加载中...
共找到 17,026 条相关资讯
Emily: Good morning. My name is Emily, and I will be your conference operator today. At this time, I would like to welcome everyone to The Timken Company's Fourth Quarter Earnings Release 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. Thank you. Mr. Frohnapple, you may begin your conference. Neil Frohnapple: Thank you, operator, and welcome, everyone, to our fourth quarter 2025 earnings conference call. This is Neil Frohnapple, Vice President, Investor Relations for The Timken Company. We appreciate you joining us today. Before we begin our remarks this morning, I want to point out that we have posted presentation materials on the company's website that we will reference as part of today's review of the quarterly results. You can also access this material through the download feature on the earnings call webcast link. With me today are The Timken Company's President and CEO, Lucian Boldea, and Michael Discenza, our Chief Financial Officer. We will have opening comments this morning from both Lucian and Michael before we open up the call for your questions. During the Q&A, I would ask that you please limit your questions to one question and one follow-up at a time to allow everyone a chance to participate. During today's call, you may hear forward-looking statements related to our financial results, plans, and business operations. Our actual results may differ materially from those projected or implied due to a variety of factors which we describe in greater detail in today's press release and in our reports filed with the SEC, which are available on the timken.com website. We have included reconciliations between non-GAAP financial information and its GAAP equivalent in the press release and presentation materials. Today's call is copyrighted by The Timken Company, and without express written consent, we prohibit any use, recording, or transmission of any portion of the call. Finally, note that we are planning to host an Investor Day on Wednesday, May 20, in New York City. We hope that you will join us either virtually or in person. Please stay tuned for more details. With that, I would like to thank you for your interest in The Timken Company. And I will now turn the call over to Lucian. Lucian Boldea: Thanks, Neil, and good morning, everyone. We appreciate your interest in The Timken Company and for joining us today. I'd like to start by thanking our Timken team for their hard work and resilience. While 2025 presented a challenging market environment, our team executed with discipline, and we finished the year strong. Turning to our results in the fourth quarter, we achieved adjusted earnings per share of $1.14, which exceeded the high end of our guidance range. Total sales in the fourth quarter were up 3.5% from last year. Organic revenue was up more than 1%, driven by higher pricing and volume growth in the Industrial Motion segment. We increased free cash flow to $141 million, enabling us to return $36 million of cash to shareholders and reduce debt by more than $100 million during the fourth quarter. The company ended the year with a strong balance sheet with net leverage at only two times, enabling us to continue our balanced approach to capital allocation. Michael will take you through the details of our 2026 outlook, but we expect to generate organic revenue growth, strong free cash flow, and higher margin. Overall, we expect adjusted EPS to increase around 8% at the midpoint of the guidance range. We see encouraging order activity across several industrial markets, and our backlog at the end of 2025 was up from the prior year. These trends support our expectation that customer demand will improve compared to 2025, and our outlook for organic sales to be up 2%. This reflects higher pricing and modest volume growth. Given the volatility of the ongoing trade situation, despite macro uncertainty, our team is operating with urgency to execute our strategic initiatives and fulfill our commitments to delivering stronger performance in 2026. We're making good progress on our near-term strategic initiatives, including the 80/20 portfolio work. Over time, we expect to exit underperforming businesses and prioritize our focus and resources on actions that will have the greatest impact on company margins and growth. Based on early results from this work, we have decided to extend the 80/20 discipline across our entire enterprise. This will include simplification of the portfolio and process optimization. We are still early in the process, but it has become clear that applying this 80/20 approach more comprehensively will be a major driver of value creation. I am very excited about the potential, but please keep in mind that it will take some time for the benefit to flow through to the bottom line. As we shared last quarter, I see plenty of opportunity to raise Timken's organic growth trajectory by focusing on the fastest-growing verticals and regions. We will also continue to integrate acquisitions and drive synergies through global expansion of our acquired business. To support this objective, we recently announced targeted strategic leadership appointments to better align the organization with our primary growth drivers and serve customers more