this year you're seeing some startup costs around Brazil and I guess some timing nuances around inflation. Philip Ng: When we look at the 2027 and beyond, appreciating you generated record margins, should we expect operating leverage in this business? How should we think about that going forward? Especially with some of these costs winding down perhaps in 2020? Timothy Donahue: Yeah. Listen. I think one thing we've done really well over the last six, seven years is convert new capacity into margins that you would expect or even margins that were beyond your expectations. I think our focus has been on trying to earn returns on capital that we employ. We don't necessarily need to have every account to feel good about ourselves. We're not looking just to fill factories up. We're not looking to just be big. We're looking to be profitable. And I think we've managed to do that well over the last several years. You know, the whole issue about leverage it's a nice term. I always I'm curious what it means when we hear the term, but, you know, our goal is to continually generate more income. As you know, Phil, sometimes percentage margins are a little bit misleading from one year to the next only because of the pass-through of raw materials. And you should expect as long as aluminum stays elevated for percentage margins, to contract a bit because of the denominator effect, but you know, the goal is to generate more absolute margin and more cash flow as we go forward, and I don't see any reason why if we look out over the next five years compared to the last five years, we shouldn't be as similarly successful as we were over the last five years. Philip Ng: Okay. Great color, Tim. In terms of Brazil, a little softer in 2025. One of your competitors talking about perhaps some destocking in the channel to start the year. Help us think through what you're seeing on the ground from a Brazil standpoint. Certainly, some excitement around the World Cup, but also in an uneven macro environment. Are you seeing any trade down into, like, refillable glass like we've seen in past cycles? Timothy Donahue: Well, there has been less consumption combined with a move back towards large 600-milliliter bottles that are shareable among people when they're out. Listen. The economy in Brazil is the I shouldn't say the economy. That's probably I don't know enough to say that. But we do know the consumer is a little weaker than we would like. Now having said that, and you've heard us say this over time, we don't get overly concerned from one quarter to the next or even one year to the next in Brazil. It's another market that's been exceptionally robust for the can industry. I think we've all done really well. And as we look at any three to five-year period, you know, at the end of that three to five-year period, do you believe you're gonna be in a better place than you were three or five years ago? And we believe yes. So I don't you know, I know your focus is your focus is on trying to forecast immediate and then maybe eighteen months out, and we have a longer focus than that. But we still remain very positive on Brazil, and you know, it'll come back. And it is a market where the can is really well positioned across beer. We continue to see that doing well. Philip Ng: I may admit that, Tim, did you give us your outlook for 2026 for Brazil from a growth standpoint? Timothy Donahue: Did not. I think it's probably a bit too early to say that, but let's you know, if you wanted it's early, but if you wanted to use 3% you could use 3% for the industry and for Crown. Philip Ng: Okay. Helpful. Thank you. Market develops. Okay. Thank you. Operator: Thank you. Our next question will be coming from Ghansham Panjabi of Baird. Your line is open. Ghansham Panjabi: Thanks, operator. Good morning, everybody. I guess, you know, going back to the North American beverage outlook of two to 3%, volume growth of twenty-six percent for you specifically. Is that also your assumption for industry growth for the year? And then just related to that, where are you on capacity utilization in North America relative to you know, the bit of growth that the industry saw last year or at least over the last couple of years? Just curious as to where you stand on capacity. Timothy Donahue: So I think Don Shum, the market in 'twenty-five probably up 2% to 3%, maybe 2.5%. I think as we look to 2026, again, it feels like the market should be up two to 3%. I think capacity in the industry is tight. I know we are tight. You know, notwithstanding, perhaps there is some capacity coming online. I still think that with the growth we see 2% growth on a $120 billion can market is $2.5 billion cans. That's a can plant with two lines at full operating speed, so it should absorb any new capacity coming online. So I expect the market's gonna remain tight. Ghansham Panjabi: Okay. Thank you for that. And then as it relates to CapEx, I mean, 2023, roughly $800 million CapEx. Last two years, half of that. You know, let's say roughly $400, and we're targeting $550 for '26. Is this the new baseline as it relates to how you think about the future? You know, this year, obviously, you're spending money in Europe and Latin America. Will that morph into The US 2027 onwards? And then just I'd love to hear your thoughts as it relates to the affordability of the can as well. Right? Obviously, aluminum's up significantly. Plastic prices have done very little, if not go down. And so the divergence between the two, you know, how does that affect your thoughts as it relates to the let's say, the competitiveness of the can? Timothy Donahue: Yeah. I think I wouldn't read too much into the $550 this year. I think we have a situation in Europe where we need capacity and we need capacity to service customers in the Mediterranean, Greece, Spain, and we have a pretty strong position there. We're oversold in the region, and it's we just have to you know, the Greece project is a we're on-site with a Greek plant where we're gonna remove two old slower lines and put two high-speed lines in. We pick up a fair amount of capacity, and we'll put another line into the plant in Northern Spain. And that's basically the service markets where we're oversold. You know, do we have other opportunities that we're looking at? Sure. We'll see how they manifest. But to your question about North America, I don't see you know, never say never, but as we sit here today, I don't see any need for new capacity for Crown in North America over the next year or two. The affordability of the can you know, from production through delivery to the consumer, it still should be the cheapest and most effective way for our customers to deliver product to the consumer. Now having said that, the aluminum is a lot is up a lot. You know, I can't you know, you can't make heads or tails over what's going to happen with tariffs long term and certainly the punishment that we're putting on some of our trading partners specifically Canada as it relates to aluminum and the need for primary aluminum to come out of Canada. We have not enough primary production in The US, if any. So like a lot of things in the new world, Don Chum, when we're talking about sustainability, we're forcing the cost of sustainability on the consumers. And we'll see how long consumers and retailers want to stay in line with their sustainability goals and or are they just checking the box, and are they gonna go back towards products that are less sustainable? But I think right now, we don't we're not overly concerned as we look at volumes for '26 and '27. As it relates to the cost of aluminum. Demand appears to be very firm. Operator: Thank you. Our next question will be coming from Matt Roberts of Raymond James. Your line is open. Matt Roberts: Hey, Tim, Kevin, Tom. Good morning. Operator: Morning. Firstly, Matt Roberts: what level of buybacks are assumed in the guide? And I know you have incremental CapEx, but still strong free cash flow generation. So is there any preference in leaning towards M&A, maybe in cans? Or otherwise if there were hypothetically speaking, any transformational opportunities out there? Kevin Clothier: Alright. So, Matt, in terms of what we've baked into the guide, cash flow is $900 million. Assume dividends to shareholders and minority partners are, you know, $200, little less than $250, so they give $650. We've assumed we would buy $650 million of stock. Some each quarter. Leaving us room to be opportunistic if we know, see a buying opportunity. Timothy Donahue: Matt, on the second part of the question, I think the goal of every management team should be to improve its company, its portfolio of businesses. Now having said that, and at the risk of insulting analysts, investors, and our other cohorts in the packaging space, we do not see any opportunities across packaging that would meaningfully improve Crown as a company. Therefore, our best use of our cash is investing in ourselves by returning cash to shareholders in the form of share buybacks. Matt Roberts: Thank you, Tim and Kevin. I appreciate the color there. And maybe for my follow-up on a qualitative basis, Also, at risk of insulting others in packaging, we've certainly seen other peers have had abrupt management changes of late, and your operations and stock performance certainly don't seem indicative of that. But in light of that, how do you think of succession planning or perhaps going against the grain of changes we've seen in packaging the C suites of late? Thank you for taking the questions. Timothy Donahue: Well, you know, I think one thing that helps an organization do well is stability. We've had the at Crown, like all companies, we've had our ups and downs over decades. I have the privilege and the good fortune to lead an exceptional group of professionals at Crown. I think I'm only the fourth CEO in the last seventy years. I think that stability says a lot about the organization and the culture we have at Crown. We do have a number of internal candidates when the board decides they're tired of me. And we have a number of highly trained and experienced professionals in the can industry that are certainly prepared and ready to lead this organization going forward. But I think stability is very important, and I think we've been very fortunate at Crown to have stability for so many years. Matt Roberts: Appreciate the thoughtful color again. Thank you, John. Operator: Thank you. Our next question will be coming from Chris Parkinson of Wolfe Research. Your line is open. Christopher Parkinson: Thank you. So just a pretty quick question, on Asia just filling out the geographic landscape here. You've been pretty cost position pretty dramatically in terms of your asset base there. And yet there have been competitive challenges in Indonesia. Know, skirmishes in, you know, Thailand and Laos. Just, you know, as it stands today, how do you assess the growth of that market? And understanding it's not going to be next month or two, I'm not asking you to call that. But just when you think about that market over the next two years or so versus how you used to think about it, in terms of like the ultimate profitability potential? What would the update be there? Thank you. Timothy Donahue: Yeah. Chris, I don't not to be flippant, but we can get growth anytime we want it. We just go into the market and make commercial adjustments. We can get all the growth we want. It's a constant evaluation as to what sort of commercial adjustments are necessary to get growth, and do those adjustments in growth improve the business long term. Could be short-term pain or not, but do they improve the business long term or not? And so that's a constant evaluation we do, but there's plenty of growth available in the Asian market. We do have a very low-cost structure across Asia. I think you know, most of the companies we compete with in Asia are private companies and or companies that don't publicly report. But I would venture to say that our margin profile in Asia is the envy and therefore the target of many other Asian companies. Having said that, we are very large, well-positioned, low-cost. So we can flex commercially to grow business, and we'll look to do a little of that this year in Asia. Christopher Parkinson: And just, you know, drilling down a little bit more in Europe, is the growth that you're bullish and kind of work, I guess, for penciling in at least that mid-single-digit, that five-ish percentage growth rate. When you take a step back and look at Southern Europe versus The UK versus Northern Europe, are there any material differences in terms of you know, the growth rate in terms of how it's hitting your business? Or is it essentially the same growth rate in all sub-regions across the board? Thank you. Timothy Donahue: Well, there are some markets we're not in. For example, we're not in Scandinavia. We have one plant in Eastern Europe, we're not very big in Eastern Europe and we're not in Benelux. So can't really comment you know, so much on the growth rates in those markets. I can tell you that we do know that margins are different in those regions. Specifically, in those regions, they're different from Scandinavia to Benelux, etcetera. And they're different from Southern Europe, and into the Gulf States. But you've heard us from time to time in the past talk about tourism as it affects our business since we're so strong in Southern Europe. We had a very good year this year, and we foresee another very strong year across Southern Europe and into the Gulf States in '26. But you know, regionally, we're set up a little differently than the competition. But having said that, the entire market is doing well, and we expect everybody to do well across Europe. Christopher Parkinson: Thank you so much. Operator: Thank you. Our next question will be coming from Mike Roxland of Truist Securities. Your line is open. Michael Roxland: Thank you, Tim, Kevin, Tom for taking my questions. Tim, can you just talk about what you've seen thus far in terms of demand in January and early read on February? Timothy Donahue: Well, I think everything everything as we expected. I think perhaps the weather may have impacted some shipments. Tractor trailers don't do real well on icy highways. But February has started off. Looks like it's more than fully recovering any shortfalls that were in January, so as expected. It. Maybe January a little bit weaker due to weather, things out of your control, but February doing better. Have you recovered any of that lost volume in January in this month thus far? Yeah. I think that's what I just said. I think February more than recovering. Michael Roxland: Okay. Got it. Got it. Thank you for that, Tim. And then just on food can demand, obviously, I think you called out 5% food can growth in the quarter. What are you expecting for 2026? Do you expect to grow above the market? Are you gaining share in food cans? Any color you can provide around that? Timothy Donahue: I think that our customer set and specifically our waiting to pet food gives us an opportunity to grow a touch above market. I think, really, we and only one other company produce pet food cans in any size for the market. So we and the one other company are the beneficiaries of pet food growth and pet food certainly growing more than human food in cans. Michael Roxland: Thank you. Operator: Thank you. Our next question will be coming from Stephen Diaz of Morgan Stanley. Your line is open. Stefan Diaz: Hi, Tim. Hi, Kevin. Congrats on good 2025 results. Maybe just to begin, for the investments in Brazil, Greece, and Spain, I guess, is that ramp going so far? And then as we think about 2026, you know, what type of volume pull-through should we expect from these investments? Or does incremental volumes from the investments really show up more in 2027? Timothy Donahue: Oh, these are mostly 2027. These start-ups won't here won't happen till the back half of the year. So little this year some start-up costs as we do training and other things, recruiting people second quarter, third quarter, the fourth quarter, and most of the volume next year. Stefan Diaz: Okay. Great. Makes a lot of sense. And then it wasn't too long ago that, you know, investors are sort of worried about overcapacity and you know, potential price pressures in North America. You know, one of your competitors signaled that they were pretty much tapped out of capacity in the region. You know, you came out today saying that you don't think you need to put more capacity in North America over the next one to two years. I guess, one, how do you see utilization rates in the region? And then two, does Crown have capacity to potentially, you know, pick up some business if, you know, demand is a little better than forecasted? Thanks. Timothy Donahue: Yeah. Listen. I think we don't see any need to any capacity in. We have a playbook that we're operating with it. We want to generate a lot of cash flow. We think there's great return opportunity there if we generate a lot of cash flow. That implies keeping capital at reasonable levels. We have opportunities in other markets perhaps that generate better and quicker returns right now than North America, and it does not appear that we need to put any capacity in North America. We have a little bit of open capacity, not that much. We certainly couldn't take a sizable customer on. And you know, the opportunities elsewhere give us better opportunities. So having said that, you know, utilization is tight. It doesn't mean others won't put capacity in, but we don't need to chase it. So I think we're happy with the statement we made that we don't see the need for Crown to put any capacity over the next couple of years into North America. Operator: Thank you. Our next question will be coming from Josh Beck of UBS. Your line is open. Anojja Shah: Hi. Good morning. It's Anoja Shah sitting in for Josh. Just wanted to go back morning. I just wanted to go back to Europe for a while. Could you give a little more detail on what you're doing in Spain and what's driving that kind of growth? Because if I recall correctly, I think you the last five years, you've added capacity to three different plants there. And maybe you can ballpark the current CAM per capita rate there versus, say, the just so we get a sense of how much runway there is. Timothy Donahue: Looking to have if Tom can come up with a per capita can rate. I Spain is not the largest can make market in Europe. It's probably the second largest can market in Europe after The U. K. And so we I think probably seven maybe seven years ago, we built a plant in the Valencia a new high-speed two-line plant. The plant in Agenseo in the North Of Spain in the Bilbao region that we're adding the line to now, used to be a steel can plant two-line steel can plant, slower, older lines. We ripped the steel lines out. We put a new aluminum line in, and now we're doubling the plant. We also make ends in that facility. And then in Seville, we have a two-line aluminum plant as well. So yeah, a lot of capital put into the market, but it's a market that we enjoy pretty good relationships with two very large global customers, and you know, part of what makes our success is their success, and we continue to support their success by investing. Anojja Shah: Okay. Great. Thank you. Then for my follow-up, Mexico recently raised the sugar beverage tax quite significantly. I think starting this year. Can you remind us I know a lot of your portfolio there is beer, but can you remind us what your soft drink exposure is there and what impact you expect this to have this year on your volume? Timothy Donahue: Yes. I think that the majority of our business there is beer soft drinks for us, on the order of 10 to 15 percent. The balance mainly being beer. Anojja Shah: Okay. Great. Thanks. I'll turn it over. Operator: Thank you. Our next question will be coming from Arun Viswanathan of RBC Capital Markets. Your line is open. Arun Viswanathan: Great. Thanks for taking my questions. Hope you guys are well. Congrats on a successful 2025. I guess first off, in North America, so, know, you discussed the strength in energy, your position there. You said CSD is kinda holding its own. And beer will come back and, you know, there's also some commentary in Canada that you offered. I guess, we've been hearing that one of your large CSD customers is interested in regaining some share. So I guess maybe you can just comment on your position with your customers in North America. Do you feel like you're well-positioned in CSV? Are you hearing any commentary from your customers about promotions and increasing those promotions to drive volume? A couple of years ago, they were really focused on price, but I'm just curious with the rising aluminum prices and Midwest premium, if now they're starting to get worried about this demand holding up and if they would require greater promotions to really continue to drive that demand in that two to 3% range? Thanks. Timothy Donahue: I think you're going to if you watch the Super Bowl this weekend, you're going to see two really slick commercials. I don't know how many times they're each gonna run them, but are gonna run some really, really slick one of the major beer companies and one of the major soft drink companies commercials that are really well done. And in the case of the soft drink company, it focuses and showcases the can as the package in the commercial. So, clearly, they spent some time and I gotta you know, not an advertising executive, but I gotta tell you, these two commercials are exceptionally well done and I'm gonna assume the consumers are gonna receive them very well. And hopefully, that kick starts even more can consumption as we go through the rest of the year. Arun Viswanathan: Okay. And I guess, like, I'll ask on transit as well because we haven't talked that much about it. But, what's the outlook there? I mean, obviously, very macro-driven. But, you know, is there anything else that you guys can do? You've taken out a lot of costs. But, you know, is there consolidation, or is there anything else in the market that you think could be interesting from and could drive, you know, maybe a little bit better volume outlook for transit? Thanks. Timothy Donahue: Well, again, you know, we can drive volume any way we want. We can go cut price. We can make bolt-on acquisitions. We can do a lot of things. What we've chosen to do in this business is have this business generate as much cash flow as it can for the organization in excess of $250 million a year with very little resources being given to this business. Now if we're gonna have an honest conversation about our transit business, our transit business generates margins even in a down cycle that are in excess of many of these other so-called high-value packaging franchises. That you guys all write about. So if we wanna have an honest conversation about valuation and where this business sits in relation to other packaging companies. This business is, in our view, performing exactly as we need it to do. Very little resources being given to it, generating exceptional cash. Arun Viswanathan: Thanks. Operator: Thank you. Our next phone number will be coming to hit you without a room that wasn't directed at you. Timothy Donahue: That was just a general comment. Arun Viswanathan: No worries. Thanks. Operator: Thank you. Our next question will be coming from Anthony Pettinari of Citigroup. Your line is open. Anthony Pettinari: Good morning. Sorry if I missed this, but is it possible to put a finer point on the dollar impact of the start-up costs in Brazil, Greece, and Spain? And then in term I guess, in terms of timing, I think you said those projects or the cost would be sort of second half weighted. Just wondering if you can confirm that. Timothy Donahue: Projects second half weighted, most of the start-up costs second half weighted will start to hire and train people in Q2. So there is some cost there. Not numbers we typically call out, just telling you that they're there and it's part of doing business. If you wanna grow your business, get used to it. It's just a part of the cost where not a number we ever put too fine a point on. You can calculate this number a variety of different ways, but their costs are there, and it's a cost of doing business in a growing environment. Anthony Pettinari: And then switching to Asia, I think you indicated that the Thailand, Cambodia conflict is basically responsible for I don't know if you said all of the short or the majority of the shortfall, and I'm wondering if you could just provide any additional detail on that. And then in terms of sort of the state of play in terms of you know, that issue impacting volumes, like, right now, where are we? And do you maybe at some point lap that? Because I think the conflict sort of started last year and then sort of stopped. I just wondering if you can put any finer point on that. Timothy Donahue: Yeah. We'll lap that sometime in the third quarter. It's just a land dispute one side arguing that they own 15 miles of border that the other side they own. You know, it's I don't know enough about it, and certainly it's inappropriate for me to comment on what two governments are discussing. But it was responsible for more than our shortfall. Especially in the tie business. Anthony Pettinari: Okay. That's helpful. Turn it over. Operator: Thank you. Our next question will be coming from Silke Cook of JPMorgan. Your line is open. Silke Cook: Hi. Good morning. I'm setting in for Jeff this morning. In Europe, with the expansion that you're doing, so it's like a, you know, a billion cans coming on in Greece and, like, a know, maybe, like, a billion cans from, like, the line in Spain, and your base capacity is maybe 15 or 16 billion. So still, a world where you're based on, like, the capacity you bring in, your growth in Europe, is higher than four to five, like, maybe more, like, high single digits, or that's too optimistic? Timothy Donahue: Yeah. I think I caught what you said. I think our base capacity in Europe is probably bigger than the number you quoted if I heard you quote 16. But listen, I think the capacity we're bringing online the installation happens this year, but the through learning curve, you don't get the full run rate of that capacity for you know, 18 to thirty months. So as you think about adding 5% or 6% capacity to a portfolio or footprint. You don't really need to fill it out immediately because you don't produce that immediately. It's produced over it gets grown into over 18 to thirty months. Silke Cook: Okay. Thank you. Operator: Thank you. Alright. Our last question will be coming from Edlain Rodriguez of Mizuho. Your line is open. Edlain Rodriguez: Thank you. Good morning. May just one quick one. Tim. So when you look at the portfolio right now, know, if you're looking at the industry fundamentals, both beverage can and, you know, transit, like, what are and where do you see the most opportunities and challenges? Timothy Donahue: I think that the biggest challenge anybody has, we've done we and the industry have done exceptionally well for the last five or six years. And I think the challenge as you for all of our managers as they lead the businesses is to not get complacent, is to keep pushing forward. And to do better. So that's number one. I think number two, trying to find the right balance between supporting our customers' growth objectives and ensuring that what we have to do to support their growth objectives returns fair value to us. And as an industry, we've done a little better over the last five or six years with that. I still think there's more we can do to return more value to our company and our shareholders in line with supporting our customers' growth objectives. Certainly, we do see beverage cans growing globally. The intersection between growth and increasing profits is always one we look for, and so we're constantly focused on that. As opposed to just trying to get bigger. And I do believe that ultimately these industrial markets are going to return. We get some clarity on tariffs. We can just stop changing what we say about tariffs, we just had whatever they're going to be, if they would just would be what they're going to be and they don't change every day, then I think companies and purchasing managers across the space could have a little bit more confidence in where they're going. And having said that, when that does happen, we do see significant upside to the transit profitability profile just given the amount of cost we've taken out over the last several years. Edlain Rodriguez: Okay. Okay. Great. And one last one capital allocation. You know, stock is not too far from it. All-time high, I believe. Like, is share buyback still a good use of capital in your view? Timothy Donahue: Well, I think Kevin and his team will use a disciplined approach when and how we choose to buy back shares. You know, depending on where interest rates go, you can make the argument you want to continue to pay down debt. I think one of the challenges with paying down debt is it's really hard to make adequate returns when your leverage is too low. So you know, two and a half is a nice place to be. It feels like a sweet spot to be with leverage to generate as best return as you can, and we'll be intelligent as we use the cash flow that we generate when we're buying back shares. Edlain Rodriguez: Okay. Thank you. Timothy Donahue: Thank you, Evelyn. So, Al, I think you said that was our last question. So we thank everybody for joining us and we look forward to speaking with you again in a few months. Bye now. Operator: And that concludes today's conference. Thank you, everyone, for participating. You may now disconnect.
Operator: Good morning, ladies and gentlemen, and thank you for standing by. My name is Kelvin, and I will be your conference operator today. At this time, I would like to welcome everyone to Lightspeed's Third Quarter 2026 Earnings Call. [Operator Instructions] I would now like to turn the call over to Gus Papageorgiou, Head of Investor Relations. Please go ahead. Gus Papageorgiou: Thank you, operator, and good morning, everyone. Welcome to Lightspeed's Fiscal Q3 2026 Conference Call. Joining me today are Dax Dasilva, Lightspeed's Founder and CEO; and Asha Bakshani, our CFO. After prepared remarks from Dax and Asha, we will open it up for your questions. We will make forward-looking statements on our call today that are subject to risks and uncertainties that could cause actual results to differ materially from those projected. Certain material factors and assumptions were applied in respect of conclusions, forecasts and projections contained in these statements. We undertake no obligation to update these statements, except as required by law. You should carefully review these factors, assumptions, risks and uncertainties in our earnings press release issued earlier today, our third quarter fiscal 2026 results presentation available on our website as well as in our filings with U.S. and Canadian securities regulators. Also, our commentary today will include adjusted financial measures, which are non-IFRS measures and ratios. These should be considered as a supplement to and not a substitute for IFRS financial measures. Reconciliations between the 2 can be found in our earnings press release, which is available on our website, on SEDAR+ and on the SEC's EDGAR system. Note that because we report in U.S. dollars, all amounts discussed today are in U.S. dollars, unless otherwise indicated. With that, I will now turn the call over to Dax. Dax Dasilva: Thank you, Gus, and good morning, everyone. Our Q3 results highlight our disciplined execution against the strategy we presented at Capital Markets Day. We delivered another strong quarter with revenue adjusted for $312 million and adjusted EBITDA of $20.2 million, both exceeding our outlook. Our focus on the 2 growth engines of retail in North America and hospitality in Europe is driving results. They account for 2/3 of our total revenue and generated 21% year-over-year revenue growth in the quarter. At our Capital Markets Day, we set 3 clear priorities to drive long-term value at Lightspeed: one, growing customer locations in our growth engines; two, expanding subscription ARPU; and three, improving adjusted EBITDA and free cash flow. In Q3, we made solid progress in all fronts. Location growth reached its fastest pace since our business transformation began. Software revenue and ARPU increased even as we lapped prior price increases, especially within our growth engines and we achieved our second consecutive quarter of positive free cash flow and grew adjusted EBITDA by 22%. These results demonstrate the effectiveness of our strategy and our ongoing momentum. Let me walk you through our performance against each of these priorities in more detail. Starting with customer locations. Our focus remains on quality growth winning sophisticated high GTV merchants in retail in North America and hospitality in Europe. Customer locations in our growth engines grew 9% year-over-year in Q3 with approximately 2,600 net new locations added in the quarter. This acceleration is exactly what we would expect at this stage of our go-to-market ramp and sets us up well to achieve our targeted 10% to 15%, 3-year customer location CAGR outlined for our growth engines at Capital Markets Day. Overall, total customer locations grew, reaching approximately 148,000 in the quarter. In retail, we welcome leading global brands like Balmain, Diane Von Furstenberg, and Dickies the Lightspeed's Wholesale ecosystem. As a reminder, Lightspeed Wholesale connects retailers using our Lightspeed retail POS and brands using our NuORDER by Lightspeed platform. With this integration, retailers can discover an order of 5 million products from over 4,000 brands all in one place. This is a true differentiator with retailers like [indiscernible], migrating their POS to Lightspeed just so they can benefit from our unified wholesale ordering. We also welcomed Irvine Tack & Western Wear, one of the largest Western retailers in the world. and Value Zone with 7 locations that was attracted by Lightspeed's advanced inventory features and scanner app. In European Hospitality, we continue to win high-profile multi-location operators such as Hotel Belles Rives on the French Riviera, Quai des Artistes in Monaco, Burger Vision in Germany with over 20 locations and ambitious expansion plans and Colicci with more than 40 locations across the U.K. These wins reinforce our conviction that as merchant complexity grows, Lightspeed's unique value stands out even more. An expanded outbound sales efforts, increased investment in vertical brand marketing and more effective inbound spending have accelerated location growth, particularly in our growth engines. We have fully hired our team of 150 outbound reps for the year, and we continue to ramp them towards full productivity. Our outbound motion continues to deliver highly targeted acquisition of our ideal customers with strong unit economics. Turning to software revenue and ARPU. At the company level, software revenue grew 6% year-over-year, reflecting the lapping of prior year pricing actions and expected seasonality effects in parts of our business. Our growth engines delivered 13% software growth year-over-year, underscoring strong momentum. We continue to drive software ARPU higher through innovative products that empower complex multi-location merchants thrive. We launched Lightspeed AI bringing Agentic AI directly into retail and hospitality workflows. These AI capabilities go beyond reporting to help merchants identify best sellers, optimize inventory decisions and improve kitchen execution in real time. And National Retail Federation's Big Show we unveiled Marketplace. Available in Lightspeed Wholesale, retailers can now browse, compare and purchase inventory from multiple brands, all in one place, the next level of wholesale integration that we believe no other cloud POS provider offers. We also expanded in-store monetization by adding Tap to Pay for Android on Lightspeed Scanner and delivered customer-facing displays on Lightspeed's payment terminals, improving checkout efficiency and transparency. In Hospitality, we continued to extend our product leadership in Europe. We launched Lightspeed Tempo, which applies pacing intelligence to service flow. Turning what has traditionally been an art into a science by guiding servers through each stage of service. We also introduced Lightspeed Reservations, offering independent restaurants an integrated alternative to costly third-party platforms. And Lightspeed tasks which standardizes workflows across locations to improve consistency and execution. Collectively, these releases help drive deeper engagements, higher module attachments and improved win rates with the types of merchants we are actively targeting. These represent innovation-led growth that reinforces our confidence in the long-term ARPU and gross profit expansion we outlined at Capital Markets Day. Finally, on profitability and free cash flow. In Q3, we delivered $20.2 million in adjusted EBITDA and generated positive free cash flow for the second consecutive quarter. Positive free cash flow of $15 million in the quarter helped increase our total cash balance by over $31 million since Q1. Importantly, we achieved this profitability while continuing to invest meaningfully in growth, scaling our outbound sales organization and increasing product innovation in our growth engines. The fact that we can do both, invest for growth and expand margins is a direct result of the structural changes we've made over the past year. Adjusted EBITDA reached 15% of gross profit, moving us closer to the 20% long-term target we outlined at Capital Markets Day. This progress reinforces our confidence in the operating model and in our ability to continue expanding adjusted EBITDA and free cash flow as we scale. I will let Asha take you through the numbers before I make some closing comments. Asha Bakshani: Thanks, Dax, and welcome, everyone. Lightspeed had a strong third quarter with many of our key financial metrics and KPIs surpassing expectations. We continue to deliver with strength in our growth engines and with disciplined commitment against the financial framework we outlined at Capital Markets Day. Our performance continues to be defined by 2 key trends. First and most importantly, we are seeing a tremendous impact from our strategy to focus on our 2 growth engines: North America Retail and European Hospitality. For these 2 markets, we generated strong year-over-year results. Total revenue increased 21%. Software revenue grew 13%. GTV was up 16%. Payments penetration was 46%, up from 42% last year, and we added approximately 2,600 net customer locations in the quarter, driving a 9% year-over-year -- in ending location count, the highest rate since we began our business transformation. Combined, our growth engines make up 2/3 of our total consolidated revenue and they will continue to represent an increasing portion of revenue, GTV and payments volume. Second, even with expanding investment in product and go-to-market, the company's total adjusted EBITDA and cash flow metrics continue to improve. We delivered positive free cash flow for the second quarter in a row. Free cash flow of $15 million in the quarter is up from free cash flow use of $0.5 million a year ago, and we expect to generate positive free cash flow for the full fiscal year, a significant milestone for the company. I will walk you through a detailed look at our financials and then provide our updated outlook. Total revenue grew 11% to $312.3 million, exceeding our outlook driven by an expanding location count, higher software ARPU and increased year-over-year payment penetration. Notably, we achieved 21% revenue growth in North America Retail and European Hospitality. As we continue to scale our go-to-market efforts, we expect our total revenue growth to track closer to what we see in our growth engine. Software revenue was $93 million, up 6% year-over-year with software ARPU rising 4% year-over-year. Software ARPU was helped by our outbound teams attracting larger, more sophisticated merchants as well as the impact of new product releases. As anticipated, software revenue growth moderated sequentially due to lapping last year's pricing. This quarter, we also experienced typical seasonal softness in our Golf business and we made a strategic shift to focus on annual contracts. While annual contracts result in modest upfront discount, they attract higher quality merchants with lower churn and higher lifetime value strengthening our cash flow and subscription base for the long term. We believe this shift is the right trade-off for the long-term durability and health of our subscription base and is already starting to yield results as evidenced in our free cash flow. Transaction-based revenue was $209.4 million, up 15% year-over-year. GPV grew 19% year-over-year, and capital revenue grew 34% year-over-year. GPV as a percentage of GTV came in at 42%, up from 38% in the same quarter last year. Payments penetration dropped slightly from Q2 due to GTV mix. In Q2, we had very strong seasonal performance from certain verticals that have very high payment penetration rates, such as Bite and Golf. We expect payment penetration to continue its upward climb over time. Overall, GTV grew by 8% to $25.3 billion and total average GTV per location continues to increase as we sign more higher-value customers. Same-store sales were up in both retail and hospitality and across all of our main geographies. Total monthly ARPU reached $660 up 11% year-over-year driven by both higher