comprehensively as one Timken. New positions include a Chief Technology Officer, Vice President of Marketing, and Regional President. These additions to our leadership team directly support our growth strategy, will fuel innovation, strengthen commercial execution, and position us to capture greater share in key markets, verticals, and regions. Together, we're energized by the many opportunities ahead to leverage Timken's strength and create new ways to drive improved performance. With that, let me turn over the call to Michael for a more detailed review of the results and outlook. Michael Discenza: Thanks, Lucian. And good morning, everyone. For the financial review, I'm going to start on slide seven of the materials with a summary of our fourth quarter results. Overall, total revenue for the quarter was $1.11 billion, which is up 3.5% from last year. Adjusted EBITDA margins came in at 16%, and adjusted earnings per share for the quarter was $1.14. Turning to slide eight, let's take a closer look at our fourth quarter sales. Organically, sales were up 1.3% from last year. The increase was driven by higher pricing across both segments and higher volumes in the Industrial Motion segment, which more than offset lower demand in engineered bearings. Looking at the rest of the revenue walk, foreign currency translation contributed more than 2% growth to the top line. On the right, you can see fourth quarter performance in terms of organic growth by region. In The Americas, our largest region, we were flat as growth in North America was offset by lower revenue in Latin America. In Asia Pacific, we were up 4% from last year, as growth in India and other parts of the region more than offset lower revenue in China. And finally, we were up 4% in EMEA, led by solid growth from the Industrial Motion segment. Turning to slide nine, adjusted EBITDA of $178 million was flat with the prior year. Adjusted EBITDA margins came in at 16% of sales in the fourth quarter, compared to 16.6% of sales last year. Excluding the impact from currency, margins would have been nearly flat with the prior year. Let me comment a little further on a few of the different drivers on the EBITDA bridge you can see on this slide. Starting with the impact from mix, it was a notable headwind as OE shipments outperformed distribution in the quarter. And you may recall we were lapping favorable mix in our defense business in the prior year. With respect to pricing in the quarter, it was positive $25 million and added more than 2% to the top line in the quarter, as we continue to put through pricing actions to mitigate the impact from tariffs. As you can see on the slide, tariffs were a $30 million headwind versus last year, and costs were also higher sequentially, as expected. Looking at material and logistics, costs were notably lower versus last year, driven mostly by savings tactics in the engineered bearings segment. Moving to the SG&A and other line, expenses were down from last year, driven by cost reduction initiatives and lower accruals for bad debt. Now let's move to our business segment results. Starting with engineered bearings on slide 10, engineered bearings sales were $714 million in the quarter, up 0.9% from last year. Currency translation added nearly 2% while organic sales were down 1%, as higher pricing was more than offset by lower volumes. Among market sectors, off-highway and renewable energy achieved the strongest gains versus last year. We also posted growth in aerospace and general industrial, while revenue was lower from last year across the distribution, on-highway, heavy industries, and rail sectors. Engineered Bearings adjusted EBITDA was $115 million or 16.1% of sales in the fourth quarter, compared to $122 million or 17.2% of sales last year. Margins in the quarter were negatively impacted by unfavorable mix, as well as incremental tariff costs, which continue to disproportionately impact the segment. On the positive side, cost savings and the benefit of higher pricing helped mitigate these margin headwinds. Now let's turn to Industrial Motion on slide 11. Industrial Motion sales were $397 million in the quarter, up 8.4% from last year. Organically, sales increased 5.6% driven by higher demand across most sectors and higher pricing, while currency translation was a benefit of 2.8%. The segment saw growth in the quarter across all product platforms, led by strong regional gains in The Americas and Europe. Among market sectors, automation and aerospace achieved the strongest gains versus the prior year. We also generated growth in the off-highway and heavy industry sectors, while solar and distribution sales were down. The increase in segment margins reflects solid operational execution by the team in the quarter, as well as the impact of higher volumes and pricing, which more than offset incremental tariff costs and unfavorable mix. Moving to slide 12, you can see that we generated operating cash flow of $183 million in the fourth quarter. And after CapEx of $43 million, free cash flow was $141 million, up from last year. This brought our free cash flow to $406 million for the full year, an increase of $100 million from the prior year. Looking at the balance sheet, we reduced net debt by over $130 million