software and payment monetization. ARPU grew across both our growth and efficiency market. With respect to our efficiency markets, our goal is to maintain the revenue base through additional module attachment and expansion of financial services, and we have been successful in doing so. Software and payments revenue from these markets was flat to last year. There also continues to be a meaningful opportunity to grow payments revenue in these markets as payments penetration is below those of our growth markets. GPV as a percentage of GTV in our efficiency markets increased to 35% in the quarter from 32% in the same quarter last year. With respect to profitability and operating leverage, total gross profit was strong, growing 15% year-over-year outpacing revenue growth of 11% driven by strong top line performance and expanding gross margins in both subscription and transaction-based revenue. This performance remains consistent with the medium-term framework we outlined at Capital Markets Day, where we targeted a 3-year 15% to 18% profit CAGR, driven by customer location growth, ARPU expansion and operating leverage. Total gross margin was 43%, up from 41% last year, even with transaction-based revenue increasing to 67% of total revenue from 65% last year. Hardware gross margins declined this quarter due to strategic discounts and incentives to drive new business. We delivered strong software gross margins of 82%, up from 79% a year ago. This was largely driven by increased cost efficiency. Our success over the past few quarters in consolidating our cloud vendors renegotiating better terms, restructuring the organization to take out costs and using AI to reduce the cost of support and service delivery have all contributed to industry-leading software margins. Gross margins for transaction-based revenue were 31%, up from 28% last year. This improvement reflects increased payment penetration in our international markets where margins exceed those in North America and growth in our capital business. As we convert customers to Lightspeed payment, we increased our overall net gross profit dollars. And in the quarter, we saw a transaction-based gross profit grew by 28% year-over-year. Total adjusted research and development, sales and marketing and general and administrative expenses grew 14% year-over-year. This is primarily driven by the meaningful investments we are making in field and outbound sales as well as product innovation within our growth engine. Adjusted EBITDA in the quarter came in at $20.2 million increasing 22% from $16.6 million in Q3 last year, driven by continued success from our strategic shift and our focus on AI and automation to accelerate operating efficiency. As a percentage of gross profit, adjusted EBITDA was 15%, approaching the longer-term 20% target we outlined at our Capital Markets Day. This level of profitability enables us to continue focusing on our growth engines while maintaining strong capital discipline, including funding product innovation, scaling outbound sales and supporting our capital return priorities. I'm very happy to report adjusted free cash flow of $50 million in the quarter. Thanks to our improving adjusted EBITDA, disciplined management and certain favorable working capital movements, we were able to deliver positive free cash flow despite our accelerated outbound strategy and increased investment in R&D. This quarter, we saw record capital revenue, while at the same time lowering outstanding cash advances from the previous quarter. Our goal is to target a shorter remittance time frame, and we are making great progress towards that end. To date, our typical remittance period for a merchant cash event is approximately 7 months. We continue to actively manage our share-based compensation and related payroll taxes, which were $16.5 million for the quarter versus $13.6 million in the prior year quarter holding constant at approximately 5% of revenue. With respect to capital allocation and our balance sheet, our balance sheet remains exceptionally healthy. We ended Q3 with approximately $479 million in cash, an increase of approximately $16 million from last quarter. Approximately $200 million remains under our broader board authorization to repurchase up to $400 million in Lightspeed shares, and we continue to be opportunistic in evaluating further share repurchases. Total shares outstanding in the quarter were down by 10% versus the same quarter last year due primarily to the $179 million in shares repurchased and canceled over the last 12-month period. As a reminder, our normal course issuer bid program that we have used to buy back shares is limited to 10% of our public float for a 12-month period. We've already exhausted our fiscal 2026 buyback program. Subject to TSX approval, Board approval and market conditions, we intend to renew this buyback program in fiscal 2027. Aside from potential buyback, our largest use of cash will be growing our merchant cash events business. There are currently $106 million in merchant cash advances outstanding, and we intend to continue to grow this high-margin business over time. With respect to M&A, we remain opportunistic in the evaluation of small tuck-in acquisitions to help accelerate product development, but large-scale acquisitions are not a strategic priority for us. Our balance sheet remains healthy and positions us well as we continue our strategic focus. Now turning to outlook. Our fiscal Q4 outlook reaffirms our confidence in our profitable growth trajectory and is in line with the financial framework we outlined at our Capital Markets Day, balancing disciplined investment behind our growth engines along with continued profitability and cash generation. There are several factors influencing our fiscal Q4. Fiscal Q4 is typically our lowest GTV quarter and we expect similar seasonal patterns this year. We also continue to lock pricing actions implemented last year and continuing to drive a mix shift towards annual contracts. In addition, as evidenced in our results, our go-to-market and product investments are driving strong sales momentum. Given that strength, we are choosing to pull forward incremental investment into Q4 in areas where demand is outpacing our initial expectations, such as in our retail outbound sales organization. As a result of our execution to date, we are raising our guidance for revenue, gross profit and adjusted EBITDA as follows: For the fourth quarter, we expect revenue of approximately $280 million to $284 million. Gross profit of approximately $125 million to $127 million and adjusted EBITDA of approximately $15 million. For fiscal 2026 we expect revenue of approximately $1.216 billion to $1.22 billion. Gross profit of approximately $523 to $525 million and adjusted EBITDA of approximately $72 million. With that, I will turn the call back to Dax. Dax Dasilva: Thanks, Asha. Before we take your questions, I wanted to take this opportunity to publicly welcome Gabriel Benavides to Lightspeed. In November, we appointed Gabe as our Chief Revenue Officer. Gabe brings 2 decades of experience scaling global sales organizations. His mission is clear: accelerate our go-to-market performance, add more high-value customers and help expand our software ARPU. I also want to acknowledge JD Saint-Martin, who will be stepping down as President this March. JD's leadership built the foundation for the transformation we are seeing today. His discipline allowed us to pivot toward profitability and Gabe's appointment now accelerates that trajectory. We are deeply grateful for JD's partnership over the last 6 years. And with that, we can take your questions. Operator: Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions] Your first question comes from the line of Dan Perlin of RBC Capital Markets. Daniel Perlin: Nice results here. I wanted to ask maybe a broad-based question and then -- maybe a little specific one. But, at a high level, how would you describe kind of the health of your end markets? I know Asha, you said same-store sales, growth across all regions was positive. But maybe if you wouldn't mind a little more detail around the regions and maybe any pockets of surprise, both good and bad, as you think about where those opportunities are today? Asha Bakshani: Thanks, Dan. Thanks for the question. Yes, same-store sales was very healthy in our fiscal Q3. When we look across retail, we saw all of our highly penetrated verticals do very well, positive growth year-over-year. Home & Garden and Bike, we saw a bit of a deceleration from Q2 to Q3 just because they're -- those are verticals that are very strong in the summer months, but nevertheless, we saw very strong growth in Q3 in all of the retail, given that, that is such a good quarter for the holiday shopping period. In terms of surprises, I mean, I would just say the one area that helped slightly was FX in the European market. The euro has continued to remain strong into Q3, and that's helped the euro hospital GTV. Outside of that, I would say no other surprises. We're happy with what we're seeing in the macro. Daniel Perlin: Okay. That's great. I guess if you could maybe just spend a second on the gross margins around really software. They were pretty strong. I say -- I should say they're quite strong despite the fact that you had to lap the pricing. I heard kind of the reasons that you gave for the current quarter. I'm just wondering how do we think about sustainability of those levels? Are there any things -- I know you said some investments that are going to come in, but I'm just trying to understand how sustainable that is given the fact that you did kind of lap these pricing this quarter, and I'm not sure how much you actually have slated for kind of future quarters going forward? Asha Bakshani: Yes, sure, I'll take that one as well. We feel pretty good about our gross margins. The improvement in the software line comes from a couple of factors. There's obviously the growth in subscription. But also, we've -- we've done a lot of work on OpEx optimization. We've done a lot of work on our cloud spend with Google and AWS getting better rates and also more efficient use of those platforms. And then last but not least, we've done some good work on efficiency in our support department, deployed. We've deployed AI in a lot of areas. A very high percentage of the frontline support is Chat now given the different AI tools that we've used. And so we do feel good about that 82%. We feel that over 80% margins on the software line is a sustainable place to be for us. Operator: Your next question comes from the line of Dominic Ball of Rothschild & Co Redburn. Dominic Ball: So great job on locations. I mean just one sort of broader question. Software names have derated quite materially on concerns around AI disruption. So Dax, could you tell us a little bit about which Lightspeed software capabilities are structurally differentiated because they're built on more proprietary Lightspeed payment data? Dax Dasilva: Yes. And I think you've put something out that's important, right? We've got payments data that we're building our Agentic workflows -- our Agentic AI workflows around. There's also very proprietary wholesale data. We're talking a lot more about Lightspeed wholesale, which is -- which includes the new order platform, which is a huge differentiator -- a growing differentiator for us on retail. It's now leading our outbound conversations. So there are things that we are building our Agentic workflows around that are very unique to Lightspeed and how we play. So yes, a lot of investment, we rolled out Lightspeed AI this quarter. We had 2 innovation events, one in a hospital in Paris, one for retail in New York at the big show -- National Retail Federation's Big Show and just showing that AI vision. We really believe from a customer perspective, there's always going to be a role in a physical commerce setting for a software hardware solution that can enable an interaction and that transaction. But I do believe that these business owners require AI and Agentic-enabled workflows to be able to keep up with the demands on what it takes to have a successful business in retail and hospitality today. So we're very excited about the path forward from a software innovation perspective and an AI perspective and believe that this software is going to be what makes the difference that's going to be made for these particular business orders and helping them thrive. One more thing, our insights and analytics products, as you alluded, the payments data and the wholesale data, it's really driving, of course, all of the Lightspeed AI conversational and Agentic workflows but also all those analytics and insights tools that we have that are on retail and hospitality as well as the benchmark and trend tools that we have, those are all built on that proprietary data. Operator: Our next question comes from the line of Raimo Lenschow of Barclays. Raimo Lenschow: Great progress on the focus areas. Congrats from me as well. If you think about the -- on the software side, you obviously have the pricing changes, and that's something that's kind of -- we need to be aware of. Just following on from the earlier questions like, that growth path, like how should we think about that for you? And you won't say like -- actually, you're not going to guide for next year, but like just more conceptually, like has your thinking changed in terms of what growth you can achieve there over the medium term? Dax Dasilva: Yes, of course. In the quarter, we did lap price increases, which did impact growth and we had seasonality, of course. We also shifted to annual contracts that's a net positive for the company for a lot of our retail new ads. Getting to 10%, growth engines grew 13%, and that's where we're really focusing a lot of our go-to-market motion and landing new customers there. That grew at 9%. Growth engines are now 2/3 of our revenue and growing. And we have a lot more modules on these growth engines. As you can see from the software innovation, the Q3 innovation release. We're shipping a lot of new modules and the cross-sell and upsell motions we expect to accelerate on those -- for those products. Raimo Lenschow: Yes. Okay. Perfect. That's really clear. And then the other things like, obviously, as you said, 2/3 of the business is now the growth engines, 1/3 is the other one. How do you think about that -- maintaining that balance on like what do you do with the last surge in terms of like how that kind of will evolve over time because otherwise you just kind of -- you grow the good part, but when we need to think about the performance of the other part as well to see the overall growth. How do you think about that going forward? Dax Dasilva: Yes. I think the efficiency portfolio for us has been just a very strong performer. We've been very in line on our targets of beating some internal targets. Gross profit is up on that portfolio. So I think it's a mix of keeping those customers happy on those platforms, adding value, adding more financial services for those customers through our payments platform, both payments and capital. And yes, continuing to serve those customers as we grow the growth portfolio and continue to accelerate so that it can -- so that we are net positive on locations overall for the company. And this quarter, we were. We were up several thousand locations as you combine growth and efficiency. Operator: Your next question comes from the line of Matt Coad of Truist Securities. Matthew Coad: I just wanted to go back to the SaaS ARPU again, to totally hear you that maybe the front book SaaS ARPU is coming down a little bit as you shift those contracts from monthly to annual. But I kind of wanted to talk about pricing on the back book. I know we're like lapping some pricing changes, but just wanted to kind of like get some high-level commentary on how you're thinking about pricing over time and how we should think about growth for the overall SaaS ARPU over time? Asha Bakshani: Yes. Thanks for the question, Matt. You're right, that the SaaS ARPU results that you're seeing now is really coming from the lapping of price increases, and it's up 4% for this quarter. But when we think about specifically to your question, pricing on the back book, we've done a bunch of that starting in the back half of last year. When we look at -- when we think about the front book, we're actually doing a lot of work on pricing and packaging, and that one is more an evolving motion that we have as we released more and more software modules and Dax talked a little bit about that in the prepared remarks, we continue to evolve our pricing and packaging and working with the back book on moving them to higher tier products or higher-tiered packages. So I would say on the back book, we've done a big motion there. You'll still see a little bit from us just on pricing in the back book. But for the most part, we're still evolving the pricing and packaging work. And as more and more software modules come to fruition, those pricing and packaging on the front will continue to evolve. Matthew Coad: That was super helpful. And then just one quick follow-up. I agree with the other comments so far like location growth surprising to the upside. I was hoping you guys could just unpack the 2,600 wins kind of just around NoAm Retail versus European Hospitality. And then are we starting to see some of the benefits from some of the distribution reinvestments or is that more of a fiscal year 2027 story? Dax Dasilva: Yes. Location growth, we're very, very proud of this number. It's an acceleration. We're at 9% location growth that's accelerating up from 7% last quarter, 5% the quarter before and 3% all of the year before. So the strategy is really working and the investment in outbound, outbound remote on retail and outbound field for EMEA Hospital, clearly successful. I think that those numbers are distributed across -- fairly evenly across retail and hospitality. What was the second part of your question? Matthew Coad: So I just wanted to ask about like are we starting to see an uptick from the distribution investments you made? Or is that still to come kind of as the field -- the sales force sees into that? Dax Dasilva: Yes. If you're referring to partnerships, I would say that we are seeing some success -- some larger success in partnerships on the EMEA Hospital side through distribution deals and are accelerating that motion on the retail side. And that's a big part of Gabriel Benavides' expertise, as he has started in mid-December and is bringing his expertise to bear here. Operator: Your next question comes from the line of Josh Baer from Morgan Stanley. Josh Baer: Dax, earlier, you talked about some of the proprietary data sets that you have that help sustain your competitive moat. I think when it comes to the topic of AI. I was hoping you could expand and maybe talk a little bit about some of the network effects that you have or the complexity of your vertical sort of end-to-end workflows that you that -- that you offer that not only position Lightspeed well, but also make it hard for new entrants or smaller vendors or in-housing or point solutions or LLMs to kind of take share in the segments of the market that you sit in? Dax Dasilva: Yes. I mean, first of all, the payments relationship that we have with customers and the fact that we do the transaction in the physical space is, I think, is in itself a unique moat. But of course, the wholesale ecosystem that we're building with a very powerful flywheel that we've really seen accelerate with our investment in the outbound that's led by the new order conversation. That is a very, very interesting and a growing moat for us, a very big differentiator. And just to expand on that, we have several thousand brands that use our enterprise new order platform, and we're bringing those brands to independent retailers, the bulk of the Lightspeed user base. And that is a unique wholesale offering that no other comparable cloud POS has. There's a supply all the way to consumer workflow there that's incomparable and that we're going to be able to do agentive workflows across that because nobody does that span from consumer to merchant to a wholesale supplier, that we can do something very unique there, and we're starting to just deliver that in products like Marketplace, which we just rolled out and Lightspeed AI, which offers some -- the start of AI tools across that whole chain. So very excited about that. It's very unique in the market, and you're going to see continued acceleration that matches the pace of innovation that you've seen from Lightspeed in the last few years. Josh Baer: That's great. And one follow-up on the location ads. Any sense for where that's coming from, just as far as competitive share gains, new stores opening or expansion within your existing base? Dax Dasilva: Primarily brand-new -- well, new locations always represents a good 1/3 of all -- brand-new businesses is about 1/3 of new locations. The rest are coming from competing systems that are -- 1/3 is from competing systems that are insufficient and another is from legacy systems. So that's a split of any new location of -- that comes on to the platform, 1/3 brand-new business, 1/3 existing cloud vendors and 1/3 legacy. Operator: Your next question comes from the line of Koji Ikeda of Bank of America. Koji Ikeda: I wanted to go back to an earlier question on AI and maybe ask in a different way from a customer perspective. And so how are your customers thinking about the pace of adoption of AI products? And when do you think it will become meaningful enough where we could see it driving improving fundamentals for Lightspeed? Dax Dasilva: Yes. So we've been rolling out AI-powered tools for a while, starting with tools that help build out e-commerce presence, online presences and then later tools on hospitality like benchmarking trends, which allows -- which takes payments data, takes data, but not just at the store but across other stores, anonymized data in our network. So that's another element of network effect, where the more restaurants that are in a particular city or town in Germany, the more competitive data that we can give the hospitality business in terms of like how our neighbor is pricing different menu items and what are the best hours to operate. So those were early experiments in building out AI-enabled tools and that's driven upsell to larger plans that include those tools. Now with the launch of Lightspeed AI, that's being built into the core platforms and we'll be looking at segmenting that. We have -- as Asha mentioned, we've got pricing and packaging exercises ongoing that include the logic of like how do we offer different levels of AI insights and agentic tooling that will go and do work for these business owners. And that I think is an exciting path forward for the business that allows us to offer new software module value that's really powered by AI. Koji Ikeda: Got it. Got it. And for my follow-up, maybe for Asha, on the gross payment volume as a percentage of GTV, you mentioned 42%. I think this is the first quarter that it's declined on a quarter-over-quarter basis. And totally [indiscernible] on the reason for this quarter, but I wanted to think about this metric in the future. Is it -- could we expect maybe some more variability in this percentage of GMV going -- or GTV going forward because of strong penetration or seasonal aspects of this? I just wanted to understand that a little bit more. Asha Bakshani: Yes. Thanks for the question, Koji. Payments penetration, we should always look at that as the opportunity in front of us. So what's left to monetize. Looking at it quarter-to-quarter, to your point, is difficult because of the seasonal trends. But we're super confident in this payments penetration continuing to climb over time. So to your point, you'll see seasonal trends like we saw Q2 Bike and Home & Garden were very strong, moderated slightly in Q3. And just because they're highly penetrated verticals, you see that delta. But over time, we expect that payments penetration will continue to climb because we're continuing to attach payments on our front book, and we're continuing to go back to the back book as customers come up to their 1-, 2-, 3-year renewals with their existing payment providers, then we move them over to Lightspeed. So definitely confident that, that will continue to climb over time. Operator: Your next question comes from the line of Andrew Harte of BTIG. Andrew Harte: Nice results. Asha, on the 4Q guidance, I know you've called out kind of some of the puts and takes, not getting the pricing benefit anymore. But is there anything else you'd call out when we think about the 12% gross profit guidance compared to 15% in the third quarter? Maybe related to that last question a bit on what the assumption is for GTV and payments penetration in the fourth quarter? Asha Bakshani: Yes. Thanks for the question, Andrew. Our Q4 guide really just reflects the seasonality that we typically see in our fiscal Q4, January to March -- the January to March quarter people just don't spend as much both on retail and in hospitality. And that's not Lightspeed specific, that's industry-wide. And so we typically see overall GTV in our business drop by anywhere from 15% to 20% if you look at fiscal Q4 last year, you'll see the same dynamics. Outside of that, there's nothing else that's contemplated in the guide. I mean when we think about our execution and the fundamentals of the business, our guide takes into account continued strength in our team's execution. Andrew Harte: And then with Gabe in the door now, I would love to kind of hear what the early conversations with him are like. It sounds like the go-to-market engine is really improving and there are some of the investments that are getting pulled forward. So how should we think about go-to-market, especially as we start thinking about our 2027 numbers? Dax Dasilva: Yes. I think Lightspeed has always traditionally been very, very strong inbound, and that continues to be a strength. It continued to be able to optimize that funnel and get more of the SMB and mid-market merchants into that funnel. And -- but I think it's the outbound that we've really made the big investments in, both outbound road and outbound field. We're interested in really getting more productivity as we ramp those reps. And in addition to that, from a mid- to long-term perspective, we feel like we can really grow the partnerships business, building on early successes in retail with partners like NetSuite and other ERP vendors that are excited to use Lightspeed in multi-location settings and be the ERP on the back end. And of course, we have a lot of great partnerships that are driving the hospitality business and distribution deals there as well. So that, I think that his expertise is really going to accelerate all of those initiatives in areas where Lightspeed were -- where Lightspeed has a lot of opportunity ahead. Operator: Your next question comes from the line of John Shao of TD Cowen. John Shao: For Lightspeed AI, my understanding is there are going to be more advanced features to be added like catalog assistant and store generators, could you first remind us the timeline for those additional features? And maybe also talk about any margin implication because I can imagine that advanced feature is going to consume more tokens? Dax Dasilva: Right. So we rolled out Lightspeed AI officially during NRF and also previewed it in November for the hospital customers. Obviously, it's slightly different capabilities for retail versus hospital on the retail side, really focusing on insights into inventory and flows within the retail stores and across across their chains. In Hospitality, there's kitchen execution and a lot of different kinds of insights around pacing and other areas. So -- that is with select customers right now, and we'll be rolling it out to larger and larger sets of customers in the months to come. And it will start to -- we'll start to add more Agentic workflows to it. So beyond conversation and beyond getting insights into being able to do tasks which is what I think businesses are really looking for. They have to wear many hats nowadays. And the more that we can do to allow them to unlock their creativity and unlock their desire to work on curation and taste making in their businesses and less sit behind Lightspeed and mini screens, the better. And now I'll pass to Asha regarding any thoughts on margins. Asha Bakshani: Yes. I mean we're not seeing -- we've already started with Lightspeed AI, as Dax talked about, and we're not seeing any significant impact on margins. We feel good again about the software margin that -- we continue to be confident in delivering that. John Shao: And maybe on the payment side, could you maybe explain the trajectory for payment penetration in markets outside or growth engines? Asha Bakshani: Yes, for sure. The payment penetration in the markets outside our growth engines is actually low 30s, whereas as a consolidated entity, we're at about 42% and higher than that in the growth portfolio. So all told, there's a lot of opportunity still in the payments penetration growing in the efficiency market. And quite frankly, that's one of the biggest modules that we're cross-selling and upselling in those markets. And at the end of the day, software and payments revenue in the efficiency markets are flat to slightly up. And that's been our goal there, right, given that we're not really selling much new business in those markets. So we feel good about the pace of payments penetration in the efficiency market. It's grown year-over-year as well. And we expect that to continue to climb to the 40s and into the 50s over time. The last thing I'll say about that is, it's actually a higher-margin business. Payments is a higher-margin business in the rest of the world than it is in North America. Our gross take rates are lower at about 1%, 1.5%. The net rates are about 40, 45 bps. So when you look at it from a margin perspective, you're actually getting 40% margins on payments or slightly higher. And so that is impacting quite positively the overall margin of that revenue line item as well. Operator: Your next question comes from the line of Tien-Tsin Huang of JPMorgan. Tien-Tsin Huang: Good location outcome here. I was just curious about your sales force headcount growth here. Are you satisfied with the quota attainment across the entire base here, especially the new hires? I'm just curious how productivity is tracking because if that continues, then obviously, we could see further improvement on the location side, so I wanted to update there. Dax Dasilva: Yes. We're very excited about the trend on locations. I think that's -- it's one of the things that we're most proud of in the company. That acceleration from, as I said, from 3% to 5% to 7% to 9% is a big point of pride -- sorry, it's our #1 priority of the company. And of course, that's all because of the investment that we made in outbound. And of course, in addition to that, the refined pitch in retail around new order and the wholesale -- the Lightspeed Wholesale network very powerful in our -- in some of our top verticals like Fashion, Apparel and the Sport & Outdoor. And then, of course, in EMEA hospital, going city by city in the key markets with bright spots in penetration in key places in Germany and perhaps in addition to several other countries we are very, very excited about that. So we're continuing to accelerate. I think that full productivity -- we have 150 of our contemplated reps now hired now. And now the focus of Gabe and team is to really ramp them to full productivity. And I think his lens on how we get real -- real performance out of what we have is -- will result in more performance and results. Tien-Tsin Huang: Great. That's great detail. Maybe you touched on it Dax, but just maybe elaborate a little bit more on the pulling forward of growth investments. Asha, I think you talked about that actually, but could we see more of that with him coming in? And is that incremental spend being informed by the production that you've seen so far? Or you may be borrowing it from some other areas that maybe it's not as productive. Just trying to get a little bit more understanding of that. Dax Dasilva: So it's a little bit of what I was speaking about before, Tien-Tsin, in retail. We're quite excited about what we're seeing in retail outbound, especially leading with the Lightspeed Wholesale new order pitch to those key verticals of Apparel and Footwear and Sport & Outdoor where we have very good density of brands. It's a very powerful pitch to those SMB and mid-market customers. We're closing them. And therefore, we've decided to pull forward some of those reps into Q4 -- hiring those reps into Q4 so that we can have a very, very good start into FY '27. Tien-Tsin Huang: I see I see. Yes. No, it stood at NRF, the new order side of it. Appreciate it. Dax Dasilva: Very happy with where we're at -- how we're trending there. Operator: Your next question comes from the line of Martin Toner of ATB Capital Markets. Martin Toner: Two from me. Can you talk about plans for price increases looking into next year? And also the prospect for our software ARPU growth from other sources? And then also, can you just talk about like the health of GTV in the non-core businesses? Asha Bakshani: Yes, sure. Thanks for the question, Martin. With respect to price increases, as we mentioned, we did a pretty big back book price action in the back half of last year, and that's what we've just lapped and why SaaS growth has moderated. Going forward, most of the uplift will come less from broad price hikes, but just more from evolving pricing and packaging as we add more modules, and we move customers to these higher tier bundles. Dax talked about the pace of innovation. We're doing some really amazing things on our flagship products, which are the products that we're selling in North America Retail and EMEA Hospitality primarily and the result of that innovation is going to be evolving pricing and packaging. We've already started doing that. And so you should definitely see SaaS ARPU uplift as a result of that into fiscal '27. With respect to -- so that helps software ARPU into fiscal '27 for sure. With respect to GTV in the efficiency markets, we're seeing that customer base remain healthy. And you can see that from the software and the payments growth in the efficiency markets. We've been able to keep that growth flat to slightly up despite really tempering new business in those markets. And that's because we have a healthy customer base that's growing. And you also see it resulting from the fact that the overall location count that Lightspeed was up a couple of thousand as well. And so happy with what we're seeing there and the health of that customer base. Operator: Your next question comes from the line of Thanos Moschopoulos of BMO Capital Markets. Thanos Moschopoulos: Just on capital, some nice growth there. And obviously, it's a very profitable revenue stream. So how should we think about the pace at which you'll lean in towards growing that over the coming months? Asha Bakshani: Thanks for the question, Thanos. Yes, you're right. Lightspeed Capital has done really well. We've grown over 30% this quarter and year-to-date as well. We expect similar levels of growth, I would say, in the future, you'll get detailed guidance from us on fiscal '27 in May. What I'll say about Capital is that we're growing this business prudently. We've been very good at deciphering the most creditworthy customers. And as a result, our default rate still remain in the low single digits, which is really remarkable for this type of business. It is a high gross margin business, close to 100%. Our churn is significantly lower for customers that take capital. And so all told, really excited about the future of capital. We are growing it prudently because we want to make sure that at the end of the day, it is a service we provide customers, but we want to make sure at the end of the day that we are keeping the default rates really low, so that it continues to be a high EBITDA margin business as well. Thanos Moschopoulos: Great. And then just on churn, qualitatively, within both the core markets and efficiency, any trends of positive or negative? Or is it remaining stable in both those markets? Asha Bakshani: Yes. We are focused very heavily on optimizing the rest of the world portfolio. And obviously, churn is a big driver, especially because we're not going strong on new business in those markets. And we're really happy with what we're seeing there. I mean, if you look at the total location count again, you'll see that it grew by about 2,000 locations. So we're really doing a good job at managing the churn in that portfolio. And again, software and payments revenue in the efficiency markets have been flat to slightly up. So all told, we're excited about what we're seeing there. And we have been able to optimize that portfolio quite well. Operator: Your next question comes from the line of Trevor Williams of Jefferies. Trevor Williams: I wanted to go back to the hardware gross margins. Just if you could unpack where you're leaning in most heavily with the discounting, Asha, that you mentioned. And if we should expect to see that the headwind from gross margins continue to be bigger as the outbound sales reps ramp, that would be helpful. Asha Bakshani: Yes, sure. I'll take that one. Thanks for the question, Trevor. The negative margins on hardware is due to discounts and incentives that we provide to encourage new business. You've seen a healthy clip of new business and new locations come in and the result of that is we've given some more discounts on hardware. Again, that is pretty industry-wide. When we think about what free hardware we provide, a lot of that is payments -- payment terminals as we encourage merchants to switch over to Lightspeed Payments. They get prepayment terminals from us. Outside of that, we discount other hardware that we provide with the POS. We expect hardware margins will range in the minus 50%, minus 60%. It really depends on the clip of new business. Overall, we look at total net take from every customer. And at the end of the day, our focus is on growing the overall gross margin of the business, and we're happy with the growth we're seeing there. Trevor Williams: Okay. I appreciate that. And then just to clarify on the software growth for the quarter and the call out on shifting some customers on to annual contracts. Any way you can quantify what that impact was on software growth? And if you're going to keep pushing for that transition, does that dynamic get more pronounced over the next few quarters? Or are we at kind of what you think the normal quarterly run rate impact is from that transition? Asha Bakshani: Yes. We didn't specifically call out the impact of annual. But what I would say is that I would expect to see similar levels of annual -- annual contracts going forward. It's like we said, very good for our business. In this fiscal quarter, we had about 50% of our retail North America contract that were annual versus 25% a few quarters ago. This is great for our business, great for cash flow, great for churn. The lifetime value of these customers is typically much higher. These are more established by GTV customers for the most part. And so we should expect similar levels of annual discounting. But again, over time, we expect that software revenue growth number to accelerate as the growth portfolio becomes a bigger and bigger part of the total Lightspeed Revenue. Today, it's 2/3. We expect that to be much higher in fiscal '27. And so you should start to see the software revenue growth converge to the software revenue growth we're seeing on the growth portfolio. Operator: There are no further questions at this time. And with that, I will now turn the call back over to Gus Papageorgiou for closing remarks. Please go ahead. Gus Papageorgiou: Thanks, everyone, for joining us today. We'll be around all day if anyone has any follow-up questions, and we look forward to speaking to you all when we report our Q4 results in May. Have a great day, everyone. Operator: Ladies and gentlemen, this concludes today's call. We thank you for participating. You may now disconnect your lines.