during 2025 and ended the fourth quarter with net debt to adjusted EBITDA at two times, which is at the middle of our targeted range. Now let's turn to the outlook for full year 2026 with a summary on slide 14. Starting on the sales outlook, we're planning for full year revenue to increase 2% to 4% in total. We're planning for currency to contribute around 1% to our revenue for the year, which reflects the weaker US dollar. Organically, we expect revenue to be up 2% at the midpoint, driven by higher volumes and pricing in both segments. On the bottom line, we expect adjusted earnings per share in the range of $5.50 to $6, up 8% at the midpoint versus 2025. For modeling purposes, think of the full year adjusted EPS outlook to be split roughly 54% in the first half and 46% in the second half. And the outlook assumes year-over-year earnings growth every quarter this year. This earnings outlook implies that our 2026 consolidated adjusted EBITDA margin will be in the high 17% range at the midpoint, up from 17.4% in 2025. Note that the midpoint of the ranges implies an incremental margin of approximately 30% for the full year. For the first quarter, currency is estimated to add around 3% to the top line, while we expect organic sales and adjusted EBITDA margins to be relatively flat with last year. Moving to free cash flow, we expect to generate around $350 million for the full year or approximately 105% conversion on GAAP net income at the midpoint. On slide 15, we provide an initial view on our 2026 organic sales outlook by market and sector, which includes the impact of both volumes and pricing. As Lucian indicated, we are seeing increasing order activity across several of these industrial markets, which supports our outlook for organic sales to be up 2% at the midpoint. Moving to slide 16, here we provide a bridge of the key drivers that walk our 2025 adjusted EPS to the 2026 outlook midpoint of $5.75. You can see the 25¢ positive impact from the organic sales change net of inflation, while currency is expected to add 5¢. And finally, we're estimating a year-on-year positive impact from tariffs of approximately 10¢ to 15¢ per share. The trade situation continues to evolve, but we expect that our mitigation tactics will enable us to recapture the margin as we exit 2026. Please note that this estimate does not include potential impact from the announcement earlier this week related to the new tariff agreement with India. Lucian Boldea: In summary, the company delivered better than expected fourth quarter results and the team is focused on generating stronger, top and bottom line performance in 2026. Let me turn it back over to Lucian for some final remarks before we open the line for questions. Lucian Boldea: Thanks, Michael. Our team is executing with urgency to position The Timken Company for stronger growth and higher margins in 2026. And we see significant opportunities to improve both our top line and bottom line performance. I look forward to sharing more details with you soon at our Investor Day event in May. Michael Discenza: This concludes our formal remarks. And we'll now open up the line for questions. Emily: Thank you. We will now begin the question and answer session. As a reminder, if you would like to ask a question today, please do so now by pressing star followed by the number one on your telephone keypad. If you change your mind or you feel like your question has already been answered, you can press star followed by 2 to remove yourself from the queue. Our first question today comes from Bryan Blair with Oppenheimer. Bryan, please go ahead. Bryan Blair: Thank you. Good morning, guys. Michael Discenza: Morning, Bryan. Bryan Blair: To I guess, level set a bit on demand trends, it would be great to hear how orders progressed through Q4 whether there was any kind of a lull in December shipments you would somewhat guarded against that with guidance perhaps some of that hit took place in bearings. And then more importantly, how orders progressed into January and what your team is seeing on I guess, more of a real time basis? Lucian Boldea: Yeah. Thank you, Bryan. So, look, I think it's important to put this in context where we've come from. So you look at eight quarters of negative growth. Then Q3, we started seeing signs of life and green shoots. We said we don't want to extrapolate on that. Q4, I would say, went a little better than expected, but I'll also remind you that the comp was a little bit easier for Q4 when you compare to year over year. But I think if we look at your specific question inside and what gives us hope for 2026 is really the order book. So the order book, when you look at where we ended the year, we ended the year up high single digits. Off highway, general industrial, wind, and aero were the big contributors. And then even the sequential order movement from Q3 to Q4, there was some decline because their seasonality, but really very, very low. You could almost call it flat. So from that standpoint, I think we feel good about it overall. As to how it progressed, inside I would say the difference was that we had a very weak December a year ago. We had a more normal December this time as far as revenue. And I think the pacing of the orders was more