Liz: Welcome to the Fourth Quarter 2025 ConocoPhillips Earnings Conference Call. My name is Liz, 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. During the question and answer session, if you have a question, please press 11 on your touch-tone phone. I will now turn the call over to Guy Baber, Vice President, Investor Relations. Sir, you may begin. Guy Baber: Thank you, Liz, and welcome everyone to our fourth quarter 2025 earnings conference call. On the call today are several members of the ConocoPhillips leadership team, including Ryan Lance, Chairman and CEO; Andy O'Brien, Chief Financial Officer and Executive Vice President of Strategy and Commercial; Nick Olds, Executive Vice President of Lower 48 and Global HSE; and Kirk Johnson, Executive Vice President of Global Operations and Technical Functions. Ryan and Andy will kick off the call today with opening remarks after which the team will be available for your questions. For the Q&A, we will be taking one question per caller. A few quick reminders. First, along with today's release, we published supplemental financial materials and a slide presentation which you can find on the Investor Relations website. Second, during this call, we will make forward-looking statements based on current expectations. Actual results may differ due to factors noted in today's release, and in our periodic SEC filings. We will make reference to some non-GAAP financial measures, reconciliations to the nearest corresponding GAAP measure, can be found in today's release and on our website. With that, I'll turn the call over to Ryan. Ryan Lance: Thanks, Guy, and thank you to everyone for joining our fourth quarter 2025 earnings conference call. 2025 was another very strong year for ConocoPhillips, marked by consistent financial and operational execution and a number of important strategic accomplishments for our company. First, we outperformed all our major guidance drivers from the beginning of the year: CapEx, operating costs, and production. Demonstrating the strength of our team's quarter-to-quarter execution. On a pro forma basis, we grew production by 2.5% in 2025, while driving significant reductions to both our capital and costs. On return of capital, we met our objective to return 45% of our CFO to shareholders, consistent with our long-term track record, while again increasing our base dividend at a top quartile S&P 500 growth rate. And we did so while further strengthening our investment-grade balance sheet. Certainly a differentiated accomplishment. Our cash balances are higher today than a year ago, and our net debt is lower, putting us in a very strong financial position to start the year. We successfully integrated Marathon Oil, outperforming our acquisition case on the most important metrics. We added more high-quality, low-cost supply resource, doubled our synergy capture, realized a further $1 billion of one-time benefits, and completely eliminated the Marathon Capital program while still delivering pro forma production growth. And as part of our drive for continuous improvement, we launched and have already made great progress on our incremental $1 billion cost reduction and margin enhancement initiative. We progressed our commercial LNG strategy, growing our offtake portfolio to approximately 10 million tonnes per annum. And finally, we improved our Lower 48 drilling and completion efficiencies and advanced our differentiated major projects, which we expect to drive peer-leading free cash flow growth through the end of the decade. So 2025 was a great year for the company. Yet while these are significant achievements, not stopping there. We will build on this success. Turning to 2026, our primary focus is on delivering a $1 billion combined reduction across our capital spending and operating costs while growing our production on an underlying basis. On shareholder returns, we once again expect to return about 45% of our CFO to shareholders while continuing to grow our base dividend at a top quarterly S&P 500 rate. Top quartile dividend growth is sustainable, as we expect our free cash flow breakeven to decline into the low $30 per barrel WTI range by the end of this decade. Looking beyond 2026, I believe ConocoPhillips continues to offer a compelling value proposition that is differentiated both within our sector and relative to the broader S&P 500. As I've said before, I believe we have the highest quality asset base in our peer space. Distinguishing competitive advantage. Especially in the context of a US Shell industry that continues to mature. We are resource-rich in a world that is looking increasingly resource-scarce. We have the deepest, most capital-efficient Lower 48 inventory in the sector, and outside the Lower 48, we have an abundance of high-quality, low-cost supply legacy assets. And we are uniquely investing in our diverse major projects to transform the free cash flow generation profile of our company. As a reminder, the four major projects we have underway combined with our cost reduction and margin enhancement initiative, are expected to drive a $7 billion free cash flow inflection by 2029 that will double our 2025 free cash flow generation. And that free cash flow inflection is now underway. We anticipate realizing approximately $1 billion of incremental free cash flow each year from 2026 through 2028, with another $4 billion from Willow coming online in 2029. And that's a growth profile that's unmatched in our industry. Now with that, let me turn over the call to Andy to cover the fourth quarter performance and 2026 guidance in more detail. Andy O'Brien: Thanks, Ryan. Starting with our fourth quarter performance, we reported another quarter of strong execution across the portfolio. We produced 2,320,000 barrels of oil equivalent per day, consistent with the midpoint of our production guidance. We generated $1.02 per share in adjusted earnings and $4.3 billion of CFO. Capital expenditures were $3 billion, which brought our full-year capital spend to $12.6 billion. We returned $2.1 billion to our shareholders during the fourth quarter, including just over $1 billion in buybacks and $1 billion in ordinary dividends, bringing the full-year return of capital to $9 billion or 45% of our CFO, consistent with our guidance and our long-term track record. We closed over $3 billion of asset sales during 2025, demonstrating strong progress against our recently upsized $5 billion divestiture target, with $1.6 billion of proceeds received in the fourth quarter. For the full year, we paid down $900 million of debt and cash balances were up $1 billion, resulting in net debt reductions of nearly $2 billion, highlighting our commitment to both returning cash to shareholders and our investment-grade balance sheet. Cash and short-term investments finished at $7.4 billion, along with $1.1 billion in long-term liquid investments. On reserves, 2025 was another solid year. Our organic reserve replacement ratio was just under 100% while our trailing three years was 106%. Turning now to our guidance for 2026. As Ryan said, we continue to expect a significant reduction in both our capital spend and our operating costs, combining to drive a year-on-year improvement of about $1 billion. 2026 capital spend guidance of about $12 billion is consistent with the preliminary outlook provided last quarter, down about $600 million year-on-year due to significant capital efficiency gains in the Lower 48 and a decline in our major project spending. 2026 operating cost guidance of about $10.2 billion is also consistent with the preliminary outlook, down about $400 million compared to 2025. The improvement in 2026 is driven by a combination of our cost reduction program and a full year of MAF and OL synergies. 2026 production guidance is 2,330,000 to 2,260,000 barrels of oil equivalent per day, providing modest growth for the year. First-quarter production is expected to be in the range of 2,300,000 to 2,340,000 barrels of oil equivalent per day, including the estimated impacts of weather-related downtime from winter storm Fern. In the Lower 48, once again, expect to deliver more production for less capital. As we continue to benefit from the highest quality asset base in the sector. We are a clear leader in inventory depth, with over two decades of low-cost supply inventory across the Permian, Eagle Ford, and Bakken. Also the clear leader when it comes to bottom-line results. Capital efficiency. Amount of oil we recover for every dollar of capital we invest, we have the best rock, in the best part of the best place and our team continues to execute really well. In 2025, we improved our drilling and completion efficiencies by more than 15% expect our capital efficiency improvements to continue in 2026 again driven by strong well productivity, ongoing D and C excellence, and further increases in our longer lateral developments. Now turning to Alaska and international, a few important themes stand out for 2026. First, we continue to progress our advantaged major projects, consistent with the comprehensive update we provided last quarter. Our LNG projects are more than 80% complete with NFE expected to start up in the second half of this year. While Willow is nearing 50% complete, and on track for first oil in early 2029. Second, we remain focused on infrastructure-led exploration and are shifting our focus this year to Alaska, where we have four wells fully permitted and are looking to unlock additional resources near to our infrastructure hubs. Building on our decades of disciplined exploration and appraisal spend in Alaska. And third, we'll continue to leverage our diverse low-cost supply legacy assets for ongoing capital-efficient development, including at Sermont, where we delivered our most recent pad ahead of schedule and on budget, with another pad expected online early next year. To wrap up, 2025 was a very strong year for ConocoPhillips. And we're looking to build on this success in 2026, starting with a $1 billion improvement in our CapEx and costs. As the multiyear free cash flow growth profile we've discussed is now well underway. And we'll continue to find ways to enhance our differentiated investment thesis. Unmatched portfolio quality, including leading lower 40 inventory depth, attractive long-cycle investments, strong returns on and off capital, and a sector-leading free cash flow growth profile through the end of the decade. That concludes our prepared remarks. I'll now turn it over to the operator to start the Q&A. Liz: Thank you. We will now begin the question and answer session. In the interest of time, we ask that you limit yourself to one question. If you have a question, please press 11 on your touch-tone phone. If you wish to be removed from the queue, please press 11 again. If you're using a speakerphone, you may need to pick up the handset first before pressing the numbers. Once again, if you have a question, please press 11 on your touch-tone. Our first question comes from Neil Mehta from Goldman Sachs. Your line is now open. Neil Mehta: Yes. Good morning, Ryan, team. Thank you for taking the time. Ryan, you talked about depth of inventory, strong reserve replacement, and you've got some great projects coming on here in the next couple of years. Just your perspective as the industry is now set to accelerate consolidation potentially of whether Conoco is really more of an organic story on the go forward given those characteristics or do you see a role that Conoco is playing in consolidation? Ryan Lance: Yes. Thanks. Good morning, Neil. Yes, appreciate the question. Look, we've done our heavy lifting on the M&A side over the last four to five years. And I think I've never seen the portfolio in a better shape than really no strategic gaps that we can identify. We're globally diverse. We like our combination of the leading resource position in the Lower 48, combined with what we've got going on around the world. And the LNG projects that were leading into the Willow development and then what Andy talked about in some of our other projects going on around the world. So our pivot has been to the organic side of the portfolio. I can see the rationale for some of the M&A activity in terms of capturing the synergy, but we've been there, done that. We've got that behind us. And our focus is on the organic opportunity set that we have inside the portfolio with which we think is significant. As I said in my opening remarks, I think where we've gotten ourselves to is pretty resource-rich and what we believe is becoming a more constrained world on the resource side. But we like where we're at. We like the portfolio. And we're pretty focused on the organic side of the business. Liz: Our next question comes from Lloyd Byrne from Jefferies. Your line is now open. Lloyd Byrne: Hey, Ryan, and team. Thank you for taking the calls. Can you you've been pretty clear in the past, Ryan, about what it would take to go back into Venezuela, and I was just wondering if there's any update there. And if I may, do the recent events impact the Sitco sale at all? Ryan Lance: Oh, the Venezuelan question right off the top. Lloyd. Yeah. Look. I yeah. I get it. Saying the news. And, look, we're pretty focused on what we've talked about in the past, and that's the you know, focused on the pathway to get some recovery on what's owed us in Venezuela. And that's our first priority right now is making sure they avail us a significant amount of money. We've been after that. So we know where all the assets are, and that's the basis of our focus as well. You know, we're trying to be helpful with the current administration and provide them with our sense of what's happening on the ground. A lot has to happen, you know, obviously, security needs to improve, fiscal's You need a constructive relationship with local governments and the local people you that that actually want you know, US companies there. And then you need durability on the policy side. You need durability both in Venezuela clearly here on The US side, but we're helping the administration kind of think through the short, medium, and long term, but our focus remains on trying to get the recovery that has owed us from the two judgments that we have in place. With respect to Sitco, we see no change at this point. Encouraged by the administration's comments regarding wanting to keep the s wanting to get the asset in American hands or US hands. That's constructive. And, obviously, if there there's still an appeal process to work through in in that judgment from the courts and then an old tech license is required ultimately to satisfy that, that we would stand and collect some of our judgment through that process. But we see no change, no reason to believe it isn't going forward as it's been described to us. Liz: Our next question comes from Steve Richardson from Evercore ISI. Your line is now open. Steve Richardson: Thanks. Maybe we can back a little bit from the Venezuela question, Ryan. I was wondering if, you know, you extended the concession in Libya this quarter. And, this seems to be part of a broader trend where there's a lot of opportunities arising internationally for your company and others. And so I was wondering if you could just talk more broadly about how you evaluate those options versus your current portfolio? And is it just a question of kind of risk-adjusted cost of supply? Or there's obviously other opportunity costs. But I wondering if you could just talk about that more broadly and how you're evaluating those opportunities. Ryan Lance: Yeah. Thanks, Steve. So I draw a little bit of a distinction. I mean, we've been trying to improve fiscal in Libya for nearly a decade. So we finally got to that point with here a couple of weeks ago with signing the agreement with the Libyan government and partner there. But it's something it's an asset inside the portfolio that we're trying to improve every day. And so this is just another organic opportunity inside the portfolio, specifically to Libya. The improvement in the fiscals are just going to make it more competitive as we think about it. We've been investing money in Libya and this just makes those investments even more profitable and more competitive in the portfolio as we go forward. As a result of what we've done. I think more broadly what you're getting at, yes, there are some opportunities and as the world becomes a little bit more resource constrained, there's opportunities in and around. We look at those as well. We had a new one come into the portfolio through the Marathon acquisition of Equatorial Guinea. And so that's one we're focused on as well, trying to figure out how we can grow that L plan on the island and make it a long-term asset for the company. But that kind of fits into that organic side of the business is trying to make that asset better over the long term for the company doing some similar things in Malaysia. But there are new country entries that are happening and we see that with new wildcat exploration maybe around the world from other competitors and in new countries. We look at those and look for opportunities that might benefit the company and be additive to our plans and be consistent within our financial framework. And so this is exactly what you did. It's a risk-adjusted cost of supply of that opportunity and would it compete for capital inside the company and could we slot it in with what we're doing inside the company over the long term, you know, the next ten and twenty years. So the uniqueness about our company is we have that muscle inside the company. We're already a pretty diverse company. We've got a BD organization that looks around the world, not just in the Lower 48, the unconventional space, but also conventionally around the world. But it's gotta compete inside the portfolio just like everything does in the organic side of the business. So I think we're really well positioned to look at that and see what can be additive to the company. Liz: Our next question comes from Betty Jiang from Barclays. Line is now open. Betty Jiang: Hello. Good morning. I want to ask about the Alaska exploration program. So we just started this year, the first of a multiyear program. Can you speak to the objective of that exploration program? What's the risk? How big is the scale of the resource being targeted? And if successful, are we talking about extending the plateau for Willow, or is it more upside to the ultimate production capacity of that project? Ryan Lance: Yeah. Great question, Betty. Good morning. Thanks for that. Yeah. Certainly pleased to report that, we're out in front of this winter season here. We got an early start based on weather under ice road activity. And, of course, we have all of the permits required both for both the wells as well as the seismic that we have planned up there here this year. And even to that end, we were able to spud the first of those four wells just within the last couple of days. So strong progress that we're seeing on those four. But, again, to your question around intent and objectives, here, you know, we're out there exploring to the west of Willow and actually to the south of it. And so as you've certainly heard from us before, our objective is to continue to find what we might describe even though it's onshore as tieback opportunities into both Willow and actually into our WNS Alpine asset as well. So to your point, this is an opportunity for us to identify continued volumes, continued resource plays to bring into the existing infrastructure. And Willow being the next hub, if you will. And when we look back on our performance history there in Alaska, we have and continue to project or expect will produce well over double the volumes through those existing facilities, through that existing infrastructure, you know, over double what we originally premised when we took FID on those. And so naturally then, that's our same objective here for Willow specifically as we explore to the West we'll be looking for those resource opportunities to just keep that infrastructure full. Obviously, a bit early to, you know, to start making a call on, you know, total resource size, etcetera. But naturally, we have some pretty high aspirations and some targets that we're pursuing, and we'll be going after this for several years here now. We've got four wells here premised this year. But we've got a multiyear plan that we intend to carry out again so that we can maximize as we do globally the infrastructure that we have and our ability to bring new volumes into that that creates this advantage cost of supply for us using existing kit. Liz: Our next question comes from Arun Jayaram from JPMorgan. Your line is now open. Arun Jayaram: Yeah. Hi, Ryan and team. Gentlemen, trends in well productivity increasing recovery rates have become pretty hot button topics in US shale. I wanted to talk a little bit about ConocoPhillips' lower 48 business. Looking at the data, the inverse data in 2025, you guys had a really good year in terms of productivity in the Bakken, Eagle Ford, and Permian. And I know it starts with good rock, but I was wondering if you could talk about some of the levers you may be pulling from a technology standpoint that may be contributing to the attractive trends in well productivity that we're observing today? Ryan Lance: Alright, Arun. Good morning. Yes, we surely did have a strong productivity year in 2025 across that entire portfolio, as you mentioned. It definitely consistent with our type curve expectations. And consistent with the high quality of inventory as you mentioned. Of the things we continue to do is we benchmark ourselves in each of our basins, and I'm pleased to say on an oil productivity per foot, we're amongst the best in every basin we operate. Now specifically, I wanna call it a couple, areas that you mentioned. In the Delaware Basin and Eagle Ford, we saw impressive year-on-year improvements. In the Delaware, our oil productivity per foot in 2025 is up about 8% year-on-year. And that's even with a notable increase in our average lateral length of 9% year-on-year. Now a couple of components to dive in on Delaware side. Again, we know the depth and quality of our acreage position out in the Delaware. But the teams are continuously optimizing our development strategies and adjusting spacing and stacking. And then, of course, you could depending on where you're drilling in North Delaware or Southern Delaware, you have a little bit of mix driving that just due to the vast deep broad portfolio. Now pivoting to the Eagle Ford our 2025 oil productivity per foot was up another 7% and that's off a very strong program in 2024. And, we're a clear leader in the Eagle Ford, and we have the lion's share of remaining tier one inventory and have had strong well results of any operator. Now in the Eagle Ford, you know, we brought in the Marathon we've integrated that together. Teams continue to optimize completion designs using diverters to improve recovery. And we're seeing those in the results that you had mentioned. If you look ahead to 2026, we expect consistent strong performance across all of our basins like we've demonstrated over the past several years. And this is a key driver in our ability to deliver low single-digit growth in the Lower 48 alongside a reduction of more than 5% in capital compared to 2025. Liz: Our next question comes from Doug Leggett from Wolfe Research. Your line is now open. Doug Leggett: Thanks. Good morning. I think it's good afternoon, everybody, I should say. I apologize. I'm in Europe, so I don't know what the heck time is. Guys, I wanted to go back to Ryan's comment about the breakeven trajectory. Getting to the low thirties by 2030. I'm trying to understand a little bit about what the moving parts are. Where is it today and what is the assumption in where CapEx is from the $12 billion this year in 2030 that gets you to that number, please? Thank you. Ryan Lance: Morning, Doug or afternoon, Doug or evening, Doug. Depending on where you are in Europe. There might be a lumpy game involved in Thanks. Okay. Yeah. I can step through that one. So, you know, where we are right now sort of our pre-dividend free cash flow breakeven right now is in the mid-40s. And you'd add about $10 to that with the dividend. So that's kind of your starting point. And then as you say, as a reminder, we have our pre-productive capital spend, you know, it's down from where it was in 2025. We still have the preproductive CapEx, you know, between now and Willow coming online, that works off. You know, that if you do the math on what we said on that, that's about $6 basically just on simple pre-productive capital. And then, you know, as we've talked about sort of in our prepared remarks, you kind of got the free cash flow. It's already starting to improve today and it's going to continue to improve and we're effectively going to almost double our pre-productive CapEx, okay, cash flow, sorry, by the time that Willow comes online. And when you put all of that together, that's basically how we take our free cash flow all the way down into the low 30s by the time the Willow is coming online and then you add the dividend back on top of that. So we're going to be down in right in the low 30s when we have Willow then adding another $8 to $10 for the dividend as we remember, we're buying back shares as well. So that sort of reduces dividend burden over time as well. So that's kind of the trajectory we're on and we're pretty excited about it. And I think we think it's part of the story we have here in terms of that free cash flow trajectory we're on, we think is second to none. And it's going to drive sort of a breakeven that comes down, I think, faster than anybody else can come close to matching. Liz: Our next question comes from Devin McDermott from Morgan Stanley. Your line is now open. Devin McDermott: Hey. Thanks for taking my question. Ryan, I wanted to come back to one of the international growth assets that you listed in response to a prior question, and that's Equatorial Guinea. I know you've been evaluating potential backfill projects for the LNG facility there, and believe just over the last few days, there was an agreement reached between Equatorial Guinea and Cameroon for the unitization of the Yo Yo Yo Landa fields. I know it was in Conoco operated asset, but it's one of the potential tieback resources into that LNG plant. So kind of a broader question. Since you listed it as a growth potential area, just talk about how seeing the opportunity set there and where we stand on projects to backfill and keep that LNG plant full. Ryan Lance: I can provide some over comments and then maybe have Kirk come in behind. I think we were encouraged by the Cameroon conversations and then here recently, Chevron's conversations the same. So know, we're working hard to try to make the asset that we acquired from Marathon something more than a five-year asset? How do we make it a ten, fifteen, twenty-year asset? So we've been busy with some HOAs with the Equatorial Guinea country. And doing exactly that. We're encouraged by the opportunities that we see out there. We're encouraged with the cross-border cooperation. Because that just leads to more opportunity to bring more volumes across the island. Maybe Kirk can describe some of the more specifics we're looking at today. Kirk Johnson: Certainly, Ryan. And Devin, as Ryan's been describing, we've been in discussions certainly haven't taken on this asset through the Marathon acquisition. As we've taken it into the company, we've been actively in contact with a number of other operators in and around our LNG facility and upstream assets. Thinking about how do we leverage that infrastructure, specifically the liquefaction facility that's using our technology there on the island. Certainly, discussions have progressed very well. Really pleased with that. Specifically with Chevron, they've made some notable progress in a few of their projects. A couple of both new fields as well as continued development of some existing fields that create some upside for that. And then naturally, we are, as Ryan said, we're in some HOA discuss confidential discussions with the government and a few others. Around continued infill opportunities, especially gas in and around Moabo and our operation there. So again, this is a continuation here of the theme of what we've been able to do so well in our whether it's internationally in Alaska, which is continue to find resources that exist to create this advantage cost supply to use existing infrastructure. So expect us to continue to make some progress in that way there in EG. Liz: Our next question comes from Ryan Todd from Piper Sandler. Your line is now open. Ryan Todd: Thanks. Maybe can you talk about how you think about Lower 48 activity levels and commodity price? As you highlight in your presentation, you clearly have a tremendous amount of high-quality drilling inventory. You've moderated your pace of growth in the lower 48. Of late given, you know, kinda current global crude supply balances and a weaker crude price. But as you look over the next one to two years, like, what would you need to see to step up activity levels? And grow a little faster in the lower 48 and maybe with that, could you maybe elaborate on what you've said a couple of times? It's a pretty constructive maybe crude oil view in the medium to longer term? Ryan Lance: Yeah. Thanks, Ryan. Yeah. We have our own sort of macro view on supply and demand and I'd say consistent with a lot of what people were saying, we see some saw some softness coming into the year. So we set our plans and our budgets in '26 based on that. Obviously, we've seen a little bit of tailwinds with the current geopolitical things that are going on around the world. But generally, but 2026 would be a little bit more tougher year on the commodity price. We set our plans accordingly. And Nick's team, as he's described, has been doing a doing a great job capturing the efficiencies and we've been able to grow that business without adding more capital to it. And that's kind of our starting place. So I would say our scope is kinda set for 2026 with what we're trying to execute. We don't like to whipsaw these programs up or down and we'll use the balance sheet in the downside case if we need to. And we're comfortable with where we're at in '26 if prices were even to increase, which just give us more flexibility to in the company. We are constructive going forward. Over the next number of years as we think about later later down the road in this decade, we think we're gonna have LNG and Willow coming on at the right time when the world needs this oil. So we're pretty constructive as we go forward. And over time, we'll see what the we'll see what our view of the macro is. We'll see what we think about the cost. And if we if we wanna start ramping up in the lower 48, we can do that. If there's a call on more unconventional crude. But today, I think we're pretty comfortable with our plans. A lot of volatility in the market. We're built for this. We're built to handle it. With the balance sheet that we have and the programs that I know the teams are executing there. Trying to get as much as they can for every precious capital dollar that we're spending. So we're trying to balance our returns of our capital back to our shareholder with the returns we're getting on the capital that we're putting back into the company. So this year, we should see some modest production growth and executing the plans to start delivering the free cash flow inflection that we see over the course of this decade, starting this year with $1 billion and next couple of years with $1 billion and then another $4 billion coming with Willow. And we think that's hugely differential in relative to our competitors in this space. Liz: Our next question comes from Nitin Kumar from Mizuho. Your line is now open. Nitin Kumar: Great. Hey, guys. Good afternoon, and thanks for taking my question. Ryan, I'm sorry. I'm gonna take you back a little bit to the direction of Venezuela, but it's not really about Venezuela. The expectation is the Venezuelan heavy crude might back up, so the Canadian production, what's your view of WCS spreads given that you're seeing some of this other heavier crew from other parts of the world hitting the Gulf Coast? Andy O'Brien: Hi there. This is Andy. I can jump in take that one? Yeah. I think, you know, the short answer is sort of in short and medium term, we're not really expecting to see that much of an impact. As most people know that if you start with sort of the pad two refiners, that's structurally reliant on the Canadian heavy and have minimum alternative options to displace those barrels. And you say, the Gulf Coast refiners can process the heavy barrels and where we're starting to see some of those refiners express interest in purchasing some of those Venezuela barrels. But our view is the incremental Venezuelan barrels will likely get absorbed. The markets will rebalance the global flows. We kind of when you see a thing from month to month where there's maybe crude being backed out or moved in different directions possibly. But take a step back and look at the bigger picture. Way we're thinking about it is that the annual global demand is growing basically million barrels a day. And we're gonna need incremental sources of supply to help meet that demand growth. Our modeling isn't really sort of showing that the Venezuelan crude coming in is going have a particularly material impact Canadian heavy. Liz: Our next question comes from Scott Hanold RBC Capital Markets. Your line is now open. Scott Hanold: Yeah. Thanks. Thanks, all. You know, my question is is you know, on your balance sheet. Obviously, you've got a very strong cash position and investments. I think there is some investor kind of concern over there, at least in the short term, you know, your shareholder return strategy at least in, you know, at that 45% rate does dip into it. Could you just give us your context on know, how you think about your cash balance? How much is reserved for know, utilizing it this as as you ramp to that free cash flow inflection point? Andy O'Brien: Yeah. I could take that one Scott. I think in the prepared remarks, I stepped through sort of just how strong our cash balances are. Starting this year and the fact that we actually reduced our net debt by $2 billion. So we're starting with a balance sheet that is in a really really, really solid position. Know, I think, you know, we look at it across, you know, a range of prices, and I think we've been pretty clear that know, 45% of our CFO basically works across basically a range of prices in terms of our distributions and that's kind of what you could expect. And there's a reason we have a strong balance sheet is that if there were a period where sort of a quarter here and a quarter there, you're needing to drop into the balance sheet to sort of help fund that. That's what we would do. That's what it's there for. I think given where we're starting with cash, I don't really see sort of any real concerns basically around sort of headwinds to being able to fund distributions or maintaining a strong balance sheet. Liz: Our next question comes from Sam Margolin from Wells Fargo. Your line is now open. Sam Margolin: Hi. Thanks for taking the question. This question is about the progression of the free cash flow contribution in 'twenty seven and 'twenty eight. Before Willow. And, you know, in the context of NFE, coming on in the visible horizon here, if could we ask you to decompose that progression a little bit and maybe at least frame where the range of LNG contribution, both on both on the cash flow side and on the on the spending roll off are coming in. And then, you know, the I guess, the market context is that European gas inventories are pretty low and you have some you know, European regas exposure that looks like it'll be full you know, over the next season. So, if we could get some color on that, it would be great. Thanks. Andy O'Brien: Okay. Yeah. Kind of a touching a touching a few different topics there. We'll try and I'll try and sort of try and try and cover them. You know, the first part of it is we've been very clear that sort of basically, we're seeing a billion dollars per year, $26.27, 28 of free cash flow improvement. And think you're starting to allude to this that '26 basically is essentially being driven by the OpEx and CapEx guidance that we've given driving that. But as we get into 'twenty seven and 'twenty eight, a significant part of that is being driven by the LNG where we have NFE coming on, Port Arthur coming on. And NFS coming on. So, we're seeing that basically drive next $2 billion after the one we have now, then the next two comes from those LNG projects. And remember, it's a combination of the revenues coming on, but the CapEx going away as well. So that's $2 billion a big chunk of that is coming in '27 and '28 from the LNG projects. Know, we've but when we've given those sensitivity on the $7 billion of free cash flow inflection, we've put prices out there basically for that. And I think where we basically placed the first 5,000,000 tons that we have out of Port Arthur Phase one into Europe and Asia. We feel pretty good about that. And you know, our view, I think, is that you know, we're pretty confident basically around sort of, you know, LNG prices basically holding up over the rest of this decade. So it's kind of that's what's built into our sensitivities and know, we're also in a situation where between now and 2030 where we're actually much longer Henry Hub natural gas than we are LNG. So if you think about it in next area in the Lower 48, we produce two BCF a day of gas. That's about 15 MTPA. And for every dollar we see move on the price on Henry Hub, over $400 million of sensitivity to us. Whereas the first 5,000,000 tons that we have coming out of what are up between now and the 2030 timeframe. Every dollar movement on that is about a $200 million movement. That we have. So we're actually much more exposed to higher gas prices than we are compressing LNG margins in the between now and the end of the decade. I think I touched on most of what you're asking there. Liz: Our next question comes from Phillip Youngworth from BMO Capital Markets. Phillip Youngworth: Yeah, thanks for taking the question. You reached an agreement with Western Gas during the quarter to restructure Delaware gas contracts. Question is more around, you have over 200,000 net acres in the core that you picked up from Shell. A couple of years ago. Maybe it's a little less optimal in terms of operatorship, working interest, or acreage configuration, but within the midstream getting more ironed out, does this at all advance the ability to do a larger acreage swap here? And if so, how meaningful could that be for Conoco's capital efficiency in developing this asset going forward? Kirk Johnson: Yeah. Exactly. If I go back back to Shell, I mean, of the key things as as you look at in that area we continue to core up in strategic trades all the time. To increase our lateral length in that area. That drives our capital efficiency as we extend the laterals in there. And we continue to do that on an ongoing basis. As you mentioned for the Western midstream, we did directly contract that through WES, and that's one of the key drivers that Andy had mentioned that achieves that billion dollars of cost savings run rate by year-end 2026. But on the strategic trades, we continue to do that on an ongoing basis. And if you look at long lateral inventory in that area you mentioned, if I step back to 2023, about 60% of our Permian future well inventory was two miles or greater. But, today, that's at 80% due to the strategic, trays and core ups. And in fact, you look at the 2026 program, 90% of those wells are two miles or greater. So we continue to do that with our BD and land teams. Coring it up, and that drives the capital efficiency. When you look at that core up, opportunities, if we go from a one mile to a two mile lateral, we improve the cost supply about 25%. But if we go to three or four miles, we add another 10 to 15% cost supply reduction. Liz: Our next question comes from James West from Melius Research. Your line is now open. James West: Hey. Good afternoon, guys. One thing that came up that I noticed in the slide deck this morning that stood out to me was your reserve replacement ratio. It's been very impressive over the last three years. Well above your peer group and the big oils. Curious what's been driving that and curious how you see that going forward. Andy O'Brien: Hi, this is Andy. I'll take the question. Actually thank you for the question. To ask about reserves, we think reserves remains an important and very relevant metric. Especially the organic reserve replacement. As you know, that's basically essentially what we're replacing with the drill bit. As you said, you know, I'll one year performance is important. We do also focus on our multiyear track record, especially you think about some of the longer cycle projects. So just quickly step through the numbers, our three-year organic reserve replacement is 106%. And our five-year organic reserve replacement is a 133%. And what particularly pleasing about that is across that timeframe, we've got strong contributions across our entire global portfolio 48, Alaskan International is another example Ryan was pointing to earlier, the power of our diversified portfolio. And '25 was no different. It was another solid year of organic reserve replacement. So we effectively maintained the reserves. Technically 99% that if you then take that and basically you would exclude the impacts of revisions there to the lower oil prices, the organic reserve ratio when you're not taking price provisions into account, we've been 110%. So again, it was a really good year for us. And, you know, I think what you alluded to, we think our track record, we put it up against anybody, you know, terms of the majors or the EMPs over the short, the medium, and the long time frame. And, you know, just in terms of we think about it, we really do think reserves continue to be an important barometer for our industry. And no matter how you slice it, it continues to be another proof point just on the quality of our portfolio. And was it was a it was a really good year for us again where we, you know, we had additions, you know, yes, from the lower 48, but we had additions coming from Coyote up in Alaska. Great performance out of Australian business unit where we could increase some reserves there. Then just some of the commercial negotiations we do across Asia and how to add some reserves there as well. So know, important important for us reserves to keep a really close eye on it, and I think it's it's a good litmus test of sort of how well how well basically we're doing, and we couldn't be happy with it. Ryan Lance: And I would add just one thing, James, as well. I mean, people ask us when we talk about our sub $40 resource sub sub $40 cost by resource that we have inside the company and is it real or, you know, how real is it? I think this is the proof point is we're converting those resources into reserves. You ought to feel comfortable, and we've been doing this over the long haul, both in our history and we given Andy's comments, that's what we expect to happen going forward because of that resource that we've got captured inside the company and our focus on the organic investments in the company to turn that resource into reserves. Liz: Our next question comes from Paul Cheng from Scotiabank. Your line is now open. Paul Cheng: Hey, guys. Good afternoon or good morning. Ryan, just curious. You still have another runway in the Lower 48, but I think no matter how we look at it, Shell Oil is getting mature. And as that happened, how over the next five years your capital allocation is going to shift or that is going to make any changes, to position the company post 2030. I mean, we clearly that you you have a very, I think, visible path for the next five years. But post 2030, that with that, major asset is going to be maturing. How you're going to position given you are a very large company? So to turn a big ship going to take times. Thank you. Ryan Lance: Yeah. Thanks, Paul. Look, we our view inside the Lower 48 just in particular is over two decades. Of low cost of supply inventory. So gonna be in this business for twenty plus years. It's not going to roll over in five years in our portfolio. But I take your point, I think broadly in the industry where if these kinds of prices seeing sort of plateaus production in the shale, North American or US shale, but that is not the case inside our company. So we will see sort of major project capital spend, the preproductive capital that Andy talked about, that will start to roll off through the end of this decade. We continue to we'll see growth in our unconventional investments as we continue to capture efficiencies and look at that business. But we've got multiple decades of growth opportunity there. And then Kirk talked about the rest of the business. We see opportunities in Alaska, we see them in Canada. See them in we talked about at Quintura, Guinea, the signing of the new agreement in Libya. So I think we're just in a completely different place than a lot of our competitors, and we've got a lot of optionality for investment in the portfolio to continue sort of modest growth depending on what the commodity price environment ends up being. And again, we're pretty constructive long term as we see demand growth continuing to grow. So that's going to give us the opportunity to continue to invest organically in the portfolio across a broad set of assets. That have already captured to develop that resource potential that we have. It doesn't stop by the next decade in the lower forty eight. It continues for quite a period of time. So I think all the data yeah, third party data supports that. We're just not talking our book here. Liz: Our next question comes from Charles Meade from Johnson Rice. Your line is now open. Charles Meade: Yes. Hello to the whole, whole Conoco team there. And can you If I could, I'd like to go back to Alaska. Give us an update on on how this season's costs at Willow are tracking versus the updated assumptions you guys gave us last quarter. And, and perhaps fitting in that or or maybe tacking onto that. If how the the loss of this rig 26 whether it's gonna affect you affect you either on your development or exploration side? Kirk Johnson: Yeah. Hi, Charles. Thanks for the question. We certainly had a number of inbounds especially on the latter part of your question question around the rig incident. So I might start there, and then, of course, I'll address your question on Willow. Certainly, unfortunate event there with that rig, D26. Of course, nationally top of mind for us, we're the folks that the individuals that were around the rig and the few that were that were piloting that rig. Fortunately, no injuries. And, of course, the owner, the operator of that rig are ultimately accountable, and they are leading both the investigation and the response. We're naturally in support of that company. And working with them as they coordinate, and manage in and around that. That rig was one of two rigs that we had planned for the exploration program. Here this year. We roughly assigned two wells for each one of those rigs. And, of course, we have multiple rigs up there running, and so we were able to just simply backfill that D26 rig with one of the active rigs that we have operating within our existing units. And so the exploration program continues, and we'll be able to pivot those rigs back after the exploration season into our ongoing development. So no change to either exploration. And to your point around Willow, we have two rigs premised for the predrill on Willow leading up to start up in early 2029, and D 26 was one of those rigs. Now again, because we have multiple rigs deploying, no impact. And again, predrill starts for Willow next year in 2027. So, ultimately, what you're hearing from me is after that unfortunate event, no impact on our exploration and no impact on Willow. On Willow, you know, you heard certainly earlier in my comments that we were able to get out early due to, you know, an early start to the winter season and some cold weather with ice. But the same goes for Willow. And so that that's winter construction season for us started early. It's on track. And proceeding really quite well. When we think about the work scope that we have planned here for this year, really revolves around some of the earlier points you've heard from me. We're trying to knock out the bulk of the gravel work here this year. Roads, pads, the airstrip so that we have full year-round access into Willow. In a more efficient way than we have in the past. We'll be continuing pipeline work bridges, etcetera. And then, of course, all the work here out of the state on prefab of the process modules continues, and we're seeing some strong progress from our business partners on that front as well. And then, you know, back to your point, yes, we're seeing costs come in as we as we guided. We're seeing that cascades down largely because last year's winter construction season was our largest. And then we've, you know, we've been able to knock out some pretty important milestones up there on the North Slope. Our permanent camp there in Willow is open. That's pivotal because it allows us to start, you know, moving away from and turning away a lot of these temporary camps that we've had to rely on. And so this part of the story about our ability to wind capital down from previous levels in the last few years. So we'll be coming in on pretty major milestone here within the next couple of months of being 50% complete on the project. And so, naturally, both cost and schedule are looking good for us for an early 2029 first oil. Liz: Our last question will come from Kevin McCurdy from Pickering Energy Partners. Your line is now open. Kevin McCurdy: Hey. Good afternoon. Thanks for fitting me in. I wanted to ask about Canada. You highlighted that the 104 WA Surmont pad was ahead of schedule. I wonder if you could talk about the financial and operational impacts and the timing of that pad. Was CapEx and production brought forward? And do you think this could be like an ongoing trend for your operations there? Thanks. Kirk Johnson: Yeah. Appreciate the question on Canada. It's a place, the Surmont asset specifically is one where we just continue to see really strong performance. And ultimately, we have positioned ourselves for first oil, you know, first steam at the late last year and then first oil early this year. That came in about a month early. And that was on pad 104 WA. And so, ultimately, that activity is cascading through. It's in essence rolling through as we have started work on the next pad, 104 WB. And as you've heard from me in the past, we're expecting to bring on a new pad roughly every twelve to eighteen months. And we are expecting this next pad to come on in about twelve months from now for a first steam and first oil. And so that activity is really quite level loaded certainly as you can imagine with that kind of pace. So we're not seeing necessarily a material change in certainly how we think about capital or even our production profile other than it derisks certainly the growth that we've started see. And when we think about, you know, I talk about growth in Surmont, it's really quite moderate and disciplined. With this pace of capital deployment. So, again, you know, we took a bit of a cut last year with having reached payout on the full surmount project last year. Net royalties changed on us. And yet when I back up a little bit and I think about the health of the asset and how it's performing, gross volumes continue to be climbing and to be up. So the performance of these pads is offsetting decline. And again just really pleased with how the overall asset is performing and how our capital and production is coming in on trend. Liz: Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect.
Bilal Aziz: Good morning, everyone, and welcome to the conference call for Pandora's Full Year 2025 Results. I'm Bilal Aziz from the Investor Relations team. I'm joined here by CEO, Berta De Pablos-Barbier; CFO, Anders Boyer; and the rest of the IR team. As usual, there will be a Q&A session at the end of the call. If you could kindly limit yourself to 2 questions at a time, that would be great. Please pay notice to the disclaimer on Slide 2 and turn to Slide 3. And on that note, I will hand over to Berta. Berta De Pablos-Barbier: Thank you, Bilal, and welcome, everyone. Well, we have a lot to cover today. So, I will begin with our fourth quarter performance before outlining how we plan to reignite growth through a recalibration toward desirability-led growth. I will then cover the creative innovation, addressing high silver cost mitigation. Now, I am sure that most of you are aware that we preannounced in January the quarter 4 results. So, let's quickly see how the final and total results shape up. As a reminder, we ended the year with 2% like-for-like growth and Q4 at 0%. These results were, of course, below our expectation even against a weak macro drop, and we do see clear areas where we can drive better performance. Now on the positive side, our profitability remained very solid throughout the year, and we ended the year broadly as expected. This reflects our high gross margins where efficiency initiatives and pricing actions helped offset most of the external headwinds. Now when we combine this with very good cost control on OpEx, our EBIT margins ended the year around 24% again, 24% with the vast majority of the pressures we face. It's worth also remember how quickly the environment has changed. I mean, 12 months seems like a very long time ago now. But this time last year, our guidance assumed no tariffs and a silver price of around $32 per ounce. Now, let's move into some of the details of the quarter. So next slide, please. By collection, you will see that the Core delivered 1% like-for-like growth in 2025 with quarter 4 ending flat. Talisman, the new collection contributed positively in quarter 4, which was very encouraging to see. Now it remains a relatively small collection, but we are pleased both with its performance and the consumer attention and consumer acquisition it has generated, and we are going to continue to build on that momentum on 2026. In Fuel with more, like-for-like growth was disappointed at minus 3% in quarter 4. I will touch later on our plans on design and how we intend to reignite growth in both Core and Fuel with more. In short, this is going to be about sharpening where we focus our design efforts, bringing greater creative energy to the Core and more confidence and scale to Fuel with more. Next slide, please. Now going forward, you also will hear me speak as much about earned media impact as about reach. And this slide actually illustrates why. Over the past year, we have increased our presence at highly relevant cultural moments from major fashion awards to global platforms such as the Met gala, the BAFTAs and the Grammys. This activation have generated high-quality coverage and increased media impact value, helping to build brand desire over time, brand desirability, which is one of the most important drivers of sustained long-term growth for Pandora. In quarter 4, very specifically, we aired our Christmas campaign. It relied predominantly on traditional media and delivered a modest uplift in traffic. The learning is very clear. Going forward, we need to combine paid reach with earlier and stronger earned media impact that will be enabled through PR integration and very culturally relevant activation. Now all of this must, of course, be anchored in a strong design offering, which I will touch shortly. Let's go on to the next slide, please. While many of you are already familiar with the regional performance, so I'll just only focus on a few highlights. Let me start with EMEA, our largest region that is predominantly Europe. In quarter 4, EMEA delivered minus 1% like-for-like growth. Performance varied by country. And while some markets performed well, the overall results reinforces the need for the targeted strategic shift that I will outline. At country level, a few markets are worth calling out. Spain continued to perform very strongly in quarter 4. And this is a clear example of a mature market where sustained brand heat continues to drive customer acquisition, showing that there is no fixed ceiling to grow for Pandora. Italy, by contrast, saw a weakening in performance. Now, while some action delivered very encouraging early signal, the outcomes underlines the need for a more decisive change in how demand is activated in mature markets. I will address this later. Now, let me move to North America. Like-for-like growth was 2% in quarter 4, which was slowing versus Q3. We discussed in January the macro environment that weighed down on consumer confidence and in-store traffic. That said, brand strength in the U.S. remains very solid. And with only around 2% market share, the long-term growth opportunity remains very significant. Latin America growth was minus 7% in quarter 4. We are implementing a new pricing architecture in January. And so far, we are encouraged by the initial response. Finally, Asia, we delivered positive growth at 2% like-for-like growth, and Japan continues to perform very well and provides a positive reference point as we shape our future approach in the region. With that context, I'll move on to the next slide, please. Another area, which I will remain very consistent is the role of our stores in driving desirability and elevating brand perception. We have made strong progress over the few years and the economics of our store network remain highly attractive. By the end of last year, approximately 800 stores have been converted to the new format. In 2026, we will continue this momentum with the rollout of new digital windows displays across many stores, which are designed to improve visibility and drive traffic. That said, like any strong brand, we will not stand still. We see further opportunities as well to evolve our store layouts, increasing traffic flow and presenting Pandora more clearly as a desirable destination. With that, I will hand over to Anders to walk you through the quarter 4 metrics before we look ahead to what come next on the strategic shifts. Anders? Anders Boyer-Søgaard: Thank you, Berta, and good morning. Then please turn to Slide 10. Berta has already commented on the revenue metrics. So, I'll rather focus on some of the other metrics on this slide. And the key message from us is that despite the soft top line and the significant external headwinds, then our Core P&L, balance sheet and cash metrics remain healthy. And that demonstrates in many ways, the strength of our business model and agility on the cost base. In the fourth quarter, our gross margin ended at 78% and thereby it was down 170 basis points versus last year and that's driven by a quite heavy 310 basis points of headwinds from tariffs, foreign exchange and commodity prices. So, this means that we continue to offset quite a decent amount of the headwind through cost efficiencies in our vertically integrated value chain. And then at the same time, our price increases do support the margin as well. I also just want to touch on the working capital. And as you can see here, we have circled in 2 numbers on the slides. That's including and excluding commodity hedging. And the 4.1% net working capital includes some quite significant unrealized commodity hedging gains. So, to really understand the performance, it's better to look at the KPI, excluding commodity hedging. And here, you can see that working capital is still in negative territory, and we are quite pleased with that. Next slide, please. Here, we break down revenue growth in the quarter. Berta has already covered the key elements. And as we think the bridge is quite straightforward, we will just move on to the EBIT margin bridge on the next slide. And the short story here is that the EBIT margin played out in line with our expectations and in line with the guidance. And even though I -- in a way, I don't like saying this, then delivering an EBIT margin, which was only down around 100 basis points, that is quite a good outcome with all of the headwinds that we saw in the quarter. And those headwinds are shown in the light pink bar on the right of the bridge, the 440 basis points of in minus and being able to offset the majority of that speaks to some good discipline across the company and agility following the lower revenue growth in 2025. This doesn't mean that we don't have the ambition to offset all of the headwind, but it will take a bit of time, and we will speak more about that later today. I would also like to note that the OpEx ratio actually declined on a constant currency basis, both in Q4 and for the full year as well. So, we have been executing on the Silverstone cost program, and it's quite good to see that the savings are coming through to help the bottom line. And on that note, I'll hand back over to Berta to walk through how to reenergize growth. Berta De Pablos-Barbier: Right. So, I mentioned a few weeks back that as the new CEO, my focus is to strengthen brand desirability and to deliver sustainable long-term growth. I've been CEO for just over a month and in the business for over a year as CMO. But I want to give you today my initial thoughts on Pandora. First, it is very clear to me that Pandora has many untapped growth opportunities. I am incredibly excited of what lies ahead. Our overall goal is to continue to build the most desirable accessible jewelry brand. This is a company built on very strong foundation. We are a category leader. Our brand is healthy, and our collections are solid. When you combine that with a vertically integrated value chain and a wide array of in-house crafting capabilities, you have a clear competitive advantage that allow us for scale, speed, agility and notable cost advantages. All of this together is a recipe for a very attractive business model and good runway for profitable growth. So the question, of course, is how can we leverage off all these competitive assets to drive profitable growth well into the future. My priorities are to reignite growth and to reduce the commodity exposure to underpin our strong business model. All of this then is strictly while retaining the Pandora DNA and purpose. Now as I mentioned in January, after several years of outpacing the category and driving solid growth, we are operating in a more complex environment, and that require us to be more demanding in how we generate growth. While the current model works well in low penetration markets, we do need to be sharper when we execute in other markets. And this means that we have to course correct where momentum has softened. So, let's see some of the changes and how they look like in the next slide, please. Now it's not on this slide, so I'm just going to explain it because this shows how we are evolving Pandora growth engine for the next phase. We will remain centered on recruiting new consumers into the brand, and this has not changed. Now what has changed is our understanding of what drives that recruitment as the brand and our markets mature. Under Phoenix, we rebuilt a strong foundation for Pandora. We strengthened our Core collection. We restored brand awareness through paid media, and we delivered solid like-for-like growth. That what matter. It matters a lot because it took us to where we are today. Now it's clear that what took us here is not going to take us into the next phase. As Pandora matures, growth is increasingly driven by desirability rather than reach alone. We are, therefore, sharpening the growth engine across 3 connective things: design, brand and markets. Let me start by design. Our focus clear is on reenergizing all collections. Our Core need greater distinctiveness, greater uniqueness to reignite desirability, while our smaller and underrepresented collections need more depth, need more products, so they can scale their growth. On brand, we are evolving from a fundamentally model that it was awareness led with paid reach to cultural relevance with earned media. Earned media will be a Core KPI to drive efficiency. It's not an afterthought. It's a dedication as it increased traffic and demand activation. On markets, of course, these 2 levers means that we will be moving away from a one-size-fits-all model. We'll be calibrating the growth engine by market and brand maturity. We'll be prioritizing desirability in high penetration markets, while we will continue to invest in reach where penetration still remains low. This is an evolution. This is not a reset. It builds on what has worked and strengthens Pandora growth engine for the next phase of value creation. Now, I'm going to deep dive into design and brand with proof points that show how this approach is already working. Now you will have to indulge me because this is going to be a little bit of a detailed presentation, but I think it's important into getting the full understanding. Next slide, please. So let me start with design. So, this slide explains why design focus is such a powerful growth lever for Pandora. If you look at the left side, it shows where we operate today. The first bar is the aesthetics of the market under the $500. And you can see that a large share of our business, and by the way most of our newness is concentrated in a relatively narrow aesthetic space. This is the one that we call playful and is where the majority of our Core with moments works today, but it's also the most mature part of the portfolio. If you move to the right, the design effort column shows that we have put most of our design focus where the biggest -- where the business is biggest with very similar product repeated over time. In very simple terms, basically, we've been doing more of the same in the same place for the same people. Now the chart on the right, at the full right shows where growth actually has come from. And you see that actually underrepresented aesthetics on organic on fine, on bold is actually where the growth comes from. So underrepresented aesthetics account for a much smaller share of our newness, yet they are delivering disproportionate share of incremental growth when we actually focus creatively on them. So the issue, you might think is the number of products, but this is not. The issue is not the number of products, it's how and where we deploy them. Going forward, we will keep the same level of newness, number of devices, if you wish, but we will deploy them differently. The Core aesthetics need greater uniqueness, greater distinctiveness to reignite, to reenergize demand. Now there is plenty of playfulness and creativity that we can still bring to playful. While the underrepresenting aesthetics need more depth and more products to unlock their growth potential. So, this is not either about entering new aesthetics, it's about doing better where we have already started to play. Essence that was launched 2 years ago and Talisman just last year are very good examples of that. This is how design focus will unlock growth, not by doing more, but by doing the right things in the right places. I mean, after all, all this is simply about keeping the brand desirable and contemporary. So let me just conclude to land the message here. Pandora will become a more design-led with a clearer collection strategy and a more disciplined product development. We will ensure that design effort is focused where it creates the greatest impact. Newness will be rooted in consumer insight, trend research and commercial analysis, which will allow us to deploy the same level of new products more effectively across the portfolio. And last, greater creative distinctiveness and better deployed newness will translate into growth by strengthening desirability. It will activate demand, traffic and therefore, will support our like-for-like performance over time. You are going to start seeing the first effects of this towards the end of this year, and the impact will be more visible through 2027. Now in order to support this shift, this strategy, we are strengthening our ELT. We announced as well that we have a new Chief Product Officer. Philippa Newman will be joining in March and will oversee product end-to-end design, collection management and development. This will strengthen our ability to translate a strategy into execution and to ensure that the creative efforts are placed where it matters the most across the collection. Let's go into next slide, please. Now, I'm going to deep dive on brand as well. Now of course, with any design, any brand, anything that the brand does only works, you actually notice it. You can have great product designs, but if not one is talking about them, what is the point about the whole thing in the first place. Historically, Pandora has been very strong at driving reach, and we actually built industry-leading awareness. This is hugely important, and this has helped created the healthy brand that we have today. But as the brand matures, awareness alone is no longer the constraint. We see this very, very clearly from our assessment, and we see that very clearly from our results as well, is that the role of brands now shifts from reach to relevance and from only visibility to being part of the conversation. And this slide shows this clearly again, and I'm illustrating this with the 2 markets I mentioned before, Spain and Italy. Spain and Italy are 2 mature markets of comparable scale, but with very different media models. Spain has been more heavily into activating PR, press and influencers and as a result, has generated earned media and cultural amplification year-after-year. On the other hand, Italy has historically relied on more traditional paid reach and on traditional TV campaigns, with very little activation of the earned media generating tools. I think the outcome is very telling. Sustained earned media in Spain has driven growth year-after-year through customer acquisition and broader momentum across all collections. We are not sharing actually the same chart as well, but it's important to know that all collections generating growth in Spain, which actually core growing at plus 17% and fill with more at a high 24% in Spain. In other words, where Pandora is covered by press and influencers, they talk about all the collections. The brand shows up its full jewelry portfolio. It builds momentum and it compounds growth. Importantly, as well is that, we tried this with Italy this year with the launch of the Talisman collection. And that show us well in that market that when distinctive newness is supported by a different media approach, customer acquisition improves. So this also gives us confidence that this is not a market-specific setup is scalable in other markets as well. So let me finalize this with summarizing the conclusion about what I've been sharing with you on the brand part. We start by distinctiveness, bringing uniqueness things that create the spark. This actually gives people, our consumers something new, something that is truly worth talking about. We then use earned media that carries the story, press, influencers present Pandora wider jewelry offering, bringing multiple collections, all the products into the conversation. Conversation turns into traffic, demand and revenue. So, this is simply how distinctive designs and earned media together become leading growth drivers. So, in short, we will be moving from saying and showing the same thing to the same people to letting different parts of the brand speak to different consumers in different ways. Now of course, you will have the question about when and how we are going to be seeing these changes and how and when these changes are going to be translated into business. Listen, we are already moving at pace. And I'm basically going to keep you very closely engaged throughout the year. In the coming months, of course, we will maximize the impact of our existing collections with earned media, but the full evolution of this interdependent communication model will follow next year. So, 2026 is expected to be a year of transition, and we expect to reap the benefit of these changes in 2027. Now, this addresses 2 main areas that we'll be addressing to organic growth, and of course, now we go into how we are addressing the commodity pressures we've been facing. So, if we can please move to the next slide. Now, I'm sure you all have noticed that one of the headwinds facing Pandora is the rising silver prices. So let me address how are we tackling this situation. We are doing this while we are providing, and this is very important, a superior consumer proposition to Pandora customers. And we are doing that in line with our DNA and with our vision. We are introducing a very important innovation that we announced today. We are expanding Pandora offering with platinum-plated jewelry, proven on our unique signature metal alloy that we have trademarked PANDORA EVERSHINE. Now with this unique metal alloy EVERSHINE, it has been optimized for platinum plating, which is actually delivering certified tarnish and water resistant as well as hypoallergenic and therefore, the product is outperforming silver for everyday wear. We will be providing more details of this innovation and importantly, on the impact of the business, so we can go please on the next slide. Now with the introduction of platinum-plated jewelry on our signature metal alloy EVERSHINE, Pandora is taking a very decisive step in evolving its product platform and strengthening the long-term resilience of the business. We will be the first jewelry brand to bring platinum-plated jewelry to the market at scale, combining precious metal aesthetics with superior everyday performance. Why am I saying this? In daily wear, platinum-plated jewelry outperformed silver. It does not tarnish, as I was saying before, it is water resistant and it actually maintains brightness over time, which is actually addressing some of the key quality barriers consumers associate today with all silver jewelry. And these benefits matter a lot, because our jewelry is worn every day. We've been talking with consumers, and we have conducted a lot of consumer studies and that actually showed that platinum-plated jewelry is actually to perform at par with silver products. But most importantly, platinum itself is cited by consumers as the second most valued precious material after gold. So, while we are doing that, which is very important as well in addition to offering better consumer benefit, this fully preserves Pandora craftsmanship. Pandora design language, and also, the fact that we can continue to use our hand finished technique. So basically, they allow us to continue to deliver the quality in line with our brand DNA. Now, I'm going to let Andres to go through the financial implications in more detail. But let me tell you that strategically, this evolution is fundamental. As you can imagine, by reducing exposure to silver price volatility and enabling a more predictable cost structure, this is helping to protect our future proof our business model, which is actually reinforcing our ability to deliver meaningful high-quality jewelry at accessible price over the long term. So, this was the main area that I wanted to deep dive with you. And I think now it's a good time to move into guidance for 2026. S,o if you can please put the next slide. So, what can you expect from us for 2026? We are targeting organic growth of minus 1% to 2%. Now this comprises like-for-like growth of minus 3% to 0% and therefore, a network expansion of 2%. Now the like-for-like growth is clearly lower than what I would have liked to deliver in any given year. But of course, we have a few reasons for that. First, we actually do not expect any support from the macroeconomic backdrop right now. It's an uncertain consumer backdrop. We also -- we see the need to step change execution in the few areas that I have just spoke about. Now on the EBIT margin, Anders will give you more detail, but we are targeting 21% to 24% this year. You can read it in a different way. Basically, this is about flattish versus 2025 when we're actually excluding the external headwinds that we are facing. Another way to look into this is that we are continuing to invest in our business while we are retaining high margins. Now regarding current trading, so far this year, we are currently around flat like-for-like growth. With this, I will now hand over to Anders to talk through the details of the guidance. Anders Boyer-Søgaard: Thank you. On the organic growth, we have already commented on the overall metrics of the revenue guidance. So, I just want to comment on the first purple building block here, the network expansion. We expect a 2 percentage point contribution to revenue growth in '26. There's no doubt that network expansion is still financially very attractive. But in this year, in 2026, we have decided to redirect more focus and resources towards reaccelerating like-for-like. And we will therefore see a somewhat lower growth contribution from network expansion than last year. Next slide, please. On the EBIT margin, the key message I want you to take away here is that we expect the margin to be broadly flat when you exclude the significant external headwinds that we are facing. And you can see in the dotted box in the bridge that we will be facing between 250 and 350 basis points of headwinds this year from the combination of commodities, tariffs and foreign exchange. The introduction of platinum-plated jewelry help offset these headwinds from '27 and onwards, but it will have a quite limited P&L impact specifically here this year. I also just want to update you on 2 of the building blocks in the bridge because they have moved since we last spoke about the '26 EBIT margin back in November. And as a reminder, we said back then that the EBIT margin this year would be around 23% based on a silver price of back then $48. So first, on the commodities. We previously said that the P&L is at least 75% hedged on silver and gold for 2026. And we can now confirm that we are, in fact, between 90% and 100% hedged, which is good news. And the reasons are partly business and partly technical. On the business side, we do see continued growth in the share of business from our plated products. And on top of that, we keep shifting to designs that are less silver heavy. And on the more technical side, we have revisited the forecasting assumption on how silver consumption is flowing through from initially buying silver as a raw material and then through production and then through inventories before being sold. And all of this means that the hit from commodity prices is only between 150 and 250 basis points, as you can see in the bridge. The second bucket I wanted to update you on is the tariffs. And this is a little bit technical as well. Tariffs in the U.S. are paid based on the production cost in Thailand. And as our hedging gains sits in Copenhagen, this means that the production cost in Thailand is based on spot silver prices and not the hedge prices. So, with silver prices increasing significantly since November, the negative impact from tariffs year-over-year is now 150 basis points versus around 60 basis points back in November. You can also see in the bridge that the net operating leverage is flat 0. And underneath that lies that we do keep investing in reaccelerating like-for-like growth. We will not be compromising on that. And then we offset those costs as well as annual inflation and annual salary increases through cost efficiencies as part of the Silverstone cost program. Next slide, please. So now let's look a little bit further out and then look at the EBIT margin in 2027 as well as in the midterm as we transition a part of our business to be platinum-plated. Before talking numbers, I just want to repeat what Berta mentioned earlier on. Platinum plated is, first of all, a great proposition for consumers fully aligned with the Pandora DNA. That is the important starting point. And in that context, the lower production cost is almost just a nice side effect. But what does that then mean for the financials? First of all, after the transition to platinum-plated, then Pandora's P&L and margin exposure to commodity prices will reduce significantly. And that's because the exposure to silver will decrease far more than the exposure to platinum will increase. With platinum-plated crafting, the lower commodity exposure will be partly offset by higher labor cost as it will require more crafting time to work with platinum and plating. But of course, labor cost is a more stable and predictable element than commodities. So, a few more high-level comments to help you understand what we are doing from a numbers perspective. In very round numbers, we will reduce the silver exposure by 80% with this transition. The first 30%-ish percent will be done next year, 2027. The next 20 percentage points-ish in 2028 and then the remaining 20% thereafter. The silver exposure, which remain in place is around 20% of the current exposure and is mainly related to the part of the assortment which will remain being crafted in silver. On the part of the assortment that we convert to platinum plated, the midterm aim for us is to get to a production cost which is in line where we have been operating during the last few years with silver at $30 and below. And thereby, we will be getting to the same gross margin. Initially, the gross margin will be a bit lower and then improve as we scale, learn and optimize. But of course, the gross margin will be much better all the way from the outset than at current silver prices. While we reduced the silver exposure, we obviously get some platinum exposure going forward, but it's far less than what we used to have on the silver exposure. And again, in very round numbers, you can think of it like this. When we reduce the silver exposure by DKK 5 to DKK 6 or $5 to $6, then the platinum exposure goes up by DKK 1, and that's roughly the equation and how to think about it. So, this means that with this transition, Pandora will remain a structural high-margin company. And you can see that on the slide here to the far right, where we show that we expect to get to more than 21% EBIT margin in the midterm. And that 21% EBIT margin is based on a silver price of $82 and tied to a margin of above $21, our free cash flow generation will, of course, remain high as well. So, in essence, this means that there will be no fundamental changes to our business model. And now you will ask about when, what does midterm actually mean? And it will take us a few years to get there, and that's probably as precise as we can be at this point in time. The transition as such of a relevant assortment from silver to platinum-plated will be finalized during 2028. But before we get production scaled, optimized, fine-tuned to the level where we will be hitting the above 21% EBIT margin, we need a little bit more time than 2028. But we will, of course, keep you updated. Now on '27 specifically, the starting point on how to think about that is the guidance that we've given for this year of 21% to 22%, as you can see to the left in the bridge. And at the current silver and gold prices, we have 11 percentage points of headwind next year as a starter as the hedging runs out. In 2027, we expect to be able to transition half of the targeted silver-based assortment into platinum-plated. And this gives us enough margin uplift to keep the EBIT margin next year in '27 above 14 at a silver price of $82 before the one-off transition cost. And the transition cost, that includes some deleverage on our own crafting side as we initially use OEMs to some extent, and there will also be some remelt costs and other one-off costs. And including those transition costs -- one-off transition costs, the EBIT margin next year will be at least 12%. And finally, we would like you to note that there will be around DKK 600 million in one-off capital expenditure that we need to reconfigure our crafting site DKK 300 million, DKK 400 million, DKK 500 million of that is expected to be invested already this year. Next slide, please. Well, you all know that high cash returns have been a part of the Pandora story for over a decade. And that includes last year as well where we returned almost DKK 6 billion in cash. And since the IPO, we have been running share buyback programs consistently and bought back 41% of the shares. And significant cash distribution will remain an important part of the financial algorithm going forward, but with a temporary lower distribution as we go through the transition to platinum-plated jewelry and mitigate the impact from the higher silver prices. As we announced yesterday evening, the proposed dividend to be paid in '26 is DKK 22 per share, and that's up 10% year-over-year from DKK 20 last year. And just to repeat this important message, we do not see any fundamental changes to our business model. So, with the transition to platinum-plated, we will remain a high-margin and high cash-generating company with an annual increasing dividend and with excess cash to launch a sizable annual share buyback program. And in other words, that means that once our plans to transition to platinum plated is further progressed, we will resume our share buyback programs. And with that, I'll hand it back to Berta. Berta De Pablos-Barbier: Thanks, Anders. So, thank you all for listening so far. I just want to conclude by highlighting just a couple of things. Like-for-like is definitely not where we want it to be right now and not where I think this brand can deliver. We know why we are in this situation, and we know where to act with decisiveness and speed. We are taking decisive action already to get back on track. We will become a design-led company that uses design to drive desire. Then, we will use our strong marketing muscle across more channels to amplify. Today, we have announced our latest new innovation, the introduction of platinum-plated jewelry. This is a highly attractive consumer proposition with a gradual rollout starting in 2026. The world keeps changing. The macro remains uncertain, but we are adapting and we are moving quickly. 2026 is shaping to be a transition year for Pandora. But I do want to emphasize that we see no fundamental change to the Pandora business model. We expect midterm EBIT margins to be over 21%, and the business will continue to generate significant free cash flow. And with that, I think we can open for Q&A. Operator: [Operator Instructions] The first question is from the line of Chiara Battistini from JPMorgan. Chiara Battistini: I have 2 questions, one on 2026 and then one on the transition to platinum-plated. On the guidance for full year '26 like-for-like between minus 3% and flat. I was wondering, if you could provide us with a bit more color on how you think about that by region and notably your assumption for North America embedded in the minus 3% to flat. And then on the transition to platinum-plated, I was wondering if you could share a bit more color on how you're thinking about the communication to the consumer as you will approach the launch and the transition, how you're going to -- really the messages that you're going to try to push to the consumer. And how to think also about the pricing these new products versus the traditional silver offer? And actually, just a follow-up on platinum. Are you going to start hedging platinum now or not? Anders Boyer-Søgaard: Thank you, Chiara, for those questions. I will not go into too much detail on the performance by region. But yes, I think I'll probably just leave it at that. The -- maybe while I'm speaking on the platinum hedge, we will be hedging that exposure is not going to be very big, but we will hedge that in line with our normal hedging policy for silver and gold. Berta De Pablos-Barbier: Thanks, Chiara. And yes, what we'll be communicating to consumers is what is more appealing to them. And what is appealing to them is that we are launching platinum-plated jewelry. Consumers consider today to be a -- platinum to be high quality. We know -- they know it's a precious metal. And something that we will be emphasizing as well is the superiority performance for everyday wear, which is something they truly care about. The fact that it's tarnish-free, et cetera, everything I just mentioned before. We've done extensive consumer testing, of course, of this product, as you can imagine, and we know that it will be well received. Regarding pricing, what the consumers accept today is that it can be priced as our silver prices are today. So, one by one, basically equivalent. Chiara Battistini: And just to follow-up on the like-for-like for 2026, I push my luck. Any indication on whether we should be thinking about North America sort of in line with the group level or any reason why to think that the performance should be different? Bilal Aziz: I think, Chiara, you can assume it will be broadly within that range of 0 to minus 3, it's 1/3 of our business. So, I think that's sensible. Operator: The next question is from Grace Smalley from Morgan Stanley. Grace Smalley: The first one, Berta, would just be on the product newness you spoke through. So, it sounds like you're focused on increasing the quality of the newness coming through in order to be more on top of maybe current fashion trends and becoming more relevant whilst keeping the number of SKUs constant. How do you see the opportunity for Pandora to use data insights to -- to more quickly react to fashion trends? And is there a risk that you increase the fashion execution risk of the business that could lead to potentially more fashion misses and increased discounting or how do you think about that? And the second question -- sorry, go ahead. Berta De Pablos-Barbier: No, go, go. I was going to answer. I was the first one, but why don't you ask the second question and we can just plan them? Sorry to interrupt. Carry on. Grace Smalley: Okay. Then the second one would just be for Anders on margins, just -- so over time, it sounds like you're confident to return to at least 21% EBIT margins in the medium term. Can you just elaborate further on the drivers to get from sort of the 14% adjusted in 2027, more than 21%. Thank you for the helpful slide with the margin bridge, but in particular, that last bucket on the margin bridge where you're calling out crafting optimization and other factors. Any more color you can give on that to just help us see how you rebuild to that 21% would be helpful. Berta De Pablos-Barbier: Yes. I'll start with the first question. I think let me step back a little bit. It's very important to say that the fact that you want to be a brand that is on trend, it doesn't mean that we will be chasing trends. And it's a very subtle distinction here. Pandora is not going to become something that is chasing the latest trend, but that doesn't mean that we can be behind either. So something that Pandora has been very good at, and we will continue to be is very data-driven and consumer insights, and that is not going away. What we are adding, and I talked about in the call about bringing Philippa as the Chief Product Officer, but we are also asking Stephen Fairchild, which has an extensive knowledge of the industry and cultural relevance to be there understanding what is culturally relevant and what is on trend. So I think this is the move that we are doing. And as you rightly said, this doesn't mean launching more. As I show in this chart, we've been doing a little bit more of the same. I talk about distinctive newness, if there is any doubt about what that can be, it means that when you look about 1 year after the other, you should be able to see that there has been some change in the products that we brought from the previous year. And that is what we've been having been very good in all the collections, and that's what we are looking forward. So, it's about bringing uniqueness that is worth talking about. Anders Boyer-Søgaard: And on the other question, Grace, I'm sitting here looking at Slide 24 in the investor presentation as getting from the at least 12% next year to 21%. So those 9 percentage points, if I just briefly comment on that and especially the last one. The first 2 transition costs, they stop, okay, then we get from above 12% to above 14%. The second -- the next one, the transition of the remaining assortment is pretty straightforward, that's another 4 point-ish uplift on the margin. That's simply doing the rest of what we already do in 2027, converting that from silver to platinum-plated. And then really getting to your question, the last 3 points in the last bucket that sits there, there's 3 bigger elements. One is that, we have been perfecting for years to produce in silver. Now, we're moving into platinum-plated, and we'll probably be a little bit inefficient in the beginning or we will be, and then we will get smarter and smarter as the days, months and quarters go by. That's one element in it. We will -- when we get out of '27, still be using OEMs to some extent. So, we will get that in-house afterwards at a cheaper cost that sits in that bucket as well. And then within the -- there will also be some continued optimization of what sits in the EVERSHINE core alloy over time that will come and sit in that bucket as well. So it's all something that we have quite some visibility on how it's going to play out. Grace Smalley: Okay. And just one follow-up, if I may. On the -- you mentioned how the composition of COGS will shift away from raw materials more towards labor. Is there any way to think about -- I think it's roughly 40% of your COGS in 2025 was related to raw materials and silver was around 30% of that. If you -- as you get more towards that medium-term 21% EBIT margin, how should we think about that composition of COGS and the percentage of that, that you expect to be raw materials versus labor over time? Anders Boyer-Søgaard: If -- if okay, Grace, if I focus on answering the question on specifically on the products that we are converting from silver to platinum-plated, then roughly what -- how it's going to work out is that -- on that part of the assortment, then commodities, that's silver then in the past few years have been around 50% of the cost of goods sold and labor have been 1/3, 33%, 34% of the cost of goods sold and then the remaining 15%, 16% is sort of all other stuff. Then now as of today, silver is at a much higher price. So that 50% on silver commodities goes to 75%. That's roughly how to think about it. So that's our starting point that today when the hedging runs out, silver will be 75% of the COGS on the part of the assortment that we are converting. Now then we get into platinum-plated EVERSHINE, then that 75% being commodities drops to 25%. So, it goes down by 2/3. On the other hand, labor will go -- will be around 50% of the production cost in -- when we get to platinum plated EVERSHINE. So, I hope that makes sense. A lot of numbers here. I'm throwing at you, but I hope you can make sense of it. Operator: The next question is from the line of Mr. Chauvet from Citi. Thomas Chauvet: I have 2 questions. The first one on generally the platinum-plated move. A few questions, if I may. Just to confirm, so silver and platinum-plated products will be sold at the same price in '27 and as long as you sell silver. What is your anticipated mix of revenues if we look far out beyond '27 between silver, gold-plated and platinum-plated relative to 75% silver, 25% gold-plated today? And just so I understand, are you intending to entirely replace the silver offering by platinum-plated in the future? And if Platinum was a superior customer proposition with better economics for Pandora, any reason why it hasn't been done before? Could you perhaps talk about the main disadvantages you see of platinum relative to silver? I understand clearly the appeal and the advantages, but any difficulties that you see? And secondly, on like-for-like, just a follow-up on Chiara's questions earlier. Given your LFL guidance for the year is minus 3% to flat at the midpoint, it implies some deterioration from current trading, which is flat despite easier comps you're getting from Q2. So, what's driving this maybe more cautious outlook. Are you seeing perhaps signs of broader jewelry consumption fatigue, any brand-specific factor? You talked a little bit about design, Berta, earlier. And should we expect any particular region to be under more pressure than it was in Q4 January? Berta De Pablos-Barbier: Okay. So let me start with your 3 questions under question number 1, but I will address them all. So, on platinum-plated, when we'll be introducing in 2026, the first platinum-plated and even in 2027. The intention today is that they are at the same price that silver is today. Having said that, what will happen with our silver portfolio, that's something that we have to monitor carefully because silver price are increasing, and therefore, we cannot ignore that. The intention is not to replace our entire assortment. We will be keeping some collections on silver. So, silver will continue to be part of our basket of materials. It's just it will not be as dominant as it is today. So today, we envisage that by the time we finish the transition, 25% of our assortment will still remain in silver. If you go back to the aesthetics slide, you can assume that the sparkling aesthetics and the fine aesthetics will continue to be in silver. Why we haven't done it before? Well, if it was that easy, everybody would have done it as well. We've been working on this new metal alloy development, which started with our gold-plated products in 2011, and we have spent the last 18 months optimizing it and perfecting it so that it is better for platinum-plated. So, this metal alloy EVERSHINE has been something that has been a lot of -- the fruit of a lot of labor and high -- a lot of people working on making that possible. So now it's there. We are maximizing it. Bilal Aziz: Yes. I run the like-for-like question now basically. Thanks for the question there, Thomas. So yes, factually correct. Obviously, comps get easier through the year. I think just kind of repeating what Berta said, environment is uncertain about the early part of the year. We did obviously flag uncertainty in the Q4 release, particularly around the U.S. Let's see how that evolves through the rest of the year. And then last, but not least, just repeating what Berta has said as well, a lot of the initiatives, obviously, back end of the year, December into 2027 as well. So, the combination of those factors is what leads us to our initial thought process. Let's see how we do through the rest of the year. Operator: Next up, we have Lars Topholm from Carnegie. Lars Topholm: A couple of questions for me also. One is regarding the core of PANDORA EVERSHINE. If I look at your Golden Rose Gold, you have a Core consisting of palladium and copper and then your secret-sauce. Maybe a stupid question, but shifting to more plating, does that mean you suddenly get a relevant palladium exposure for us to consider? And then a second question, entirely different, but you're talking about a transition period where you use OEM production. And does that imply that you have to make layoffs in the production in Thailand since implicitly those crafting facilities will probably have to do less. Anders Boyer-Søgaard: Lars, I can take the first one here on the palladium exposure will go up a bit, but it's actually really tiny. So, from a commodity exposure perspective, it's palladium -- sorry, platinum, sorry, platinum, silver and gold, while the others, copper, palladium are really small. Berta De Pablos-Barbier: Yes. And on the second, Lars, let me take that one. I mean, the good thing about this EVERSHINE metal alloy is that it behaves as a metal exactly as silver in terms of the melting point, in terms of the hardness, et cetera, which means that we can continue to use the same crafting techniques that we use with silver, whether that is casting or the way that we set our stones or the way that we apply enamel, et cetera, et cetera. The plating, of course, indicates that it will be an extra step as we do today with our gold-plated product, that is the plating and the polishing of that platinum. So that is the plan. So, it's more about replacing what we have and increasing, of course, our plating capacities. We are starting already on Vietnam. And as Anders was referring before, this will be a rollout about bringing that more in-house, and it's mainly on the plating. Lars Topholm: And just a small related question to that. So the 200 bps headwind during the transition does that illustrate the margin you have to give away to OEM manufacturers? Or does it include other elements as well? Anders Boyer-Søgaard: That's a good question, Lars. There's other elements in it as well. There will be -- and that's going hand-in-hand with paying some margin to OEMs. We will also see some -- what's the right word, deleverage on our own crafting sites because we will be for a couple of some quarters producing fewer units on our own crafting site. So that sits in there as well. Then there's a little bit of scrapping of existing machines, a little bit of write-down of -- sorry, remelt of -- as we transition to -- out of silver and into platinum. But the 2 big buckets in the one-off cost transition cost is OEM margin and deleverage on our own crafting setup. Operator: The next question is from the line of Kristian Godiksen from SEB. Kristian Godiksen: A couple of questions from me as well. First of all, wondering what your view is on extraordinary price increases, especially in this market you label as a dynamic pricing environment? That would be the first question. And then the second question would be more on if you've done any or you could give some more flavor into the consumer study you made, both in terms of the differences between the ages in the consumer segment, both in terms of the newness you're contemplating, but also on the introduction of the platinum-plated products. And maybe you could also provide some commentary on the reason why in your brand funnel performance you show on your slide that the most mature segment in terms of age is sliding somewhat. Anders Boyer-Søgaard: Yes. Kristian Godiksen: I mean, mature of age, sorry, in terms of the segmentation of your consumers. Berta De Pablos-Barbier: Great. Okay. Anders Boyer-Søgaard: Yes. And maybe on pricing question, I can start out. We have included a bit of pricing in the guidance, 2% average price increase is included. So nothing extraordinary, if you will. And so how should I frame this? The silver prices and gold prices are going up quite significantly, but the competitive landscape is, as you know, very fragmented. Some players in the accessible during price points are exposed to silver like we are. Some are not at all. And then you have everything in between as well. And that means that we see that -- see and expect that pricing behavior will be very different by country. We have some markets where we see that the silver exposure is pretty much like ours. We have other markets where we see that many other players have less silver exposure than what we have. So there will be quite some differences between what other jewelry companies out there are thinking reflecting on as of today. Then, I think we also say that, this shock on commodity prices also means that the industry in itself is changing. We know that we're not the only one looking at using other metals, other materials to produce. And that -- that's what leads us to say this is going to be quite a dynamic pricing environment and where in the guidance, we assume that there will be on average 2 percentage points of average price increase. But I can't rule out that it will end up in a different way, but it's not something that we have included in the guidance, if you like. Kristian Godiksen: Okay. I guess you're mirroring what you said previously on you want to play the back end based on your hedging policy that you're hedged for the full year now for this year. And hence, I guess, you can also do a bit of wait and see on what competitors will do, and I guess we'll follow suit in terms to bring up the margin. Is that correctly understood? Anders Boyer-Søgaard: Yes. In a way -- sorry, my language, that would kind of be the lazy answer because the fact that we have been -- it's been good that we have been hedged, then that's in a way as a relevant factor on how we actually react. And when we're sitting in France or sitting in the U.S., we should look at what's the competitive landscape. So, if that gives us opportunities to increase prices, we should do that no matter whether we are hedged as not. But of course, looking at our P&L, it gives us another year of good margins before all the hedging runs out. Kristian Godiksen: But I guess -- sorry for the offset, but I guess you being a market leader in some of the countries, then I guess it would be natural that you would be the one leading such a price increase. I guess, that was -- is that a scenario as well that you would be the leader in implementing price increases? Anders Boyer-Søgaard: Of course, that's also in the relevant market, that's also one of the factors playing in how we look at it. Yes. Berta De Pablos-Barbier: Let me just take the second question. I think it was on the consumer age. So, I think a couple of things that are important to know about that is that when you look at the age segmentation, what you see is that the tendency is for to increase on the 18 to 24. We pretty much keep stable on the 25 to 40. And where we normally see declines is that the above 40. So that is a general in Pandora. Now your question was as well by collection. What is interesting is that by collection, we don't see many difference. So, I'm just going to give a couple of points on the new collections that I mentioned before, whether it's on ESSENCE or on Talisman or Minis. We see actually a very similar split on always having a majority of the younger part of the Gen Z, which about 25% of that they come to our collection. The next group is actually the Gen X, and it actually gets after lower when we get into the boomers. So very similar in terms of total Pandora and by the time that we bring newness. On the platinum-plated, we didn't see major difference on the large consumer studies that we conducted. What we did see is that it was a much higher knowledge about the different precious materials and the difference on the older consumer than on the Gen Z. So we found that the young consumers were more open to accept new materials and new metals and that we thought it was just a good idea, the best everyday wear, they were much more positive about that, but there was no barriers on the others because platinum is a precious metal. Operator: The next question is from the line of Anne-Laure Bismuth from HSBC. Anne-Laure Jamain: I have 2 questions. The first one is on EVERSHINE. So where the pilots have been conducted for the EVERSHINE? And how will you manage the perception risk around plated versus silver, especially in markets where Pandora trust was built on silver? And the second question is about cost efficiency. So, can you detail some of the biggest of cost efficiencies within the Silverstone program? Berta De Pablos-Barbier: The first question is on the pilots. Yes. So, on the pilot, we conducted that in all of our major markets. And there was no -- I mean, the consumer today is very used to gold plated products. So, there is no education needed there. They understand that it is a yellow metal called yellow gold, and they can actually buy more accessible products when they are plated. And now they understand that there is a white metal that is called platinum, which is for them is better than silver, and then we are just plating this product. So that was what actually came into that. So, actually, it is -- it was actually around nearly 25,000 participants. So, this was quite large. And as I said, it was conducted on different markets. What we also tested, and it is very important is whether that was impacting Pandora brand image, but how was impacting Pandora brand image. And everything was actually giving them much more positive impression about the Pandora brand, because it's contemporary, it's actually taking care about their needs in terms of everyday wear, as I just said, and is bringing a precious material that is highly desirable. Anders Boyer-Søgaard: Anne-Laure, on the question on cost efficiencies, there's not one big dominating bucket in the savings that are being delivered. It is spread across. But just to mention a few on store operations and store operations is obviously a big part of our P&L. There we constantly look at how we optimize store -- the roster in the stores or store staffing. The CapEx that we are spending when we're refurbishing stores, how long time is it closed down, it makes a big difference whether it's how many weeks it's closed down. And then beyond that, beyond the rental and the staffing, then you have all the small cost lines in running stores of electricity, WiFi, cleaning. Then there's been a good run on the point-of-sales material and the visual merchandising, getting those costs down. One of the single biggest buckets is crafting and supply that also through '25, and also expected going forward have been really doing well, keeping perfecting how we are producing our jewelry. Then, we have reorganized our procurement organization. And that's -- I think it's just around a year back, a little bit less than a year back, but already seeing really good results from that having a much stronger procurement muscle. Logistics is a decent piece as well where we've been looking at the distribution center footprint that has helped us also with not just reducing the logistic cost as such, but also reducing custom duties. That includes that we have opened up a distribution center in Canada that helps us reduce the custom duties as well. So many -- and it's a long list, but these are some of the areas. So I think important to say, nothing is this where we get into the gray zone of risking top line. This is all sort of tough choices, but the cost elements that are not touching what drives the top line directly. Anne-Laure Jamain: I have one additional question. So, with gold-plated jewelry, the gold rub off eventually. So what does it look like for platinum-plated, please? Anders Boyer-Søgaard: Sensitivity on gold, the gold exposure doesn't change compared to where we are today. So roughly, it's when gold moves $100, it's 5 basis points of exposure or so, yes, that's the rule of thumb you can use. Anne-Laure Jamain: Yes. But my question was more around the evolution of the product with platinum-plated over the years. So will it change because we know that with gold-plated, yes, the product can evolve. And yes, the gold contain won't be that good. So how will it be for the platinum-plated product? Berta De Pablos-Barbier: I don't understand the question, but I'm just going to -- if it's whether the designs are going to evolve with platinum-plated, the way that we are considering this is about some of them will be replacement. So, there will be no change in design. But of course, then we will be bringing more newness with platinum. If the question was about the durability of the metal, then the great thing about platinum is that it's highly durable. So silver tarnish, whereas platinum doesn't. Silver loses a little bit the brightness, whereas platinum keeps and also keeps the color. And when it age, it age, I can tell your French accents, but it's a little bit with more of a patine. So it's actually a more novel way of aging. Operator: The next question is from the line of Andre Thormann from Danske Bank. André Thormann: Just 2 for me. First of all, on the platinum-plated. Just to be sure, how flexible is this plan if silver price come back in $20 or $30 per ounce? And maybe also on the share buyback, what milestones is it you need to see on the platinum-plated in order to restart the share buyback program? And then maybe lastly, on the price elasticity, previously, you have said minus 1. Maybe it looks a bit worse now. I mean, can you give an update on where you see price elasticity? Berta De Pablos-Barbier: Okay. So let me start by the flexibility and then Anders, you can comment. So, we are not coming back. I mean, the reason why we are doing this is because we believe it's a better proposition for the consumer. And what it's doing is actually making us much less dependent in one commodity. I mean, you all know that being so dependent on only one commodity for any business, no matter which industry you play is high risk. So, this is about reducing the commodity and increasing our basket of materials. Now fundamentally, as we are not changing our crafting techniques that we could put in our facilities one or other metal that is not an impact, but it's more about why we are doing this and what is actually allowing us to do for the business. Anders Boyer-Søgaard: And then Andre, I can take the question on the share buyback, and I'll start a little bit in a different place. Our capital structure policy is to have a leverage of between 0.5 turn and 1.5 turns of EBITDA. And with the dividend that we are paying out in '26, if you do a little bit of math with the margin guidance or margin guidance we have given for '27, then you would be able to calculate that we would be slightly above the high end of that leverage range even without the share buyback next year. That's the starting point and that assuming that we land at an EBIT margin of 12%. So, I think with that, I think it was a prudent approach for us to sort of gain a little bit of time going through this transition. And then as we get further visibility on that the transition to platinum, then we will be reconsidering initiating the share buyback program. So, the trigger point is also simply a part of gaining time getting through this transition where there will be a temporary dip in EBIT, which, of course, drives up leverage. Could it be ruled out that we would do a share buyback program where we will be a little bit above the capital structure policy for some time? I guess, as long as that's sort of a clear path towards getting down towards into the leverage range. I guess that's not a stupid idea. But as of today, February 5, we think it's a little bit too early to do it. Operator: And with this, we've come to the last question from the line of Anthony Charchafji from BNP Paribas. Anthony Charchafji: This is Anthony Charchafji from BNP Paribas. Just 2 questions. The first one is very simple. It's just asking if we are going a bit more towards, I would say, luxury positioning rather than mass market. And my second question is on the project pipeline this year. So if there is any newness this year in the Core or the Fuel and also how to think about working capital and inventories in the next 2 years of transition? Berta De Pablos-Barbier: Let me start. No, there is no intention of changing the positioning of Pandora. Pandora is a desirable jewelry brand, is delivered as a desirable jewelry brand and will continue to be so. If we were moving to luxury, we might not have gone to all this hassle of changing silver because we could simply have maybe increased prices. So this is actually a move of delivering a very good consumer proposition, but actually keeping the accessible prices. So I think that is important. That is very clear. The second question was on newness on Core and Fuel with more. So let me explain a little bit how we operate at Pandora. It normally takes around 18 months from the first sketches from our creative team until we see the product in the store. So we have new team. Philippa is starting. So it's going to take us some time to shake and change and reset some of the designs that we have, specifically on our Core. We started already with some distinctiveness newness on ESSENCE and on Talisman and on Minis. So you should expect to see more of those because it was something that we started last year. And what you should expect to see more of is that we just started the year with a great collaboration with Bridgeton. We are emphasizing that to draw more attention into the products that we currently have. And of course, where you will start seeing more differences is from 2027. But we are moving with the speed and maybe by quarter 4, we'll have something more as well, but that's the situation today. Anders Boyer-Søgaard: And then, Anthony, on the question about inventories, I think the way to think about it is 2 phases. or maybe 3 phases, even there's a phase between now and this summer where we have hedged all the purchases of silver at a low price, just above $30. Then that's Phase 1, so to speak. Then Phase 2 will be in the second half of this year where we have not hedged at this point in time, the purchasing of silver. The P&L is hedged, but not the purchasing of new raw silver. That will then happen at the spot prices. So there will be a period of time where inventories will be going up because of that. And then the third phase is that we will start using less silver step by step by step as we convert to platinum. And that's then Phase 3 that eventually will end that inventories haven't modeled that all the way through, but be at the levels where they were historically, maybe even a little bit lower because we have the overall commodity exposure will go down. So we don't need as much of commodity inventories. But for this year, specifically, if we look at it from a calendar year perspective, the cash conversion will be impacted by inventories ending the year higher because we will be sitting with silver on the inventories, as of today, just around $80 per ounce. I hope that helps. Bilal Aziz: Brilliant. On that note, thank you very much for taking the time. And any questions do follow up with Investor Relations. Thank you.
Operator: Ladies and gentlemen, thank you for joining us, and welcome to the MDU Resources Group, Inc. Year-end 2025 Earnings Call. [Operator Instructions] I will now hand the conference over to Brent Miller, Treasurer. Brent, please go ahead. Unknown Executive: Thank you, Kevin, and welcome, everyone, to the MDU Resources Group Year-end 2025 Earnings Conference Call. You can find our earnings release and supplemental materials for this call on our website at mdu.com under the Investors heading. Leading today's call are Nicole Kivisto, President and Chief Executive Officer; and Jason Vollmer, Chief Financial Officer of MDU Resources Group. During today's call, we will make certain forward-looking statements within the meaning of the federal securities laws. For more information about the risks and uncertainties that could cause our actual results to vary from any forward-looking statements, please refer to our most recent SEC filings. I will now turn the call over to Nicole for her remarks. Nicole? Nicole Kivisto: Thank you, Brent, and thank you, everyone, for joining us today and for your continued interest in MDU Resources. 2025 was our first full year as a pure-play regulated energy delivery business, and I am extremely proud of our team's performance. This morning, we reported 2025 earnings of, [ $190.4 million ], or $0.93 per share, which was in the middle of our earnings per share guidance range. In 2025, we deployed $792 million of capital, advancing key projects, we made meaningful progress on the regulatory front and delivered record results at our pipeline business. In addition, our utility experienced combined retail customer growth of 1.5% when compared to 2024, which is within our targeted annual growth rate of 1% to 2%. Included in our $792 million of capital investment was the 49% ownership interest in [ Badger ] Wind Farm, which was acquired and placed in service on December 31, 2025. This project, along with other capital investment placed in service at our utility resulted in utility rate base growing 16% year-over-year. Our 2026 through 2030 capital investment plan released last November had included the acquisition of Badger Wind in 2026, with the expectation that final payment would occur in 2026. We were excited to close the transaction earlier than planned and at our ownership share of this cost-effective energy resource to our diversified generation portfolio. As such, we have revised our 2026 through 2030 capital investment plan to $3.1 billion, which is reflected in the table in our earnings release. As I mentioned, 2025 was an active year on the regulatory front, which not only was a benefit to 2025 results, but should also set us up for future growth as we continue to execute on our capital investment plans. We filed for recovery of the Badger Wind Farm investment in North Dakota through an updated renewable resource cost adjustment on October 31, 2025. The North Dakota Public Service Commission approved the cost adjustment on January 26 of this year. We also filed an out-of-period update in South Dakota to the infrastructure rider on October 31, 2025, reflecting recovery of the Badger Wind Farm. We filed an electric general rate case in Montana on September 30, 2025, which also included recovery of Badger Wind Farm, along with other investments made since our last regulatory proceeding in 2023, as well as increased operating costs. The Montana Public Service Commission has 9 months to rule on the case. We had requested interim rates to be effective January 1, 2026, however the Montana PSC denied the interim rate relief. We subsequently filed a request for reconsideration of [indiscernible] rates on December 26 last year. The request for reconsideration went before the Montana PSC on February 3, however, no action was taken. In our Wyoming Electric case, the settlement agreement was filed with an annual increase of $5.8 million in a stipulation to withdraw the requested reliability and safety rider. Rates are anticipated to be effective April 1, 2026. The final item I would like to comment on regarding the electric side of the business would be on the filings of our wildfire mitigation plans in the states of North Dakota, Montana and Wyoming, and those were filed late in December. On the gas side of the business, our natural gas general rate case settlement agreement in Idaho was approved on December 30 for an annual increase of $13 million with rates effective January 1, 2026. In the state of Washington, our second year rate increase from our multiyear rate plan will go into effect on March 1, 2026, reflecting an increase from rates currently in effect of $10.8 million annually, subject to the completion of a provisional plant review. We also did file a general rate case in Oregon on November 25, 2025, with rates anticipated to be effective October 31, 2026. Moving on to the data center front. We currently have 580 megawatts of data center load under signed electric service agreements. Of that total, 180 megawatts have been online since May of 2023, with an additional 100 megawatts ramping online currently, an additional 150 megawatts expected online later this year and the remaining [ 150 ] expected online in 2027. Our current approach to serve these large customer opportunities is with a capital-light business model, which not only benefits our earnings and returns, but also provides cost savings to our other retail customers through a lower transmission allocation and margin sharing. We continue to pursue additional discussions with potential data center customers. Should these discussions progress to signed agreements, we would consider investing capital into new generation, transmission and related assets to serve the increased load. Aside from data center load, we also continue to evaluate other potential capital projects related to safely and reliably meeting existing customer demand, as well as grid resiliency. At our pipeline segment, we continue to make progress on required surveys for our Line Section 32 expansion project, which will provide natural gas transportation service to electric generation facility being constructed in Northwest, North Dakota. We anticipate filing our FERC application in March of this year for this project and are targeting construction to be complete in late 2028. We also signed an agreement to support the early-stage development of the potential [indiscernible] industrial pipeline project through the second quarter of 2026. This project could consist of an approximately 90-mile pipeline from [ Tioga ], North Dakota to [ Minot ], North Dakota and provide incremental natural gas transportation capacity for anticipated industrial demand. We will continue to provide updates as this project progresses. In regard to our proposed Bakken East pipeline project, the FERC prefiling request was submitted December 23, 2025. A binding open season began on February 2 of this year and will close on March 13. The company continues contract negotiation with several interested parties. Pursuant to the results of the open season and these negotiations, we would look to confirm the final design of the project in order to make a final investment decision. Upon that decision, we would plan to make our FERC 7C filing and update the market on any relevant changes to our capital investment forecast as well as growth targets. As a reminder, projected in-service dates for the proposed projects are late 2029 for the Western portion, and late 2030 for the eastern portion of the pipeline. This project would provide natural gas transportation service for additional industrial, power generation and local distribution companies to meet growing demand, and also provide much-needed takeaway capacity to meet forecasted natural gas production growth in the Bakken region. This project is not currently in our 5-year capital forecast and would be incremental should we determine to proceed. As we look to finance a project of this size and scope, we will evaluate all options, including using our balance sheet to finance the project, pursuing potential partnerships and various other options. We will continue to provide updates on this potential project as we learn more. As we look forward to 2026, we are initiating earnings per share guidance in the range of $0.93 to $1 per share. This range reflects continued strong performance across our segments, while also accounting for equity financing used for our growth projects. We remain confident in our ability to execute our long-term growth strategy and believe our operational focus and financial discipline continue to position us well for delivering safe and reliable energy, customer value and strong stockholder returns. We also continue to anticipate a long-term EPS growth rate of 6% to 8%, while targeting a 60% to 70% annual dividend payout ratio. As always, MDU Resources is committed to operating with integrity and with a focus on safety. We remain dedicated to delivering value as a leading energy provider and employer of choice. Before I turn over to the discussion to Jason for the financial update, I want to close with a thank you to all of our employees for their hard work and dedication as we worked through a very successful year. Throughout 2025, our employees work tirelessly to ensure our customers received safe and reliable energy, while also executing the significant milestones I noted and countless other projects. We could not be successful without these efforts. I will now turn the call over to Jason for the financial update. Jason? Jason Vollmer: Thanks, Nicole. I'm excited to share our results for 2025. This morning, we announced our full year earnings of $190.4 million, or $0.93 per share compared to 2024 earnings of $281.1 million, or $1.37 per share. It's important to note that certain costs associated with the spin-off of Everest in October of 2024, as well as its historical results of operations are reported in discontinued operations in our results. 2025 income from continuing operations was $191.4 million, or $0.93 per share diluted, compared to $181.1 million, or $0.88 per diluted share in 2024. As we turn to our individual segments, our electric utility reported earnings of $64.9 million, compared to $74.8 million in 2024. Higher retail sales revenue and volumes positively impacted results for the year but were more than offset by higher operation and maintenance expense, primarily from higher payroll-related costs, higher contract services related to electric generation station outages, higher software expense and higher insurance expense. Our natural gas utility reported earnings of $56.1 million, compared to $46.9 million in 2024, which is a 19.6% year-over-year increase. This increase was driven primarily by higher retail sales revenue largely from rate relief across multiple jurisdictions, including Washington, Montana, South Dakota and Wyoming. Higher operation and maintenance expense, primarily higher insurance, payroll-related costs and software expenses partially offset the increase. Our pipeline business posted record earnings of $68.2 million in 2025, which compares to $68 million last year. The slight increase in earnings was driven by expansion projects placed in service throughout 2024 and late in 2025, and customer demand for short-term firm transportation contracts. Increase in earnings was partially offset by higher operation and maintenance expense, primarily due to payroll-related costs. The increase was further offset by the absence of proceeds received in 2024 from a customer settlement, as well as the absence of a benefit from an adjustment related to a rate change in the company's effective state income tax rate, which together totaled about $2.7 million benefit in 2024. Higher depreciation expense due to capital investments and higher property taxes, primarily in Montana, further offset the increase in earnings. As I noted earlier, the spin-off of Everest was completed on October 31, 2024. Activity for the 10 months that Everest was part of MDU Resources is accounted for in discontinued operations in other as shown in our press release. The results shown in other for 2025 are expected to be more reflective of our future expectations as activity from our strategic separations fall away in future periods. Corporate and overhead costs that were previously allocated to Everest are now allocated to the remaining business segments. Finally, MDU Resources continues to maintain a strong balance sheet and have ample access to working capital to finance our operations through our peak seasons. In December, we completed a follow-on public offering of just over [ 10.15 ] million shares of common stock at a public offering price of $19.70 per share. In addition, the underwriters exercised their option to purchase approximately 1.5 million additional shares of common stock. Pursuant to forward sales agreements entered into in connection with the offering, the company has discretion to settle the forward sale agreements on one or more settlement dates prior to December 6 of 2027, subject to certain price adjustments as set forth in the forward sale agreements, as well as adjustments for transaction and other associated fees. Roughly 11.7 million shares of common stock are expected to meet all of the company's 2026 equity issuance needs to fund growth and a significant portion of 2027 equity needs as well. As a result of the [indiscernible] Wind Farm acquisition that closed right at year-end, our consolidated debt-to-capitalization ratio increased slightly to 49.1% debt as a percentage of our total capitalization. We expect to reduce this percentage as we settle the forward sale agreements from the follow-on offering that we completed in December. That summarizes our financial highlights for the year. We appreciate your interest in and commitment to MDU Resources and would ask that we now open the line for questions. Operator? Operator: [Operator Instructions] And your first question comes from the line of Julien Dumoulin-Smith with Jefferies. Unknown Analyst: This is [ Tanner ] on for Julien. Maybe first here on the '26 guidance, just eyeballing the math here. If you delivered even just 6% EPS growth year-over-year, you'd kind of be towards the top end of the EPS range for the year. What are the year-over-year headwinds embedded in the guidance formally? Jason Vollmer: Yes. Thanks, Tanner. Happy to jump in and walk through that. So as we look at the growth that we saw in 2025, certainly tell you with how we finished the year on that front. As we look forward into 2026 and look at the guidance there, long-term guidance range, we do push a 6% to 8% guidance range that we expect -- 6% to 8% EPS growth rate over the long term. And I think as we've said before, we will have years where we exceed that, and we will have years where we probably don't meet that full amount. As we look into 2026, we've got a lot of exciting things underway. We've got a lot of rate case activity in front of us here, which we will see some partial impacts from throughout the year. In the addition of the Badger Wind Farm as we see in 2026 will be a benefit here as well. Certainly, some of that growth has taken some equity issuance on our side as well. So we do see some impacts of that as we look for that piece of it. But overall, as looking at 2026, we are expecting growth as we look at from that perspective, the midpoint of our range would show growth over where we ended this year. To your point, if you look at the midpoint of the range, it probably doesn't meet that 6% to 8% long-term range that we've talked about, but we are certainly over the long term, expecting that, that will hold true for us over the next several years. Unknown Analyst: Appreciate that. And can you elaborate on the continued contract negotiations with several interested parties for the Bakken East pipeline? And I see on the slide you provided the path toward FID, but there aren't any formal dates attached. Could you maybe help set a rough expectation for how we should be thinking about some of the more important parts of the process like FID and then formally -- formal integration into the CapEx plan? Nicole Kivisto: Yes, absolutely. So kind of what I hear you asking is how do we articulate next steps as it relates to Bakken East. And as we disclosed in the script and otherwise, we've got the open season out publicly right now. So that goes through March 13, or mid-March. And so as we think about the binding open season, it's probably a little bit too early to discuss results coming out of that. As you know, we've been in ongoing discussions with customers on the project and are certainly pleased with the level of interest we're seeing. We like our strategic location. As a reminder, this is really a demand pull type of project versus producer push. And so you're really getting to, how do we continue to advance this? And so the open season I mentioned, we will continue with discussions to get committed interest. Following that we would look to finalize the ultimate design of the project, execute customer agreements, and then essentially at that juncture, we prepared to make a final investment decision on the project. We did do our prefiling with FERC in December of last year. In that filing, we also included some time lines as it relates to a final 7C with FERC in the third quarter of 2026. So those are kind of the time lines we're looking at right now, but certainly continue to be pleased with the level of interest and the discussions we're having with customers. Operator: [Operator Instructions] I see no further questions at this time. I will now turn the call back to Nicole Kivisto for closing remarks. Nicole Kivisto: All right. We want to thank you all again for joining us today, and I want to thank our employees again for a successful 2025. We certainly appreciate your interest and support of MDU Resources and look forward to connecting with you as we progress throughout 2026. With that, I will turn the call back over to you, operator. Operator: This concludes today's call. Thank you for attending. You may now disconnect.
Operator: Welcome to Impinj, Inc.'s Fourth Quarter and Full Year 2025 Financial Results Conference Call and Webcast. All participants will be in a listen-only mode. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on a touch-tone phone. To withdraw your question, please press star, then two. Please note, this event is being recorded. I would now like to turn the conference over to Mr. Andy Cobb, Vice President, Corporate Finance and IR. Please go ahead, sir. Andy Cobb: Thank you, Nick. Good afternoon, and thank you all for joining us to discuss Impinj, Inc.'s fourth quarter and full year 2025 results. On today's call, Chris Diorio, Impinj, Inc.'s founder and CEO, will provide a brief overview of our market opportunity and performance. Cary Baker, Impinj, Inc.'s CFO, will follow with a detailed review of our fourth quarter and full year 2025 financial results and first quarter 2026 outlook. We will then open the call for questions. You can find management's prepared remarks, plus trended financial data on the Investor Relations section of the company's website. We will make statements in this call about financial performance and future expectations that are based on our outlook as of today. Any such statements are forward-looking under the Private Securities Litigation Reform Act of 1995. Whereas we believe we have a reasonable basis for making these forward-looking statements, our actual results could differ materially because any such statements are subject to risks and uncertainties. We describe these risks and uncertainties in the annual and quarterly reports we file with the SEC. We do not undertake and expressly disclaim any obligation to update or alter our forward-looking statements except as required by law. On today's call, all financial metrics, except for revenue, or where we explicitly state otherwise, are non-GAAP. All balance sheet and cash metrics, except for free cash flow, are GAAP. Please refer to our earnings release for a reconciliation of non-GAAP financial metrics to the most comparable GAAP metrics. Before turning to our results and outlook, note that we will participate in the Barclays 43rd Annual Industrial Select Conference on February 17 in Miami, Susquehanna's 15th Annual Technology Conference on February 26 in New York, and the 2026 Tanner Global Technology and Industrial Growth Conference on March 11, in New York. We look forward to connecting with many of you at those events. I will now turn the call over to Chris. Chris Diorio: Thank you, Andy. And thank you all for joining the call. 2025 was a tough year for our industry. Tariffs, and tariff-related supply chain whipsaws, inventory reductions at every layer of our retail markets, a downward trend in apparel imports, and protracted general merchandise adoption all weighed heavily on the RAIN market. It was also a transition year for us. We grew year-over-year endpoint IC volumes by 9%, believe we gained endpoint IC market share, made M800 our volume runner, launched Gen2X, and proved it to be a must-have for solution success. We drove Gen2X-enabled solutions at multiple Lighthouse accounts, helped plant the seeds for accelerating food adoption, and exited the year with record adjusted EBITDA and cash. I am very pleased with how our team rose to meet the challenge. Looking into 2026, we see in the first quarter, a confluence of order timing, ongoing retailer inventory burn-down, product transitions, and a super seasonal systems decline due to project timing, driving revenue lower. Looking just a bit further out, we see conditions improving as endpoint IC volumes rebound, and growth returning as our investments in seeding new opportunities and our solutions focus pay off. Starting with first quarter endpoint ICs, like last year, our second large North American supply chain and logistics end user significantly shifted their label supplier allocations. Partners that anticipated share gains ordered ahead in the fourth quarter, whereas those with share losses are reducing inventory in the first. Additionally, we are quickly pivoting to a custom-built endpoint IC for that end user which I'll describe shortly, causing a further temporary dip in endpoint IC orders as partners reduce prior product inventory while we ramp volumes of the new IC. Second, we see apparel retailers reducing stock and under-buying demand, impacting our first quarter outlook. And finally, food volumes remain modest in the first quarter. Turning to our expectations as we exit the first quarter, I'll start with that custom endpoint IC. Think of it as an ASIC, developed with the end user tightly linked to their and our platforms, with added features like label authentication, that solve key business needs, while also eliminating unneeded features. They plan to fully switch to it this year. The EIC also opens new opportunities for them to unlock and for us to participate in new outward-facing customer accounts. Second, we see endpoint IC demand for apparel normalizing as soon as the second quarter. Third, we see general merchandise growing as existing categories add SKUs, and new categories get added. Fourth, we see food rollouts expanding to more stores. And finally, we see our solutions efforts opening major new accounts. To speed our pivot to solutions, we recently added Chris Hundley as an executive vice president for enterprise solutions. Chris adds significant software and solutions talent to our team. We are also doubling down on Gen2X as a solutions enabler. Added EM Microelectronic as a Gen2X licensee, and are forging close Gen2X partnerships with leading ecosystem players. We not only see Gen2X increasing the performance and feature gap between M800 and its competition, but also see it as an essential toolkit for enterprise solutions. And we have a growing pipeline of solutions opportunities. We expect our solutions efforts to drive endpoint IC volumes and share, reader and reader IC revenue growth, and in time, meaningful software revenue. And perhaps most importantly, a selling model that focuses on solution value rather than individual components. Of course, even as we pursue solutions, we remain keenly focused on our current products. In retail apparel, multiple new end users are talking openly about RAIN adoption. We are pursuing wins with them as well as further share shifts with existing retailers. In general merchandise, we see 2026 as the year that unlocks key new logos and current use cases, add significant new ones, and drive the IC volume goals. On the competitive front, we see Gen2X driving additional opportunities to us. In food, we see a ramp through 2026 led by bakery with proteins to follow. And although food volumes remain modest, the opportunity is staggeringly large and we intend to lead and win it. Overall, we see industry endpoint IC volumes rebounding from an uninspiring 2025 as these growth factors layer on with our leading market share driving an outsized portion of those volumes to us. We see our solutions revenue expanding, notably as our Lighthouse end users outperform their peers, and pull us into opportunities. And in all, we expect our focus on hitting solution price points where the ROI pencils out for the end user to pay off handsomely. Before I turn the call over to Cary for our financial review and first quarter outlook, I'd like to again thank every member of the Impinj, Inc. team for your constant effort driving our bold vision. As always, I feel honored by my incredible good fortune to work with you. Cary? Cary Baker: Thank you, Chris, and good afternoon, everyone. Fourth quarter revenue was $92.8 million, down 3% sequentially compared with $96.1 million in third quarter 2025, and up 1% year-over-year from $91.6 million in fourth quarter 2024. 2025 revenue was $361.1 million, down 1% year-over-year compared with $366.1 million in 2024. Fourth quarter endpoint IC revenue was $75.2 million, down 5% sequentially compared with $78.8 million in third quarter 2025 and up 2% year-over-year from $74.1 million in fourth quarter 2024. Endpoint IC revenue slightly exceeded our expectations driven by Pern's orders. M800 was the volume runner with unit volumes increasing sequentially. 2025 endpoint IC revenue declined 2% year-over-year driven by the factors Chris already noted. Looking to first quarter, we expect endpoint IC revenue to decline sequentially at a high teens percentage rate driven primarily by supply chain and logistics channel inventory reductions, retail weakness, and to a lesser extent by annual endpoint IC price reductions. Fourth quarter systems revenue was $17.7 million, up 2% sequentially compared with $17.3 million in third quarter 2025, and up 1% year-over-year from $17.5 million in fourth quarter 2024. Systems revenue exceeded our expectations driven by NRE revenue, while reader and gateway revenue and reader IC revenue declined as anticipated. 2025 systems revenue grew 2% year-over-year with reader and gateway growth more than offsetting declines in both reader ICs and test and measurement solutions. Looking to first quarter, we expect systems revenue to decline more than seasonally, primarily due to project timing at our enterprise customers. Fourth quarter gross margin was 54.5%, compared with 53% in third quarter 2025 and 53.1% in fourth quarter 2024. The year-over-year increase was driven by higher endpoint IC direct margins, specifically from a richer mix of M800. The quarter-over-quarter increase was driven primarily by higher systems direct margins, specifically higher NRE revenue, and to a lesser extent, higher endpoint IC direct margins. 2025 gross margin was 55.3%, compared with 54% in 2024 with the increase due primarily to a richer mix of M800 endpoint ICs. Looking to first quarter, we expect gross margin to decline sequentially driven primarily by lower revenue on fixed cost and annual endpoint IC price reductions. Total fourth quarter operating expense was $34.2 million compared with $31.8 million in third quarter 2025, and $33.6 million in fourth quarter 2024. Research and development expense was $18.6 million. Sales and marketing expense was $8.2 million. General and administrative expense was $7.4 million. 2025 operating expense totaled $130.1 million compared with $131.9 million in 2024. We expect total first quarter 2025 operating expense to increase sequentially, driven primarily by normal seasonal factors. Fourth quarter adjusted EBITDA was $16.4 million compared with $19.1 million in third quarter 2025 and $15 million in fourth quarter 2024. Fourth quarter adjusted EBITDA margin was 17.7%. 2025 adjusted EBITDA was a record $69.6 million compared with $65.9 million in 2024. 2025 adjusted EBITDA margin was a record 19.3% in line with the long-term model we shared at our 2023 Investor Day. Fourth quarter GAAP net loss was $1.1 million. Fourth quarter non-GAAP net income was $15.6 million or $0.50 per share on a fully diluted basis. 2025 GAAP net loss was $10.8 million. 2025 non-GAAP net income was $64.2 million or $2.11 per share on a fully diluted basis. Turning to the balance sheet. We ended the fourth quarter with record cash, cash equivalents, and investments of $279.1 million compared with $265.1 million in third quarter 2025 and $239.6 million in fourth quarter 2024. Inventory totaled $85 million, down $7.7 million from the prior quarter. Fourth quarter capital expenditures totaled $1.5 million. Free cash flow was $13.6 million. 2025 capital expenditures totaled $12.9 million. Free cash flow was $45.9 million. Turning to our outlook. We expect first quarter revenue between $71 million and $74 million compared with $74.3 million in first quarter 2025, a year-over-year decrease of 2% at the midpoint. We expect adjusted EBITDA between $1.2 million and $2.7 million. On the bottom line, we expect non-GAAP net income between $2.5 million and $4 million reflecting non-GAAP fully diluted earnings per share between $0.08 and $0.13. In closing, I want to thank the Impinj, Inc. team, our customers, our suppliers, and you, our investors, for your ongoing support. I will now turn the call to the operator to open the question and answer session. Nick? Operator: Thank you. We will now begin the question and answer session. To ask a question, you may press star then 1 on your touch-tone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, a courtesy to others, we ask that you limit yourself to one question and one follow-up. You have additional questions, please requeue, and we will take as many questions as time allows. At this time, we will pause momentarily to assemble our roster. And the first question will come from Harsh Kumar with Piper Sandler. Please go ahead. Harsh Kumar: I wanted to hit upon the first quarter guidance a little bit. I think you're off something like $17 million to $18 million relative to the expectation on the street. I know you've got a shift at EPA. I'm sorry. A shift at your second customer in logistics. And you've also got some sort of a custom chip that you're developing and also seems like some excess inventory. So I was hoping that you could break down for us this miss between the impact from orders from the custom ship and the timing associated with it. Versus how much excess you have. And I'll ask my second question at the same time. It seems like there's a lot of stuff moving around. You talked about food, sort of moving around, apparel moving around. But then you seem pretty confident that all of this will fix itself fairly fast, like in the second quarter. These are large end markets, and I'm curious what gives you the confidence that this will swing around in a better situation as quickly as the second quarter. Chris Diorio: Okay. Thank you, Harsh. This is Chris. There's a lot to unpack in this question. I think Cary and I will tag team it here. So I'm going to start by saying that despite the starting points looking the same, we see 2026 very differently from 2025. 2025, we took a competitive lead and held our own, in what was an otherwise pretty tough year. In 2026, we're gonna press that lead in what we believe is shaping up to be a growth year for the reasons that we cited in our prepared remarks. Relative to those prepared remarks, Cary and I will both go through some of the details on why we see things turning around and actually why I talked about exiting the quarter on an upward swing. Just before I hand over to Cary to add a few points, I will say that that custom chip for our second large American supply chain and logistics end user is not just in design. We are currently shipping it. And so it is in production now. Cary, why don't I turn over to you for a bit, and then we can go back and forth? Cary Baker: Thanks, Chris. First, let me break down the Q1 revenue guide and how we built it. So as I noted, we're expecting endpoint IC revenue to decline sequentially at a high teens percentage. That's primarily on lower volume as our inlay partners supporting our logistics customers burned down a few weeks of inventory. Think of each week of burn-down approximating about $5 million of impact. To a much lesser degree, yearly price reductions and product mix are also impacting our first quarter. We're modeling pricing at a couple million bucks, and the mix impact is smaller than that. There's also some retail weakness that we're factoring through our guide. Now as we built our guide we wanted to be prudent in doing so. So there's a couple of things to consider in our guidance. First, the January turn orders have been strong. They're already double what Q4 was at the same point in the quarter and they're up more than 50% than they were last January. The second piece I would highlight is that the elevated rescheduling behavior that we saw all of last year has significantly moderated and is approaching a return to normal levels right now. And then finally, I would add, our endpoint IC business is nearly 100% booked to the midpoint of the guide, despite there being a few weeks left to turn business in the quarter. So Harsh, we'll pause there. Why don't you follow on and we answer your question adequately, or did we leave parts of it open? Harsh Kumar: No. No. Super helpful. I just wanted to follow-up on the second question that I asked, which was you've got a lot of end markets moving around food, apparel, all of which is getting hit seems like in 1Q, you mentioned. But then you're pretty confident that all of this will turn around. I was curious. Are you just looking at your orders and saying this will turn around for you, or is there something happening within the end markets that is causing the orders to have come in into the 1Q and you're expecting something to happen in the end market to drive that business up? Chris Diorio: Yeah. So there's no easy answer to your question because the answer depends on the particular aspects of the end markets. In food, as I said in my prepared remarks, we see modest volumes but inexorable growth. And we remain incredibly excited about that food opportunity. We see the number of stores expanding, especially in bakery. And we see opportunities in the food space. In retail apparel, as we said, we see ongoing retailer inventory burn-down. We saw some of it in the latter part of the fourth quarter now that we finally have the data. And we see it continuing in the first quarter. We expect that inventory burn-down to normalize based on input from the retailers themselves as well as from our partners. And we've seen new accounts coming online. For example, Abercrombie and Fitch, Aritzia, Old Navy, Academy Sports, and others. We see new accounts coming online. And then in the supply chain and logistics space, of course, as Cary noted, we see the inventory burn-down correcting as well as the new IC added volumes to us. So overall, we think we've got good visibility into the end opportunities that you've been you just raised here. And the reasons we feel positive about the situation exiting the quarter is that we see positive news there. Harsh Kumar: Thank you, you guys. Chris Diorio: Thank you. Operator: The next question will come from Blayne Curtis with Jefferies. Please go ahead. Ezra Weener: Guys. Ezra Weener on for Blayne. Thanks for taking my questions. Just first, wanna make sure I understand this correctly. You said apparel is gonna normalize in Q2. Do you also expect the logistics to normalize in Q2, or do you think that's take a little bit longer? Chris Diorio: We said that we see apparel overall normalizing as early as the second quarter. We're not going to actually project the actual date. In the supply chain and logistics space, as Cary said just a minute ago and Cary, I'll have you ahead again. We see the inventory correction happening in the first quarter. Cary, anything you'd add there? Cary Baker: Yeah. Ezra, I would say, you know, we're entering the quarter with a few extra weeks of channel inventory related to supply chain and logistics. We're gonna work very hard to burn that down in Q1. But we know from history that it's difficult to contain a correction to a single quarter, and it may spill over into the second quarter. You'll have to wait for us to give an update as we exit Q1 on how successful we are at burning that inventory down. Ezra Weener: Got it. And then my follow-up would be in terms of ASIC, talked a little bit about pricing and solutions. Can you talk a little bit about how you view that and that solution for the customer and how you think about kind of pricing and value? Going forward with that? Chris Diorio: Yes. I'm this is Chris. I'm happy to. You know, we've been focused for a while on understanding end-user problems designing customizations through our platform, that address the customer needs. We did Protected Mode for a visionary European retailer and brought that broadly to market, and it's being used by them and many others. If you think overall of Gen2X, it's the same idea. Custom features that we're broadly to market, and both of them see market success. In this case, you can think of the custom IC as being tailored to the specific needs of that end user. And it is an IC customized for them. And we see it as not only meeting their critical needs and helping their business go forward, but also giving them the opportunity to drive operational efficiencies across their organization, and for them to expand their prowess in RAIN RFID to win new customer business, including with that IC. So we, as a company, are focused on working directly with those end users and truly enabling them to drive forward with their business and to expand it. And then for us to basically partner with them along the way. So expect us to do more of those kinds of opportunities. And as we build more and more whole solutions to tie that customized endpoint IC and a radio link that supports it features in our reader ICs into an overall solutions offering more and more and less just an IC offering. So we're early in that stage where we focus on a solution sale rather than an individual IC sale. But expect us to drive in that direction. Cary Baker: Ezra, this is Cary. The only other thing I would add is we'll price that IC to market. Ezra Weener: Awesome. Thank you. Operator: The next question will come from Jim Ricchiuti with Needham and Company. Please go ahead. Jim Ricchiuti: I just want to follow-up on this. This new chip. Is this for a subset of applications with this customer? Chris Diorio: No, Jim. It's for all applications with the It's they're gonna switch to that chip. They plan to fully switch to that chip in 2026. Okay. Customized for them, for their needs. Jim Ricchiuti: Got it. Chris, will this, I don't recall you guys ever going down this path with a customer. What kind of concerns could this customer have about back-end sourcing being able to source the chip from someone other than you just to protect themselves. Wondering, does this have anything to do with the relationship perhaps with EM Microelectronics? Chris Diorio: Good question and good connecting the dots, Jim. Not far enough along to speak to any possibilities along the about the relationship with EM, but you're thinking in the right direction. Right now, we're focused on delivering to the customer's needs, ensuring they have adequate supply and giving them commitments of supply so they have confidence in this chip and their ability to rely on it. As the future evolves and we do more of these things, and I wanna do more custom shifts because we've got other enterprise customers with key needs that aren't addressed without customizations. We will be looking to ensure for them that they have added support adequate supply of chips. Labels, reader ICs, and everything else so they can feel confident moving down this path. Jim Ricchiuti: Got it. One final question. I'll jump back in the queue. You suggested that Integu gain market share in endpoint ICUs. The major competitor has introduced a new chip. And I'm wondering how you're thinking about market share particularly with this new chip that you're introducing, and in a related question, it sounds like this competitor is still talking about a license payment in the June. So, Cary, maybe you could help me out. With is that something we should be thinking about as well for Q2? Cary Baker: The way some Demotation you should expect the license payment in Q2, Jim. You should expect it. Chris Diorio: We do. So, yes, we'll get the license payment. To the other part of your question, Jim. You know, we're focused on enabling solutions for enterprise end users. Those solutions are just not a are not just a chip. It's not just a chip and an antenna. It's a chip and an antenna and the AirLink supporting it and the reader IC supporting that and the firmware on the reader IC supporting it, the readers and gateway supporting it and the partnership supporting it and then and then solution software. We're focused on driving the entirety of those pieces to create an enterprise solution. And we firm and you see Gen2X as a key key key part of that initiative. And we firmly believe that by delivering whole solutions, and optimizing so that the solution for the end user we can outperform mix and match efforts using competitor products. And that's our focus. Jim Ricchiuti: Thank you. Chris Diorio: Thank you. Operator: The next question will come from Scott Searle with ROTH Capital. Please go ahead. Scott Searle: Maybe to start, I just wanted to get a couple of clarifications on some of your comments and some of the initial questions. For starters, on the logistics softness, I want to clarify, is the customer that you're designing a custom chip for, are they in then working down inventory to zero from legacy M700, M800 chips and that's part of the pressure as well. And then as it relates specifically to the custom ASIC, I think you got asked the market share question, but I'll ask it maybe a different way. Know, I would imagine if they're moving in this direction, it should deliver higher share as opposed to splitting the business historically with NXP. Should we be assuming though that you're going to be gaining 100% share with these types of customers? And it sounds like there's more custom opportunities in the pipeline. So how is this going to transition then over the course of 2026 and 2027? And then I had a follow-up. Chris Diorio: Yeah, Scott. I'll do my best to those questions. First, we're not just designing the chip. It's in production now. Second, it's dedicated to a single customer, which is our second large North American supply chain and logistics customer. It is targeted at addressing their specific needs, and it is a chip specific to them. We already have high share at that account. It will maintain that share. And we are exploring customizations for other enterprises, that aren't as far down the path as we are this particular instance where we actually have the IC or the chip in production. But more importantly, I view this chip as us engaging closely enough with the enterprise where they can share their needs we can share what we can do, and we can together build a chip. It's not just Impinj, Inc. chip, build a chip for them. It's we work together on it. They came forward with what they needed, and we built it for them. And they're gonna be using it and we intend to keep doing so. You know, I have a mantra in the company. And I push it at every meeting we have, which is we support our end customers. We never let an end customer down. And you should expect that us to do that here. Cary, what did NSC Scott, let me unpack the oh, Scott Searle: well, just one clarification. Inventory bill is just oh, sorry. Before the inventory bill, just, Chris, to clarify then, do you retain the IP and the ability then to license it to additional customers within that same sub-vertical or no? Chris Diorio: Yes. We do in this particular instance retain the IP. I can imagine other scenarios where there might be some shared IP in this instance, we retain the IP. But our focus first and foremost, is supporting that customer. They're a lighthouse customer to us. I consider them a close partner. You should expect us to focus first on them, with this particular chip, and we built it for them specific to them. Cary Baker: And, Scott, I'll just unpack the inventory build a little bit. Today, parcel tracking deployment uses the M800 exclusively. The M800 is our general-purpose SKU, meaning it can also support virtually any retail, apparel, or general merchandise application. And that application fungibility gave some of our partners the confidence to lean in build supply ahead of actually winning the award knowing that they can move those ICs through other applications if necessary. So when we were looking at our fourth quarter and we were building our fourth quarter, it came together as we expected. But when we unpacked it unpacked the quarter in mid-January we matched that with our channel inventory reports from our inlay partners, we realized that the logistics-related build had masked the weakness in retail. Now this will get better. With our logistics customer now ramping to the new custom IC that Chris just described, we will have better visibility into logistics-related inventory. We'll be able to match our shipments of that custom IC directly to that end customer's monthly consumption reports. We have to prove it to you, certainly, but we think this gets better going forward. Scott Searle: Okay. Very helpful. And if I could just as a follow-up, another market share question. Chris, you've referenced it a lot of times in your opening remarks. But Gen2X provides significant benefits and advantages. It only works with your endpoint IC. So I'm wondering as you look out over the next couple of quarters in '26 and '27, is this the primary driver, of incremental share out there? And will you start to run the table a little bit more in terms of meaningful market share within your existing accounts? Thanks. Chris Diorio: I'm gonna yes. I'm gonna answer the question yes. I believe that Gen2X will be the significant driver of our market share gains. But you should think of Gen2X as a toolbox that we can bring to bear, for enterprise customers who have an unmet need and allow us to solve their problem. So to the extent that we have significant enterprise accounts, which we do, we need a way to solve them. Consider Gen2X to be the way we're gonna be driving the solution and going forward, even adding more features and capabilities to Gen2X as we learn and do more. So, essentially, you should think of Gen2X as a way to improve the readability overall performance, and protection capabilities provided by RAIN RFID. To reduce labor cost to speed inventory, to provide readability work, you wouldn't have it otherwise, to localize where items are, to identify exits and theft. And many we have protect consumer privacy in many other areas where we put that whole toolbox together it's the driver of our differentiation in the market. It's kind of manifestation it, but it's also a manifestation of our overall solution strategy. For the two together, they're gonna be the drivers of our success. Scott Searle: Hey. Great. Thanks so much. I'll get back in the queue. Operator: The next question will come from Natalia Winkler with UBS. Please go ahead. Natalia Winkler: Hi. Thank you so much for taking my question. I just wanted to ask one more on the fourth quarter kind of outlook for you guys. So if I understood Cary correctly, Cary, you mentioned several weeks of inventory burn for retail. Right? And it sounds like each week is $5 million. So if I'm thinking, you know, even of a sequential, you know, reduction of $20 million, it sounds like you know, more than half of that is probably related to the retail inventory burn-down. Is that kind of a fair way to think about it? Or is it more nuanced? Cary Baker: I think that's a fair way to think about it. It's a few weeks of inventory, not several. It's primarily related to supply chain logistics for the reasons I just described. You're correct in that the impact is about $5 million per week of burn-down. And then the other factors, are far less impactful, are pricing and mix, a sized pricing at a couple million dollars, and mix of less than that. Natalia Winkler: Awesome. Thank you so much. And then I guess a follow-up. Can you guys help us understand, you know, clearly, it's a highly complex supply chain for retail, right, with kind of multiple different steps and stages in it. Can you walk us through your, you know, forecasting process and maybe part of the reason, like, why we're seeing such a strong kind of corrections and burnout that may be a little bit less predictable than for some of the other end markets you guys cover? Cary Baker: Yeah. So the inventory build was related to logistics. We had a similar logistics build last year at the same time, but for different reasons. It's nonetheless frustrating. This year's build is a result of our partners leaning in ahead of winning the supply rep supply or supply awards or label awards following the label reallocation process. They were comfortable leaning in because up until the custom IC ships, the M800 goes into the package the tracking deployment. The M800 is a fungible SKU across the industry in that its general purpose. It can support retail apparel. It can support general merchandise. It can support logistics. That fungibility gave our partners the confidence to lean in build extra inventory in hopes of winning an award. Because if they didn't win the award or didn't win as much of an award as they thought, they would be able to burn that inventory down through the rest of their market opportunities. We didn't realize that in the fourth quarter as it was happening. Because our fourth quarter from a unit volume perspective was coming in right as we expected. When we began unpacking the fourth quarter volumes in mid-January, and we matched that with the channel inventory reports we received around that same time, we realized that the logistics build had masked some weakness in retail apparel that we didn't anticipate and wasn't obvious to us until that point. Now I think next year, this gets better. And I know we have to prove that first given the last two years of channel inventory builds. But I think it gets better because we will only ship one SKU to that customer. It's only usable by that customer, and we will be able to match our shipments with their monthly consumption reports and the difference between the two is the inventory that will be in the channel. So again, we have to prove it to you. But I think we get better next year at that. Operator: The next question will come from Troy Jensen with Cantor Fitzgerald. Please go ahead. Troy Jensen: Hey, gentlemen. Thanks for taking my questions. Maybe for Chris, I guess either one of you guys, you know, these customers that were leaning in, right, in the hopes for the awards, sounds like they went to a competitor. So I'm just curious why do you think we had this share loss the quarter? Was running No. They didn't go to our competitors. Right. No. No. That that wasn't part of it. There was no none none of that moving to a competitor. So just a awards awarded They they there's a new IC coming? They, anticipated some wins. They started building to the new IC, At the same time, they know their existing inventory is gonna it needs to get burned down. So they they they started buying ahead. The ones who as we said in our prepared remarks, the ones who didn't win as much now need to burn down their inventory in the first quarter. Cary Baker: So, Troy, the only thing I'd add to Chris is is that our logistics customer rebids their label suppliers each year. It's still the M800, for all labels, but the mix of inlay partners that support them each year can change. Based on that rebidding process. And that rebidding process here this year coupled with the fungibility of the M800 that I just described, gave them the confidence to lean in and buy more supplies so they could be more responsive if they won the award or to win a greater share of the award. Troy Jensen: Gotcha. And they knew that if they didn't win as much, they would be able to take that inventory out through virtually any other retail apparel or general merchandise application. Chris Diorio: Yep. Okay. Understood. So several partners probably thought they're gonna win the award and and went to one. Exactly. It was oversubscribed. The award was oversubscribed. Exactly. And the we compound it with a new chip entering the market, and there still needs to be a further burn down of the existing M800 product. Troy Jensen: Yep. Okay. Understood. And then, maybe just to follow-up with the, you talked about retail SKU growth you're seeing. I'm curious if that's broad-based or is that just limited to a couple of your bigger customers? Chris Diorio: It was a SKU growth in general merchandise. You mean retail apparel? Growth? Troy Jensen: I think it means SKU growth in general. On SKU Just the common SKU growth, was that just based on a few large customers, or is it more broad-based? Chris Diorio: The comment on SKU growth in existing categories as well as the potential for new categories was related to a small number a pretty small number of customers in the general merchandise space. Troy Jensen: Gotcha. Okay. Good luck this year, guys. Operator: The next question will come from Guy Hardwick with Barclays. Please go ahead. Guy Hardwick: Hi, good evening. Hi, guys. Hi, guys. Just a couple of questions. So I think a year ago, when you had an inventory overhang in the T&L space, you said some similar comments that it could take more than a quarter to clear the inventory, but I think you actually cleared the inventory in just one quarter. What's different this time? And then as a follow-up, it looks like you have pretty good visibility on the endpoint IC business that you're pretty much already booked for Q1 within the midpoint of your guidance, looking at your comments. So what does that tell you or tell us in terms of what's the underlying growth in the endpoint IC market of 2025 levels? Cary Baker: Guy, this is Cary. I'll try to take both of those questions. So, yes, it is the same in that it's the supply chain logistics space. There are a variety of different reasons, which I've already covered. We last year, we were successful in burning all that channel inventory out in the first quarter. We are attempting to do the exact same thing this year. However, we know that inventory corrections are seldom contained to one quarter and we just wanna be cautious with our guidance so that if it does spill into the second quarter, we have room to do that. As it relates to our guidance, we are seeing strong signals from our bookings and our turns order in quarter to date. So think of January through February. That is turns at a higher rate than it was at the same time in fourth quarter more than double, and 50% up from last year January. That has put us in a position where we are 100% booked to the midpoint of our guide for our endpoint IC business or nearly 100% booked. We're giving ourselves a little bit of room because we aren't done with the annual price negotiations. We still have a couple that are outstanding there. And also, the Chinese New Year occurs later this year than it did last year, and we typically see a low in bookings during those three weeks. Guy Hardwick: Thank you. Good day. Operator: The next question will come from Christopher Rolland with Susquehanna. Please go ahead. Dylan Olivier: Hi there. This is Dylan Olivier on for Chris. Thanks for taking my question. Maybe pivoting away a bit from this inventory situation and sort of bigger picture question. I wanted to ask about sort of the competitive landscape, particularly against non-RFID components. We've heard some news flow of some end users kind of pivoting away to some more BLE and, you know, other protocols. Is that something that you consider a risk? Or do you remain confident in RFID as a long-term solution? Chris Diorio: Dylan, this is Chris. The simple answer is we remain confident to bring our RFID as a long-term solution. The just two different technologies. And active BLE with batteries has a particular use case. For tracking things like temperature and other kind of stuff against continuous data logging. That's complementary. Passive BLE for beaconing operates in a narrow window of use cases. And again, with some different features and capabilities that I also view as mostly complementary. The volume differences between the two are gigantic. I mean, you know, our industry delivered 52.8 billion ICs last in 2024. And volume differences are gigantic. The infrastructure is different. I view them as mostly complementary. Of course, with every complementary thing, there's a bit of overlap. But I don't really look at the competitiveness. I look at complementary things. And trying to enable the end customer with a solution that meets their needs. Dylan Olivier: Thanks. Appreciate the color here. And then maybe more of a housekeeping question for my second for my follow-up. But, yeah, you had that EM Microelectronics license announcement in the quarter. Just wondering if Yeah. How we think about that impacting the model, if there's gonna be a recurring revenue and if that's gonna be consistent through the year. Chris Diorio: Yeah. There's an immaterial impact to revenue in 2026. We're still working on what that first chip might be, likely a dual-frequency IC. Likely not available this year. It just view it as a strategic partnership. And then just think that it so the answers that we gave to Ed Jim's question, you know, view the strategic partnership as a way for us to deliver confidence to our end users. Dylan Olivier: Great. Thank you. Operator: The next question is a follow-up from Harsh Kumar of Piper Sandler. Please go ahead. Harsh Kumar: Yeah. Hey, guys. So I was curious how long do you think it would take for you to be fully penetrated at your second largest logistics customer with the custom chip. And am I correct in assuming that custom chips typically mean better pricing than a normal chip? Chris Diorio: So I'll take the first answer. So the customer plans to fully switch over to that ship this year. That's what I said in my prepared remarks. And as Cary said, are pricing the chip to market. Cary, anything you wanna add? Cary Baker: Nope. Harsh Kumar: Did I answer your question, Harsh? Harsh Kumar: Well, I guess there is no market for a custom chip. Right? The standard in RFID, and you've got a custom product. I would suspect So are you saying that your pricing is similar to M800? Or more than that? Chris Diorio: I'm gonna say that we're pricing it to as I also said in some of the prepared remarks, a little bit further down. To drive an ROI for the end customer and for us. Harsh Kumar: Okay. Fair enough. Fair enough. Thank you. Chris Diorio: Thank you. Operator: This concludes our question and answer session. I would like to turn the conference back over to Chris Diorio, Co-Founder and CEO, for any closing remarks. Chris Diorio: Thank you, Nick. I'd like to thank you all for joining the call today. And thank you for your ongoing support. Bye-bye. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Good morning, ladies and gentlemen. Welcome to the BCE Q4 2025 Results and 2026 Guidance Call. I would now like to turn the meeting over to Kris Somers. Please go ahead, Mr. Somers. Krishna Somers: Thank you, Matthew. Good morning, everyone, and thank you for joining our call. My name is Kris Somers, Head of Investor Relations. And with me here today are Mirko Bibic, BCE's President and CEO; and Curtis Millen, our CFO. You can find all our Q4 disclosure documents, including our safe harbor notice concerning forward-looking statements on the Investor Relations page of the bce.ca website. Before we begin, I'd like to draw your attention to our safe harbor statement on Slide 2 of the presentation, reminding you that today, remarks made during the call will include forward-looking information, and therefore, are subject to risks and uncertainties. Results could differ materially. We disclaim any obligation to update forward-looking statements, except as required by law. Please refer to our publicly filed documents for more details on assumptions and risks. With that out of the way, I'll turn the call over to Mirko. Mirko Bibic: Thanks, Kris, and good morning, everyone. I'm looking forward to walking through our results and outlook with you in a short moment. First, I want to take a moment to frame where we are. In 2025, we had a pivotal year for BCE. It was a year of deliberate change, where we strengthened the balance sheet, we sharpened our capital allocation discipline and clearly defined our long-term strategy at Investor Day in October of 2025. And over the course of 2025, we aligned the organization around 4 strategic priorities that leverage our unique and differentiated assets across fiber, wireless, enterprise and media to deliver the very best for our customers, and we set clear measurable targets for the next phase of growth. So that groundwork is now in place. The strategy is clear. The priorities are set, the company is aligned, and we've begun to execute against that plan. You could see that execution translate into momentum throughout 2025, including the fourth quarter, as we focused on improving customer experience, strengthening fiber and wireless network leadership in Canada, establishing a fiber growth platform in the U.S., accelerating momentum in enterprise and digital media and positioning the business for sustainable free cash flow growth. And I'd like to start on Slide 3 of our deck with an overview of how we executed last year against those 4 strategic priorities. So putting the customer first, that remains foundational, and the results are tangible. Postpaid churn improved for the third consecutive quarter with a 17 basis point year-over-year improvement in Q4. Importantly, the magnitude of improvement accelerated throughout the year, demonstrating sustained momentum as our customer-first initiatives take hold. We made important progress in 2025 with the launch of differentiated wireless plan tiers that move beyond traditional data buckets. These plans give customers clearer choices based on the experience they value most, including network performance, video quality, roaming features, device financing and bundled content. We expanded our lead in distribution with no name mobile now available in all Maxi stores across Quebec, extending access to affordable contract-free wireless options powered by Bell's network. This reflects our customer-first focus on accessibility and choice across segments while maintaining disciplined brand positioning. We also advanced the customer experience in 2025 with the rollout of our AI-powered voice virtual assistant across Bell, Virgin Plus and Lucky Mobile. This simplifies interactions at scale and improves service quality. Our customer-first focus is reflected in the latest CCTS report, which showed that Bell continues to have the lowest proportion of complaints among the 3 largest national carriers. While there's a lot more work to do, the progress made last year reinforces our focus on continued churn improvement and further gains in customer experience metrics such as NPS. In wireless, we continue to build momentum through 2025 with a clear improvement in our underlying ARPU trajectory and strong net new postpaid mobile phone additions on our main Bell brand, and that supports ARPU improvement going forward. We continue to take a disciplined approach to subscriber acquisition with a focus on quality and lifetime value rather than chasing volume. And you can see this in wireless service revenue, where the year-over-year rate of decline improved to just 0.2% in Q4 with consumer wireless service revenue stable in the quarter. Fiber continued to be a key growth driver last year with approximately 200,000 net new subscriber additions, including our U.S. operations. This contributed to Internet revenue growth of 8%. Where we have fiber, we continue to win through superior network performance, higher customer satisfaction and stronger multiproduct penetration. The acquisition of Ziply Fiber marked a key milestone in our fiber growth strategy, giving us a strong platform for long-term growth in the rapidly expanding U.S. market. In 2025, Ziply's financial results reported in our Bell CTS U.S. segment were comfortably in line with the expectations we outlined at Investor Day. Since closing the acquisition, we've worked closely with the Ziply management team to refine and accelerate their fiber expansion plan. And with the Network FiberCo partnership now in place, the build has been re-prioritized toward higher-growth markets with construction set to ramp meaningfully in the second half of 2026 and beyond. So this positions 2026 as an important build year for Ziply, putting us on the path toward our target of approximately 3 million fiber passings by the end of 2028 with a longer-term opportunity to reach up to 8 million locations in a capital-efficient manner. We also made continued progress on product intensity, driven by increased adoption of content subscriptions. With Crave adding more than 1 million subscribers in 2025, we're seeing clear momentum in the number of services per household. Our focus remains on growing the number of services per household through mobility, Internet and content. We also launched hardware-free Fibe TV, delivering a full-service experience without the need for a set-top box and allowing customers to use devices they already own. This simplifies installation and ongoing service, reduces complexity and supports higher product intensity while remaining highly scalable and capital efficient. Bell Pure Fibre and 5G wireless were once again recognized by Ookla as Canada's fastest networks with Bell Pure Fibre also recognized as the fastest Internet service in North America. This independent third-party validation reinforces the strength of our network leadership and customer value proposition. Now turning to Slide 4, and our next strategic priority, which is lead in enterprise with AI-powered solutions. In 2025, Bell Business Markets delivered relatively stable revenue and EBITDA performance, which really stands out in an environment where many enterprise telecom businesses continue to face pressure. This reflects the actions we've taken over the past 18 months or so to reshape our enterprise strategy. The 3 AI-powered solutions businesses we launched in 2025, Ateko, Bell Cyber and Bell AI Fabric, were key contributors, collectively growing approximately 60% year-over-year to around $700 million in revenue. Each of these is scaling as planned, and each supports our goal of reaching $1.5 billion in AI-powered solutions revenue by 2028. Importantly, this represents largely net new revenue and EBITDA for Bell, which complements rather than replaces our core connectivity and communication services. We continue to strengthen these platforms, including Ateko's recent acquisition of SDK Tek Services, which took place in December of 2025. SDK Tek adds deep data engineering and analytics expertise, helping enterprises and governments organize and use their data effectively, and that's critical to deploy AI at scale. The acquisition improves our full stack AI solution set. Now turning to media. Our digital strategy continued to deliver in 2025 with digital revenues up 6% year-over-year and now representing 44% of total media revenue. And this performance was powered by Crave, which, as I noted earlier, had an outstanding year, ending with 4.6 million subscribers alongside continued growth in connected TV, Crave with ads and FAST channels. Our focus for Bell Media is to deliver consistent annual revenue and EBITDA growth, and we achieved that in 2025 as the business continues to shift toward higher-value digital and subscription revenue streams. We also made a significant transformation to the Crave platform, expanding the content library by more than 10,000 hours and integrating live programming from CTV and Noovo, news, select major sports and premium entertainment events and an expanded kids' collection. All of this supported by meaningful user experience enhancements. Our focus on original content was another key driver in 2025. Early in the year, Empathie became a major French language success in Canada and gained strong traction in France. More recently, Heated Rivalry has emerged as a global sensation, generating significant media attention and cultural impact and underscoring the strength of our investment in premium Canadian storytelling. From a strategic standpoint, our focus is on delivering premium content to customers through digital platforms and extending its value by monetizing that content more effectively across the full value chain. And looking ahead, Bell Media is off to a strong start in 2026. NFL viewership through the playoffs has been very encouraging, and we're excited about the FIFA World Cup this summer, which presents a significant audience and monetization opportunity. So taken together, Bell Media is contributing meaningfully to growth, churn reduction and customer lifetime value across the Bell ecosystem. Overall, therefore, across all 4 priorities, 2025 was about building momentum. So now, I'll turn to Slide 5. I want to touch briefly on capital allocation because this, too, has been a consistent focus for us over the past year. If you go back to our February 2025 call, pretty much exactly a year ago, we were very clear about what we intended to do and that simplify the business, strengthen the balance sheet, focus capital on higher return opportunities and return capital to shareholders through a sustainable dividend. And we reinforced that roadmap at Investor Day in October of 2025, providing greater transparency around our capital allocation priorities, leverage targets and investment framework. The roadmap has not changed. Turning to Slide 6. This highlights the early progress we're making against the 3-year targets we laid out at Investor Day. These are some of the metrics we'll use to measure progress. They include churn, Bell-branded loadings, product intensity, Internet market share, U.S. fiber expansion, AI-powered solutions growth and Crave subscriber and digital mix at Bell Media. This scorecard is how we intend to manage the company and how we expect to be measured. We're still early in the execution phase, and we're encouraged by the momentum we're seeing. Taken together, these indicators show that the strategy is translating into disciplined execution. 2025 set the foundation, and in 2026, the dedicated Bell team will continue to execute our way to the 2028 targets with a clear focus on delivering sustainable returns for our shareholders. And with that, I'll turn the call over to Curtis, and Curtis will walk you through our Q4 operating results and the 2026 financial guidance. Thanks for your attention, everyone. Curtis Millen: Thank you, Mirko, and good morning, everyone. Our strong fourth quarter and full year 2025 financial results demonstrate the stability of our business and our ability to deliver on the strategic and financial commitments we outlined over the past year, including at Investor Day. On a consolidated basis, we achieved all of our 2025 financial guidance targets, reflecting disciplined execution across the organization. 2025, service revenue increased 0.6% for the year, supported by contributions from Ziply Fiber and continued resilience in our core businesses. Adjusted EBITDA increased 0.7%, driving a 20 basis point improvement in adjusted EBITDA margin to 43.6%, the strongest annual margin result we've delivered in more than 30 years. Adjusted EPS declined 7.9% in '25, consistent with our guidance and primarily reflecting higher depreciation and amortization from ongoing network investment, along with increased interest expense. Capital expenditures declined by $197 million to $3.7 billion, resulting in a capital intensity of 15.1%, in line with guidance and consistent with our longer-term objective to reduce capital intensity. We delivered a 10% increase in free cash flow to $3.2 billion toward the upper end of our guidance range, driven by higher EBITDA, lower CapEx and improved working capital. Free cash flow after payment of lease liabilities increased 17.5%, an important metric in the 3-year financial outlook we shared at Investor Day, where we continue to target approximately 15% CAGR. We're entering 2026 with solid momentum in cash generation. At the segment level, there's clear momentum at Bell Business Markets, reflected in relatively stable revenue and EBITDA in '25, while Bell Media delivered positive revenue and EBITDA growth for the full year, consistent with the execution themes Mirko outlined earlier. Turning to Q4 on Slide 9. I'll begin with a summary of Bell CTS Canada subscriber metrics. Postpaid wireless net adds of 56,124 were essentially stable year-over-year despite a less active market. Consistent with our well-articulated strategy to balance loadings with improved financials and customer experience, we focused on higher-quality margin-accretive subs again this quarter. As a result of this continued disciplined approach, we added a significant number of customers on the premium Bell brand. Postpaid churn improved 17 basis points to 1.49%, marking our third consecutive quarter of year-over-year improvement. This is a direct outcome of our focus on putting the customer first. Mobile phone ARPU declined just 0.8%, significant improvement from the 2.7% decline in Q4 of last year. We also saw a recovery in consumer roaming revenue, which has continued into the early part of Q1 and is encouraging for future ARPU performance. In Wireline, we delivered 43,000 fiber-to-the-home Internet net adds in the quarter, a strong result given the slowdown in our Canadian fiber build and disciplined pricing, reflective of the value we deliver to customers. Let me turn now to Q4 financials for Bell CTS Canada. Internet revenue increased approximately 2%, reflecting the same approach as in wireless, a healthy balance between sub growth and disciplined pricing supported by fiber. In our Enterprise business, AI-powered solutions revenue grew 31%, driven by continued momentum at Ateko and Bell Cyber. We remain focused on scaling these growth vectors as part of our plan to reach $1.5 billion in AI-powered solutions revenue by 2028. Wireless service revenue declined 0.2%, an improvement from the 0.4% decline in Q3 and meaningfully better than the 1.5% decline in Q4 of last year. Importantly, consumer wireless service revenue was stable year-over-year in the quarter, an encouraging sign as we enter 2026. On the product side, revenue declined $170 million year-over-year, driven by a pronounced market shift towards BYOD activity in December, which resulted in a 20% reduction in contracted device sales as well as the timing of certain wireline equipment deals with large enterprise customers. Importantly, the EBITDA impact was limited, as these product revenues are very low margin. Overall, EBITDA performance was in line with plan, and adjusted EBITDA margin increased 130 basis points year-over-year to 44.2%, reflecting strong cost discipline, including a 6.1% reduction in operating costs and margin-accretive subscriber growth. Turning to Bell CTS U.S., which reflects the results of Ziply Fiber's operations. As Mirko mentioned earlier, Ziply's financial performance for 2025 was consistent with the expectations we shared at Investor Day, reflecting solid execution, as we position the business for its next phase of growth. In the fourth quarter, total revenue was $232 million, driven by continued strength of Ziply's fiber platform. Internet revenue grew in the double digits, supported by ongoing expansion of the fiber footprint and strong customer penetration across new and existing markets. Bell CTS U.S. delivered $100 million of EBITDA in Q4, representing a 43.1% margin, demonstrating strong operating leverage in the business. With significant runway ahead, we expect robust revenue and EBITDA growth from Bell CTS U.S., as the management team advances Ziply Fiber's 2028 financial ambition presented at Investor Day. On the subscriber front, Ziply added more than 6,000 net new fiber customers in Q4, supported by footprint expansion and strong penetration in newly built areas. Ziply Fiber build plan has now been reprioritized toward higher-growth markets and is set to accelerate in 2026, putting the business on track to reach approximately 3 million fiber passes by the end of 2028. Turning to Bell Media on Slide 11. As projected, total revenue declined 3.4% in Q4. Despite strong digital video advertising growth, total advertising revenue was down 11.1%, reflecting continued softness in traditional advertising, demand for non-sports programming as well as the impact of the divestiture of 45 radio stations, which was completed in the first half of 2025. Subscriber revenue increased 1.5%, driven by continued strength in D2C Crave and sports streaming. Crave's direct streaming subscribers grew 65% year-over-year, supported by market-leading content, including Heated Rivalry, which continues to generate strong domestic and international engagement and underpin subscriber growth. Operating costs declined 1.5%, driven by lower content costs and ongoing operating efficiencies. Importantly, Bell Media delivered positive revenue and EBITDA growth for the full year, consistent with our objective for this business to be a stable and growing contributor to BCE's financial performance. Our focus remains unchanged for Bell Media to consistently deliver annual revenue and EBITDA growth, while contributing meaningful free cash flow to BCE, as the business continues to shift toward higher-value digital and subscription revenue streams. I'll now turn to our 2026 outlook, beginning with revenue and adjusted EBITDA on Slide 13. Our 2026 guidance is fully aligned with the 3-year financial outlook we shared at Investor Day and reflects continued momentum in our core growth engines, fiber, wireless, AI-powered enterprise solutions and digital media, while we continue to diligently manage the clients in higher-margin legacy services. For 2026, we expect consolidated revenue growth of 1% to 5% and adjusted EBITDA growth of 0% to 4%, representing a step-up from 2025 with these range is consistent with prior years. And I'd note, we remain highly focused on operating efficiencies and continue to expect to deliver $1.5 billion in cost savings by 2028. Over to Slide 14 for a summary of our adjusted EPS outlook. We project adjusted EPS to be in the range of $2.5 to $2.65 per share in 2026 or 5% to 11% lower versus last year. This decline can be largely attributed to an approximate $250 million step-up in depreciation and amortization expense, reflecting continued investment in our broadband networks as well as the impact of the Ziply Fiber acquisition and an estimated $100 million increase in interest expense, driven by a higher level of debt outstanding related to Ziply Fiber acquisition. In addition, we expect tax adjustments to be around $0.02 per share lower than in 2025, as we are not forecasting any tax adjustments in 2026. Turning to Slide 15. We expect another strong year of free cash flow generation in '26. Free cash flow is projected to grow between 4% and 10%, reflecting strong flow-through from higher EBITDA and lower year-over-year severance payments, partially offset by higher interest paid. Consistent with the outlook we shared at Investor Day, capital expenditures in 2026 are expected to remain relatively stable at approximately $3.7 billion, resulting in a lower capital intensity of 15% or less. Within that stable total CapEx envelope, we'll continue to fund our growth initiatives, supported by efficiencies from prior investments that are reducing ongoing run-the-business capital requirements and creating additional flexibility to allocate capital towards strategic investments and growth opportunities. Our free cash flow outlook also reflects stable to slightly lower cash taxes, largely unchanged working cap position and essentially flat cash pension funding as we continue to benefit from a full contribution holiday, supported by the strong solvency position of our defined benefit pension plans. With this level of robust and predictable free cash flow generation, we expect BCE's dividend payout ratio to remain comfortably within our target policy range of 40% to 55%. Finally, we remain focused on driving strong free cash flow growth after payment of lease liabilities, supported by lower year-over-year capital lease repayments in '26 and consistent with the approximately 15% CAGR target we outlined at Investor Day through 2028. Turning to Slide 16. As we begin the year, we have $2.5 billion of available liquidity and a pension solvency surplus of $4.4 billion, providing meaningful financial flexibility as we execute our 2026 business plan. Our long-term debt maturity profile remains very manageable. In fact, $750 million of '26 MTN maturities were prefinanced and early redeemed in 2025, further reducing near-term refinancing risk. At the end of 2025, our net debt leverage ratio was approximately 3.8x adjusted EBITDA, unchanged from prior year despite the closing of the Ziply Fiber acquisition. On a pro forma basis, adjusted to include a full 12 months of Ziply Fiber, our net debt leverage ratio would have been approximately 3.7x. It's also worth noting that nominal net debt at year-end was $40.2 billion, slightly lower than the $40.3 billion reported at the end of '24 and notably prior to the closing of the Ziply Fiber acquisition, underscoring our continued focus on balance sheet discipline. Overall, we remain sharply focused on deleveraging with our net debt leverage ratio expected to continue trending down in '26 toward our target of 3.5x by the end of 2027. To conclude, on Slide 17, our 2026 financial targets position BCE to deliver on the 2028 ambitions we set out at Investor Day. The guidance reflects clear progress from 2025 and remains fully aligned with our 3-year financial framework. We're guiding higher revenue, higher adjusted EBITDA, improving capital intensity, strong free cash flow growth and a sustainable dividend. Taken together, these targets reinforce our confidence in the strategy and in our ability to execute and deliver sustainable financial performance over the 3-year horizon. With that, I'll turn the call back over to Kris and the operator to begin the Q&A. Krishna Somers: Thank you, Curtis. [Operator Instructions]. And with that, Matthew, we're ready to take our first question. Operator: [Operator Instructions] The first question comes from Tim Casey from BMO Capital Markets. Tim Casey: Could -- you talk a little bit about your guidance ranges, 1% to 5% and 0% to 4%. Those -- obviously, there's a few swing factors in there. Maybe just what's influencing you? Is it competitive intensity? Is it economic issues? Just maybe walk us through your thinking on the guidance ranges, if you could, please. Mirko Bibic: Thanks, Tim. I'll start, and then, Curtis can layer on. I think what you're seeing in the guidance we're giving you on revenue and EBITDA certainly is a reflection that our growth segments continue to grow as we signaled they would, and we continue to need to manage the legacy declines as carefully as we possibly can, and we transparently unpack that for everyone in October last year. So on the growth side, the proof points are the premium Bell loadings, the churn, the product intensity, the fiber net. Of course, we want to continue to improve service revenues. And in there, you've got AI-powered solutions revenue, both in totality and then within the -- and organically, continue to guide towards positive Bell Media revenue and EBITDA. There's the U.S. opportunity, and of course, free cash flow growth, which is pretty healthy while funding strategic initiatives. So that's on the growth side. And then the swings potentially are wireless penetration gains and overall market growth in wireless. Of course, the state of pricing in wireless and wireline, both. I already talked about managing legacy, but you've got within that legacy advertising declines and legacy declines generally. The overall economic environment factors into our assessment on the range. And then the last 2 things I'll say is while we've got good momentum in AI-powered solutions and in cost transformation, are we able to further gain even better momentum in both of those, and that could swing to the positive depending on the traction we continue to get. Anything to add, Curtis? Curtis Millen: Yes. I'd just add, it's a detail. We're not targeting to reach low end of the range. We're targeting higher than that, but it is appropriate to have a range. And I'd just note the spread of the range is consistent with the last couple of years. So again, we think this is the appropriate range and consistent with our past practice. Tim Casey: Just as a follow-up, any comment on what we're seeing in the wireless pricing environment and what usually is a very tepid loading environment and promotional environment? There seems to have been a little more activity than some of us would have expected in January. Just what are your reflections on what's going on in wireless so far in '26? Mirko Bibic: Yes. Thank you for the follow-up, Tim. I'll start with something that does need to be said, particularly with one of our key priorities being putting customers first. It's pretty clear that over the last, call it, number of years, certainly 3 years or so, we see consumers getting tremendous value from the wireless services we offer. You got lowering prices, improved network service enhancements, feature enhancements and basically the benefits of robust competition across the country. So that's important to say. Within that context, I think probably what I'll say, Tim, is that we're continuing at Bell to be disciplined. And that's a function of just sticking to our plan and being diligent in our execution. So for us, and this is not new, we're really focused on the bell loadings because the market is shifting to Tier 1 brand value proposition with 5G, with mobility, Internet and content. We're trying to improve the service revenue trajectory. We're really dialed in on base management. And if you go back to a year ago, we basically set out ARPU dilutive loadings in January of 2025, and yet, we still delivered strong full-year loadings. It just shows you that the discipline is working. And more recently, in the past month, January of this year, I think you saw some pretty aggressive promotions, the past 2 weekends, from some of our peers, and we decided to sit that out as well because what we're trying to do is get an appropriate share of wireless nets, profitable transactions, leveraging the premium tier. And we're focused on strong channel execution, both in retail and online and in the call centers. Operator: Our next question is from Stephanie Price from CIBC World Markets. Stephanie Price: In terms of my question, I was hoping you could walk through what's baked into the guide in terms of Ziply, how we should think about growth and margins in that business in '26? And maybe my follow-up is a bit on the U.S. competitive environment and if you're seeing any changes in the Ziply footprint here. Mirko Bibic: Right. So on Ziply, we're pleased. So 2025 ended exactly as we -- pretty much exactly as we telegraphed it would in -- at Investor Day for 2025. So that remains the case. And the performance does remain above our initial investment case when we announced the potential transaction back in November of 2024. So good on both of those fronts. In terms of the underlying fundamentals, Stephanie, demand for fiber, it's all about fiber and the underlying fundamentals remain strong for fiber, whether or not it's demand for fiber, customer preference penetration gains, where we do have fiber, and the long-term economics, all that remains very supportive and beats cable on pretty much all the metrics, speed, reliability, latency, product expansion, overall experience. And that dynamic hasn't changed either competitively on the ground in the states where Ziply is operating. Stephanie Price: And then just in terms of -- you mentioned a significant ramp in H2 in terms of the rollout at Ziply. Just curious how you're thinking about CI and the pace of the fiber rollout in the U.S. business? Mirko Bibic: Go ahead on CI. Curtis Millen: Yes. Thanks for the question, Stephanie. And look, I would say we do manage CapEx and capital intensity on a consolidated basis. So we are expecting capital intensity overall to drop, but fixed dollars remaining the same. You're not wrong, though. I would expect CapEx dollars spent in Canada probably go down year-over-year and with an increase in the U.S. But again, we're managing that on a consolidated basis and gives us the ability to reallocate capital towards higher-growth initiatives. So we're happy to have that flexibility, and frankly, that stronger opportunity in front of us. Operator: Our next question is from Jerome Dubreuil from Desjardins Securities. Jerome Dubreuil: I'll just follow up a bit on Tim's questions there. But after seeing what has happened with the wireless landscape over the last few weekends, have you changed your expectations for 2026 or padded the downside a little bit better? Mirko Bibic: So that's -- Jerome, that's built into the ranges on guidance that we've talked about. If you focus on -- maybe if I take a narrower focus on the question and go straight to ARPU, for example, so when we came out of Black Friday in November of 2025, we thought it would be possible to show moderate ARPU growth by Q4 of 2026. And with the pricing we saw in December of 2025 and what we've seen some of our peers do in January, it might be more difficult to get there. But there's still 11 months left in the year. And I think -- broadly speaking, I think there are signs that we can go back to the level of pricing we saw more of in October, November, particularly while delivering the tremendous value for consumers, which I talked about earlier when I was discussing with Tim. Jerome Dubreuil: Okay. That's helpful. In terms of the next step for AI Fabric, I think the ROI opportunity there is pretty strong. Maybe if you can discuss the potential catalyst that you see down the road? Are there -- is there an inflection in demand? Are there announcements we should be expecting maybe from the different government levels? Mirko Bibic: Yes. So I'll try to take it. So on AI Fabric specifically, what we built in the 2026 plan and guidance is the monetization of a relatively small portion of the significant amount of overall capacity we currently have available to monetize over the coming years. And so that's based on our confidence to deliver those sites in year in 2026. So that's built into what you see today. We are in active discussions across multiple additional opportunities, and we've been sharing that consistently. And that's based on the pretty strong interest and sales funnel we have. There's a lot of demand for the capacity we do have. And so there are discussions that are ongoing. Operator: Our next question is from Maher Yaghi from Scotiabank. Maher Yaghi: Maybe I'll start with your assumptions on 2026 wireless subscriber growth for the industry or maybe better if you can give us some indications about what you expect you can achieve. You talked about ARPU. And so when I think about the pricing picture, Mirko, you mentioned that given what you saw in Q1 so far and late in Q4, you might not show a return to positive ARPU growth. I don't think that's -- I think the general market is in line with that view. But do you believe that the first couple of big discounts we saw this quarter in the last week, 2 weekends have hurt you in any way in terms of achieving your goals in subscriber loading for Q1? I'll start with that question, and I'll have another question on convergence after. Mirko Bibic: Okay. So there's -- thank you, Maher. There's kind of a few elements in that. So let me start with market growth generally. Our view of wireless market growth, to keep it short, is broadly consistent with what you heard last week from one of our competitors. So we also continue to see market growing at a low single-digit rate, and that just reflects a more mature market and lower overall volume growth and increases in penetration. So that's on that part. I -- in terms of how we're going to operate, it's -- I mean, I don't want to repeat too much of what I said at the beginning in response to the first question, but what we saw in January of this year, particularly the last 2 weekends, it doesn't change the delivery, our execution against our goals because we are going to stick to our plan. We are going to be disciplined. It's all about having a strategy and then executing against that and not deviating because of 1 or 2 weekends. So our approach remains Bell loadings, accretive loadings sitting out ARPU dilutive loadings, product intensity. So we're going to continue to execute against that. We're doing reasonably well. What we want to get is our appropriate share of market loadings. And on ARPU growth, which was kind of the third element you outlined in your question, I guess I'll end here where I ended on the previous question to when I was discussing with Jerome. There are still 11 months left in the year. So there's lots of opportunity here to deliver on what we all thought we'd be able to deliver, particularly by the end of this year. Maher Yaghi: Okay. That's fair. So my second question or follow-up is on convergence. Wireless, wireline bundles is not something new, of course. But in a more competitive market, I look at your fiber footprint, the largest in Canada by far, and compare that with some of your U.S. peers, which are trying to catch up and have made convergence their #1 priority, I would say. How much upside do you believe BCE can achieve from leaning on your fiber footprint to increase your wireless market share? And could you share with us what percent of your wireline footprint base is also a wireless customer of BCE, just to have some kind of a reference compared to what we hear from your U.S. peers? Mirko Bibic: So I think -- I don't have it at my fingertips, Maher, but I think at Investor Day, we did outline our goals on product intensity in terms of percentages, 25% product intensity increase between now and 2028. So we are trying to -- that answers your question is do we think there's upside? 100%, we think there's upside, and we gave the upside target over the 3-year timeframe. And that's largely on the back of an expansive fiber footprint, coupled with the best premium content in the business in Crave and continued leadership in wireless. So -- I know I'm giving you more of a general strategic question -- point of view. So that's the strategy. The strategy is born from a belief in tremendous upside. The upside is going to come through disciplined execution. And in terms of the specific stats you're asking for, I don't think we'll give that here on the call. Operator: Our next question is from Sebastiano Petti from JPMorgan. Sebastiano Petti: I guess just following up on Stephanie's question related to perhaps the U.S. environment. What you've seen here in the U.S., I guess, is scaled fiber operators seem a bit more focused on driving penetration this year and largely have messaged that ARPU growth might be a little bit muted. I mean -- and then the cable operators, Comcast, Charter, who you compete with in the vast majority of your Ziply footprint, have largely messaged as well that ARPUs or price increases will not necessarily be passed through here, as they try to focus on churn reduction, gross addition improvement. While still early, and I think you just kind of hit on it, Mirko, in your answer to Maher's question there that I presume a lot of the growth is volume-based. But boots on the ground, blocking and tackling, has anything changed in the strategy or Harold and the team's strategy in the U.S. kind of given the competitive environment? That's my first question. And then, I'll just toss out my second one here as well. On Slide 5, you do talk about continued noncore asset sales as you optimize the balance sheet. Any update on current work streams or what we might be able to perhaps expect in 2026? Mirko Bibic: So on the Ziply part of the question, Sebastiano, so nothing has changed in terms of the strategy and the execution in the Ziply markets where we have fiber. We're continuing to see the penetration ramp exactly as we had expected and as Ziply had been performing prior to our acquisition. So all that remains quite solid. On pricing, it's interesting, Ziply has typically not been the highest priced broadband provider in the markets it operates. So there's a price gap between Ziply and cable where Ziply's pricing has tended to be below that of cable. And what you're seeing just maybe more broad kind of take on the Ziply questions is what you're seeing in what we're signaling is the -- there's a deliberate reset here on our part quite strategically. Prior to closing, Ziply's build plan was largely focused on upgrading its existing copper footprint within its existing ILEC territory. And as we said consistently, as we were leading up to closing of the transaction and since is that our long-term plan together with the Ziply management team is to go broader now. And now we have PSP in the Network FiberCo project. And the plan there is to build both within and beyond the ILEC footprint. And we're going to do that in a sequential and capital disciplined way. So we plan to do the build now not only within the 4 core states, not only within the ILEC footprint in those 4 core states, but outside both the ILEC footprint and the 4 core states. So if you kind of take that as the strategy, what happened is once we closed the acquisition, we took a bit of a step back and to reassess what had been the build plan so that we could tackle the wider geographic slate. And as we redesign the plan, what you're going to see is a little bit of a near-term slowdown in terms of the actual passings, but ramp, as we get to the back half of this year and into 2027 and beyond so that not only can we hit our 3 million locations passed target, but do it in the markets that we think are the most attractive. And then the second question was... Curtis Millen: Yes, Sebastiano, to get to your second question around asset sales. So I'd say consistent with our previous messaging throughout the year at Investor Day, we are focused on maintaining our discipline around capital allocation. One of our priorities is strengthening the balance sheet. You saw net debt slightly, but decreased even with the acquisition of Ziply. So we are continued -- we will continue to be focused. We are on track to reach our 3.5x net leverage target by 2027. And as we talked about previously, asset sales will play a role. We do have files underway. And as we reach agreements, we'll provide more transparency to the market. Operator: Our next question is from Vince Valentini from TD Securities. Vince Valentini: First, maybe just a clarification. Are we going to get Enterprise segment revenue starting to get disclosed discretely in the first quarter? I thought there was some indication at Investor Day, you'd improve enhanced disclosure. And second, more of a question, employee purchase plans within the wireless segment. I know you've been saying for the last couple of quarters, the vast majority of your postpaid net adds are on the Bell brand, but the Bell brand includes these EPP plans, which sometimes are $35 or $40 for big buckets of data, including roaming in other countries as well. Can you give us any sense, is that a satisfactory level of your loading, Mirko? Do you think that's getting a bit out of control? And do you have good eyeballs and gates on making sure your in-store reps authenticate people to make sure they qualify for these EPP versus just giving it to anybody? Mirko Bibic: Thanks for the question, Vince. I'll do the second, and Curtis, you can answer the first. Look, on EPPs, they are -- there's an EPP segment in the marketplace. We have traditionally, frankly, been gapped in EPP sales, both in terms of in the past functionality and as well as kind of a desire. By design, we've been gapped. We've over time fixed some of the product feature and execution gaps on EPPs, but our view hasn't changed on the strategy, which is we'll play where we need to, but we believe we are fundamentally disciplined executing against all core segments. Again, the focus is disciplined execution on the most accretive loadings while remaining competitive as appropriate in each segment. And that's what we're going to continue to do, Vince. We -- and again, you just -- EPP is one part of it, but you see some of the above-the-line aggressive pricing that some of our peers have put in market the last 2 weekends, and we set out. We did the same thing last year in January 2025. And ultimately, when you look at the full year performance in 2025, we took our appropriate share of net adds, and that's because we focused on executing against -- at the right times throughout the year. And that's the thing -- that's what we're going to continue to do. Curtis Millen: And Vince, just on your first question, the answer is yes. So starting Q1, we'll provide more detail in and around the enterprise segment. Operator: Our next question is from Batya Levi from UBS. Batya Levi: Great. A couple of follow-ups. First on the U.S. Is it possible to size the build plan for this year? And what are some other opportunities you're seeing to accelerate the fiber plan in the U.S., maybe some tuck-ins? And convergence also a theme. And are you -- do you see adding an MVNO important to inflect your subscriber growth in the U.S.? And a quick follow-up on Canada, can you talk about the TPIA activity in broadband? Mirko Bibic: Okay. Thank you, Batya. So on M&A opportunities, I'm going to give you a general answer on M&A opportunities, and this applies to the U.S. or Canada. We'll always take a look at opportunities to drive shareholder value. Importantly, though, any one of those would have to fit within our capital markets goals and deleveraging targets. So I'll leave it at that on M&A in the U.S. or otherwise. In terms of convergence, we -- at this moment in time, a converged offering in the U.S. is not required by Ziply in order to drive the penetration gains where we have fiber, and -- but we recognize that there may be a point in time that we'll want to do that, and we have a number of options available to us that we are looking at. So stay tuned for more on that over time. In TPIA, yes, of course, TPIA, not -- in terms of our -- what we want to do -- fundamentally, here's what we want to do. We want to -- again, in our approach to put customers first, we really do want to provide in the West to Western consumers an additional fiber option, particularly for those customers who want to buy more than one product from us. That remains our goal. Not much has happened with respect to execution against that goal, and that's because we're having difficulty getting an appropriate level of service from the fiber operator out West. And -- I mean, not to get into too much gory detail on this. I mean, some of the service windows or install windows are frankly weeks long, significantly longer than what we provide to resellers on our fiber network in the East, and that's untenable, particularly when we think that consumers out West are deserving or as deserving as competition as consumers everywhere else. ARPUs are higher for Internet in the West than they are in the East. So you could easily argue that consumers in the West are perhaps even more deserving of more competition. So what we're looking for is just an appropriate level of service from the underlying network owner out West. And once we -- once that's delivered to us, we'll be able to execute against what we said at Investor Day. Batya Levi: And are you seeing higher reseller activity in your region? Mirko Bibic: That's traditionally been the case. There's always been more resell for years and years and years in the East than in the West, and that's because the regulatory rules were actually always, for some reason, asymmetrical until recently, where there was no fiber mandate in the West, but there was a fiber resell mandate in the East. It's a bit inexplicable, but it's what it is. Those rules have changed now so that there's a fiber resell mandate across the country, but we just need appropriate service delivery so that we can deliver an experience to customers out West that they would expect of us and that we want to deliver because, again, all this -- put all of this aside, what matters the most is the experience that we deliver to customers. That's what concerns me the absolute most. Operator: Our next question is from Matthew Griffiths from Bank of America. Matthew Griffiths: I just wanted to ask on guidance. Coming out of the Investor Day, I think the message, and correct me if I'm wrong, was for within that 3-year guidance window for EBITDA growth to be sequentially higher in each subsequent year. Is that still the case as we get -- as we see 2026 guidance in the context of the 3-year guide? Curtis Millen: Matthew, it's Curtis. Yes, nothing's changed our view there. We expect as our growth businesses ramp up, as Ziply Fiber continues to expand their footprint and drive penetration, as our AI-powered solutions businesses ramp up, we continue to expect EBITDA to progressively improve over that 3-year horizon. Matthew Griffiths: Okay. And so within the guidance range for 2024 -- sorry, of 0% to 4% for 2026, it would seem at the high end of that range, given the ranges that you have longer term, it implies a downward trajectory on subsequent year growth. Can you just help kind of bridge those 2 together? And maybe there's something lumpy that could fall into 2026 that might fall into 2027? I don't know what it could be, but just kind of reconcile those things, would be helpful. Curtis Millen: Yes. It's a fair question, Matthew. And look, the trend is upward, but it's not a linear path. As Mirko talked about earlier, there are timing fluctuations in terms of -- especially in our enterprise side of the world, there's a timing impact in terms of advertising continued rebound, launches of our services. So yes, on a 3-year horizon, it's a continuous upward trend. But within any reporting period, there's still going to be a range of outcomes. But the first point still holds true. Matthew Griffiths: Okay. That's helpful. And then, you made some comments on wireless ARPU, which are helpful. I just was curious if you would make -- like what you would say your assumptions are around kind of international roaming as a contributor to either continued declines or stability? Because in the past, you've made some comments on where your monthly recurring revenues have been trending, which has been positive. So anything to add there would be helpful. Mirko Bibic: Yes. So roaming trends actually improved sequentially in Q4. It was still a decline, but it was a low single-digit decline. So we saw a healthy recovery in consumer roaming revenue in Q4, which is, I'd say, encouraging for future ARPU performance if that continues to hold. Operator: There are no further questions registered at this time. I would now like to turn the meeting over to Mr. Somers. Krishna Somers: Thank you, Matthew. Thank you again, everyone, for your participation on the call this morning. Richard and I will be available throughout the day for follow-up questions or clarifications. Thanks again, and have a great day. Curtis Millen: Thanks, everyone. Have a good day. Operator: Thank you. The conference has now ended. Please disconnect your lines at this time, and we thank you for your participation.
Operator: Good day, and thank you for standing by. Welcome to the Bassett Furniture Industries, Incorporated fourth quarter 2025 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 automated 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, Mike Daniel, CFO. Please go ahead. Mike Daniel: Thank you, Didi, for the introduction. Welcome to the Bassett Furniture Industries earnings call for the 2025, which ended November 29, 2025. Joining me today is our chairman and CEO, Rob Spilman. We issued our earnings release for the fourth quarter yesterday after the market closed, and it's available on our website. We plan to file our form 10-K with the Securities and Exchange Commission in the next couple of days. After today's remarks, Rob and I will open up for questions. We will also post a transcript of this call on Bassett's Investor Relations website following the call. During this call, certain statements we make may be considered forward-looking statements and inherently involve risks and uncertainties that could cause actual results to differ materially from management's present view. These statements are made pursuant to the safe harbor provision of the Private Securities Litigation Reform Act of 1995. The company cannot guarantee the accuracy of any forecast or estimate nor does it undertake any obligation to update such forward-looking statements. Other filings with the SEC describing risks related to our business are available on our corporate website under the Investor Relations tab. Now I'll turn things over to Rob. Rob? Rob Spilman: Okay. Good morning, everyone. Thank you, Mike. The reality is that the market has not changed much from what we saw throughout 2025. Housing sales are very slow, and this, of course, impacts our business. So we're pleased that given this environment, and with our fourth quarter closed on November 29, the day after Black Friday, we increased sales and profits. Last year at this time, we noted that our 2024 restructuring plan was mostly complete. But I want to point out that the restructuring mindset and the focus of running a leaner, smarter business is as much on the front burner today as it was then. We're still at it. Taking cost out, driving operating efficiencies, integrating technology, emphasizing product newness, innovation, and design along with adapting to a changing marketplace. We managed through the tariffs, and Bassett's flexible sourcing model is central to our company's ability to be resilient. We are hopeful that the tariff situation has stabilized, but we will react again if that changes. Bassett finished the year with a solid fourth quarter, increasing consolidated revenue 5.1%. Excluding the impact of last year's Noah Home closure, consolidated revenues were up 6.4%. Wholesale sales were up 8.3%, and retail sales were strong as well, increasing 7.9%. Two years ago, we invested in a fresh approach to Bassett case goods, and those investments have begun to pay off for us. Our wood business needed to be reinvented, and we are pleased with the progress we've made. Sales of these offerings were up over 50% in the quarter. The Copenhagen line has been in retail locations for a year now and is a top seller across all product categories. Our homework line of desks and related office products has successfully repositioned us in the home office category. On the domestic front, our US-made hideaway solid dining program, solid wood dining, is off to a good start. Upholstery sales of true custom leather that we launched in 2023 continue to exceed expectations, and sales of that program were up 19% in the quarter. We are also selling better fabrics, and we have consolidated our grading system to simplify the special order transaction and to offer more obvious values on better fabrics. The reception to our new styles at the High Point Market indicates that club level motion is poised for further growth in 2026. We are also excited about the innovation by our Z4 sleeper program that makes for easy opening with this European hardware. Our Bassett outdoor line is being absorbed into the Lane Venture outdoor collection, which we have owned for eight years, resulting in the Lane Venture brand being offered in the Bassett home furnishing stores starting this month. Lane Venture has very strong brand recognition in outdoor. This will be a more efficient operating model for us with fewer assets to support and will generate better inventory turns. We tweaked our marketing activities in the quarter, supplementing digital with print and spot TV. We provided assets to our licensed stores, and many took the opportunity to run local TV ads to drive traffic in their markets. We were encouraged by the ROI we saw on our direct mail pieces in the third and fourth quarter, and this is important to our strategy for 2026. We're moving from one catalog to two this year to supplement our digital plans. During the past year, our teams worked hard on enhancing the consumer-facing e-commerce site, and e-commerce sales were up 14% in the quarter. Conversion rates continue to rise double digits. For the full year, e-commerce sales were up 27%. We will continue to add stores in 2026, with Cincinnati opening in the second quarter and Orlando opening in the third quarter. Both are new markets for us. We will also relocate our existing Long Island store in Westbury to Melville, New York, in September. Things are certainly changing in the open market furniture world outside of the Bassett store network. The retirement of independent furniture store operators is a nationwide generational trend that has picked up steam in the post-pandemic world. We have several strategies in place to adapt and continue to grow our wholesale channels. We are adding new elements to both of our dedicated distribution concepts. The 3,000 to 5,000 square foot Bassett Design Center is our largest channel outside of retail. Sales were up 5% in the BDCs in the quarter. Our Bassett Custom Studio, the 1,000 square foot footprint, specializing in true custom upholstery, was up 21% in the quarter. We now have 57 Bassett Custom Studio partners. Another important element of our strategy is accelerating our pursuit of America's robust interior design community. We have implemented new programs to address the needs of the design trade, and this is a priority for 2026. In a similar vein, we have launched a new division, Bassett Hospitality, to grow sales. We've been building in the boutique hotel, country club, and senior living channels. Under experienced leadership, we're building a portfolio of table stakes assets to address this business properly. Bassett closed the fiscal year with a strong balance sheet. Mike will get into the financial details on the quarter. Our fiscal 2026 is well underway. We believe the tariff situation has stabilized, and we've adjusted prices to account for the impact. We will reassess if that changes. Industry data points to ongoing challenges with housing and mortgage rates, so we must control what we can, holding a leaner organization and business model to position us well in this environment. Our team is smaller. We reduced headcount by 11% last year, and we recently reduced headcount again by 4%. We made meaningful progress in 2025 on positioning Bassett to weather a marketplace where discretionary demand is moderated. Innovation, change, and operating discipline remain critical to our future. After 124 years of history, our future is dependent on these changes, flexibility, and new ideas. Now I'll turn things over to Mike. Mike Daniel: Thank you, Rob. In my commentary, the comparisons I'll discuss will be the 2025 compared to the 2024 unless otherwise noted. As Rob previously noted, total consolidated revenue increased $4.4 million or 5.1%. Excluding sales from Noah Home, which closed late in 2024, consolidated revenues increased 6.4%. Gross margin at 56.3% represented a 30 basis point decrease when compared to the prior year, primarily driven by lower retail margins partially offset by higher margins in the wholesale business. Selling, general, and administrative expenses were 53.2% of sales, 60 basis points lower than the prior year, reflecting benefits from last year's restructuring program, ongoing cost optimization activities, and greater leverage of fixed costs due to higher sales levels. Operating income was $2.3 million or 2.6% of sales, as compared to income of $900,000 in the prior year. Excluding impairments and other restructuring-related costs, operating income would have been $2.8 million or 3.2% of sales in 2025, compared to $2.3 million or 2.8% of sales in 2024. Diluted earnings per share were 18¢ in 2025 versus 38¢ in the prior year quarter. The prior year's earnings included a $2.6 million tax benefit associated with our cumulative investment in Noah Home. Excluding that benefit, diluted earnings per share for 2024 would have been 8¢. Again, as Rob pointed out, net sales for the wholesale business increased $4.4 million or 8.3% over the prior year, consisting of a 14% increase in shipments to our retail store network, a 3.4% increase in shipments to the open market, partially offset by a 13% decrease in shipments for Lane Venture. The decrease for Lane Venture was primarily due to timing of receipt of imported goods to fulfill orders as the order rate for the quarter actually increased by 34%. Gross margin increased 60 basis points over the prior year. This increase was driven by improved pricing strategies in both the upholstery and wood operations, coupled with greater leverage of fixed costs from higher sales levels, partially offset by an unfavorable warranty and returns adjustment. SG&A expenses as a percent of sales decreased 50 basis points, primarily due to greater leverage and fixed costs from higher sales levels. Wholesale backlog was $19.5 million, as compared to $21.8 million on November 30, 2024. Now moving on to our retail store operations. Net sales increased $4.2 million or 7.9%. To support sales and to wait until there was greater clarity on tariffs, our retail prices were not adjusted for the cost increases until January 1, 2026. Primarily due to this, gross margin declined 150 basis points. SG&A expenses as a percent of sales decreased 180 basis points due to several factors: efficiency gains in warehouse and delivery operations, overall lower operating costs due to benefits from the cost reductions implemented during the restructuring, and greater leverage of fixed costs due to higher sales levels. Retail backlog was $34.4 million compared to $37.1 million at November 30, 2024. Our liquidity position remains solid, with $59.2 million of cash and short-term investments and no debt. We generated $7.8 million in operating cash flow during the quarter, and our cash and short-term investments increased $4.6 million. For the year, we generated $13.5 million in operating cash flow and $2 million of free cash flow, demonstrating our ability to manage cash during a tough business cycle for home furnishings. As Rob mentioned, we plan to open three new stores during the year, which will result in additional capital expenditures. We're forecasting $8 to $12 million of CapEx for 2026, considerably more than the $4.5 million spent this year. We continue to pay our quarterly dividend and repurchase shares opportunistically. We spent $1.7 million on dividends and $600,000 on share buybacks in the fourth quarter. We remain committed to delivering shareholder returns through dividends and, when appropriate, share buybacks. Our board recently approved a regular 20¢ dividend to be paid February 27. Now we'll open up the line for questions. Didi, please provide instructions to do so. Operator: Thank you. As a reminder, to ask a question, please press 11 on your telephone, and wait for your name to be announced. To withdraw your question, please press 11 again. And our first question comes from Anthony Lebiedzinski of Sidoti. Your line is open. Anthony Lebiedzinski: Good morning, everyone, and thanks for taking the call. Certainly great to see you guys maintaining a very strong balance sheet even with all this volatility. So I guess my first question, just as far as Q4, can you comment on pricing versus unit volumes you saw in the quarter? Mike Daniel: Are you referring to the tariffs and pricing actions? Anthony Lebiedzinski: Yeah. Mostly just tariffs. I mean, obviously, you know, with all the changes that we've seen, you guys did take some pricing actions. So just wondering if you guys can comment on that. Doesn't have to be overly specific, but just kind of directionally where you see pricing was. Rob Spilman: Back in the spring, you know, when they had liberation day, we increased prices initially on that and passed that through retail. Then we had some subsequent tariffs, and these things have jumped around a lot. But as Mike alluded to in his comments, we made the decision to hold our retail prices in the fourth quarter, which did impact our retail gross margins. We basically had a surcharge on top of the regular wholesale price. We had a tariff surcharge. And then recently here, a couple of weeks ago, we rolled the surcharge into a wholesale price and then adjusted that at retail. So basically, we absorbed the surcharge in our retail division during the quarter. And that's now been run through. Hopefully, this thing will settle down, and we'll know what we're dealing with. Although, of course, as you may have seen, India's tariffs are coming down. So and we do have some nice products from India. So it's been tough to manage, and it's been tough to communicate exactly where we are to our customers through all this, but hopefully, we're going to see some kind of stabilization. And, Anthony, when you get down to price versus number of pieces, we don't get too caught up in the number of pieces. We're really tracking the top line cash. But I would say on the wholesale side, when you say we're up 4% in sales dollars, no, we're up 8% in sales dollars. I think the price increase was not 8%. Given all. So I would say from a unit standpoint, we probably were up a tad. Anthony Lebiedzinski: Okay. That's great. Thanks for that color. And then can you guys comment on the written retail sales that you saw in the quarter? Any sort of comments on demand trends so far? Early, in early fiscal 2026? Rob Spilman: Well, we started off the quarter strong with written sales. They did temper somewhat as the quarter went on. We did have another strong Black Friday, but at the end of the day, we had a nice written order. And this year, we have started off well. We started off the first seven weeks because our quarter is five weeks in December, and then, of course, the first two weeks of January. So that first seven weeks were solid. We were pleased with that. I must say, however, that these last two weeks with this weather situation have been a real kick in the shins, so to speak. We had to close 40 stores the ice weekend. And we closed several last weekend with the snow weekend. So this has been highly disruptive to everything. And so here we are in February, and President's Day looms. So these next four weeks will really tell the tale of the quarter. And, you know, we felt quite good until we couldn't open the store. So we'll see what happens, but that's my flavor on that. And let me give you another little piece of data that typically we have in the 10-Q. And since we don't have a specific thing on the quarter this time, our written sales were up 4% for the quarter. Anthony Lebiedzinski: Got it. Thanks for that. And then, yeah, and hopefully, for the President's Day weekend, you know, the weather is kind of more normal. And then, you know, as far as the Bassett Design Studios and design centers, I know you guys gave some color commentary on that, which sounds like those are doing well. As we look forward here to the balance of fiscal '26, do you guys expect to open more of those locations? How should we think about that? Rob Spilman: We do. And we are in, you know, the studio is the smaller concept, thousand square feet, really specializing in our custom upholstery through the custom program. That we should get more action out of that as the design center is a bigger commitment on floor space and inventory. And those don't come along as often as we have been able to open the newer concept. But, yes, that's very much a focus for us. And what we're really focusing on too is the productivity of those concepts, all the metrics that they use. And, of course, that's how you keep a solid network. So but we do. I can't tell you exactly how many offhand, but that's something that we talk about constantly around here. Anthony Lebiedzinski: Gotcha. Okay. And then my last question here. So I know you guys talked about opening new stores this year. Longer term, how do you guys think about the retail store network? Just would love to get some color on that subject. Thanks. Rob Spilman: When you say how do we think about it, you mean in terms of size of it or how many stores or that kind of thing? Anthony Lebiedzinski: Yeah. Exactly. Yeah. It's just, you know, what's your kind of long-term goal as far as the number of stores? If you have a goal that you can share with us or just, you know, any sort of additional colors on how you guys think about the growth of the business next three to five years, which I would imagine would entail opening more stores, but, you know, maybe just wanted to if you could provide some additional details on that. Rob Spilman: Sure. Well, we certainly look at the geography of the country and what kind of revenue is derived from each area. We know that when we open a store, we do more business in that area than if we don't have a store. So that's primary, that's number one. However, I would say the post-COVID models for rents and for construction costs, we just had an interesting meeting on that yesterday. The environment's changed. It's more expensive to do these stores today. So what we do, we've got a formula, and we overlay that formula with the geography. We do try to leverage areas where we are currently operating in to take advantage of warehousing and that kind of thing if we can add and leverage our investment in the geographic area. So but this pace of, call it, two to four stores a year is one that we foresee us continuing on. And in addition to that, of course, all these efforts in the open market and now the design trade and the new Bassett Hospitality division, all of these things are in Lane Venture are all part of the mix for us to grow the top line. Anthony Lebiedzinski: Thank you very much, and best of luck. Rob Spilman: Thanks, Anthony. Thank you. Operator: Thank you. And our next question comes from Doug Lane of Water Tower Research. Your line is open. Doug Lane: Thank you, and good morning, everybody. Looking at the retail business in 2026 here, you mentioned you raised prices January 1. So will that be enough to get retail margins, gross margins on the retail side up year over year, or are there other factors that might continue to hold retail margins back a little bit? Rob Spilman: Well, Doug, really, if you look back in probably a five-year run, we had a nice run-up in our retail margins. And then, of course, this quarter, we went the other way for the reasons that Mike enumerated with the leading the surcharge and all that. But I think we're about where we're gonna be. We could increase slightly, and I mean, we've already seen the first couple of weeks with adjusting the prices that the margins have come up some. But we also want to make sure that we keep our inventory clean, and, you know, we're running this week of an inventory reduction sale as we speak. So all of those factors play in. So we've been running 52, 53, 54 in that range for some time. And I think that's where we see ourselves for the immediate future. Doug Lane: No. That makes sense. And help me understand how the new stores impact the P&L on the retail side. Is it enough to cause any kind of lumpiness in needed sales growth or gross margin in any particular quarter, or is it just pretty much seamless? Mike Daniel: Well, and I'll take this one. From a gross margin standpoint, really no effect on the gross margin per se. Where you see the impact is on the SG&A side. Unfortunately, with the way we have to record rent expense, we record rent expense basically when we take control of the building, which could be two, three months before we open. So we're hitting the rent expense at that point. Then when we open, we don't ring the register for a sale until the product gets delivered. So there's occupancy cost and other SG&A that's going on for a two to three-month period before you get that backlog up to a normal level. So from a P&L perspective, SG&A is a hit. And I think if I remember right, what we used to say in the Q's and the K's, it was somewhere preopening cost is what we really refer to it as. Was somewhere in the four to $500,000 range for a new store opening. Doug Lane: Got it. Thank you. You know, it still sounds like the macro environment is challenging, and yet you're growing wholesale and retail 8%. So congratulations on that. So obviously, you're gaining share from somebody. How would you describe where you're taking market share from in the current environment? Rob Spilman: Well, I just would attribute it to some of the new products that we brought out. And maybe, well, definitely, I would say in a couple of cases, we've needed to really improve our assortment. It's hard for me to really pinpoint who we took it from because there's so many guys doing this in this business. But it is really in our Bassett case goods, particularly this quarter. Consumers responded to what we had to offer. And that's really made a difference. So, you know, one thing about our business, and this is for everybody, if you get something that's hot, that people like, you know, it can affect your sales nicely. And, of course, the opposite is also true. But that's really what I attribute our success to. And we've been out in the stores here in the last few weeks, and the people are excited about these new products. So that's really what's happening. Mike Daniel: And, Doug, I would add one thing Rob pointed out in his comments. It's kind of the phenomenon of what's happening with the independent retailer. The more and more the generational businesses are going away. And at least on the retail side, it does provide some additional help to our sales. So I'd throw that in there too. Doug Lane: No. That makes sense. Lastly, on share repurchase. Is there any, what is the attitude on share repurchases? Is it still opportunistic? Or do you think that 2026 might be a little bit more aggressive than 2025? Just maybe if you could help me think about how you guys think about share repurchases. Rob Spilman: Well, it's my, this word opportunistic is certainly what drives our decision process on that. We also, you know, in quiet periods, we are prohibited from buying in the open market unless we put some kind of accommodating plan in to allow us to buy at a certain level. And so before we close each quarter, we look at those thirty, forty days that follow the quarter and say, well, if it reaches a certain level, if it goes down a certain level, we'll buy. But, you know, I would say pretty much the course of where we are on the share repurchase is what we're thinking right now. Mike Daniel: And the other piece to that, Doug, is we're constantly looking at our cash level and the cash generation during the period to make sure that we can, if you want to say, afford to make those purchases. Doug Lane: Okay. That's helpful. Thank you. Operator: Thank you. I'm showing no further questions at this time. I'd like to turn it back to Rob Spilman for closing remarks. Rob Spilman: Well, as we said, everyone, we have a similar environment here in 2026 that we experienced in 2025, but we are hard at running a smarter business and growing the top line, invested in the various ways that we have described, and that's what we're going to continue to do. I would say thank you for your participation today. And have a great day. Thank you. Operator: This concludes today's conference call. Thank you for joining. You may now disconnect.