steady throughout the quarter. As Michael mentioned earlier, there was a bit of a downturn in distribution, but that's we view that more as timing. It was a low single digit kind of movement, and so that's not a definitely wouldn't call that a trend. And then general industrial was up. So overall, I think in the quarter, it was little better than expected, and it was fairly broad based regionally. We already commented that it was really Latin America and China were the only minuses. Everything else around the world was positive. And so that's why we feel good going into Q1. I think to your question on January, you know, we were giving a guide on Q1 based on what we see today. There's still a lot of uncertainty. We read all the announcement that came out a couple of days ago in India tariff. We haven't seen anything more specific on that yet, but it just illustrates that we still live in a pretty uncertain time. The guide that we gave, we looked at that carefully for Q1 and for where volume sits versus orders. And I would tell you that January, at least up to this point, is very consistent with that guide. So that's where we are, Bryan. Bryan Blair: Okay. Appreciate the color. And understood in terms of the maybe, uncertainty of the global backdrop, but it seems trends are pretty encouraging. If we think about your full year guide, maybe offer a little more color on segment contribution, top line and margin netting to the consolidated outlook. In Q4, there's bit more divergent performance between engineered bearings and then industrial motion than we anticipated you know, in a good sense on the I'm side. Curious how your team is thinking about contemplating the moving parts going forward? Michael Discenza: Yeah. So let me maybe start with the margins, Bryan, and then I'll let Lucian comment more on the revenue outlook if you'd like. Just margins. So fourth quarter margins, you know, roughly in line with our expectations, and you noted the difference between industrial motion and engineered bearings. And I would say that was largely a mix issue inside of engineered bearings. You know, where that revenue came in. I was a little more on the original equipment side, particularly on highway, a little stronger than we expected, and that contributed to the mix issue for us in the fourth quarter and that combined with the strength we saw on the Industrial Motion revenue side volume benefit plus the mix of the portfolio there. So that's what kinda created that fourth quarter differential. As we look forward to margins, first, I want to note that we are taking margins up year on year. And we're looking at you know, call it, a 30% incremental on our volume growth. So I would say a fairly typical, incremental, organic incremental for us. Just a reminder, when things earn on us, when we start to see growth, we do tend to see incrementals at the lower end of our incremental range as we have headwinds like variable compensation, etcetera. So as we look forward to next year, I think we've still got, pricing actions that will benefit us. We are seeing the benefit of the cost savings tactics we implemented throughout the year, which we're a little bit more heavily weighted to the end of 2025. So we benefit from those. And then we do see some favorable mix as we look forward to next year as well. So you know, so that's what's leading to our high seventeens guide on the margin range. And, know, with the actions we put in place, I feel pretty comfortable that we'll be able to, to improve margins year over year. So and maybe I'll have Lucian comment on the market trends. Lucian Boldea: Yes. I think we talked about it by market here in your first question, but I think where we expect organic sales is at plus 2%. Midpoint. It's both price and volume to get to that midpoint, but we are cautiously optimistic that demand will continue to improve. Again, the early signs are that that would be the case, but at this point, this outlook only reflects modest volume growth just given all the uncertainty and the volatility that we're still seeing today in the trade situation. Bryan Blair: Understood. Thanks again, guys. Lucian Boldea: Thank you. Emily: Our next question comes from Robert Wertheimer with Melius Research. Please go ahead. Robert Wertheimer: Hi. Just a couple of clarifications. So off highway was strong. There's some mixed signals in trucks but it seems like that market is recovering. And then maybe auto's lumped in there, accounting for some of the less positivity on the outlook. So I wonder if you could talk to what you're seeing there. I think you touched on distribution a minute ago, but any headwinds from distribution inventories or anything else? Or should we expect to see that follow along if various cycles recover? Michael Discenza: Sure. So let's start with where you started. So the heavy truck market, I would say, we're seeing a lot of life there, but as you know, combined with the automotive so the whole on highway sector, not really a sign of strength for us there. So on the off highway side, it's a little bit we are seeing strength in the order book. Lucian we're strengthening, I should say, improvement. Lucian referenced. But, really, if we look inside of there, it's not entirely broad based. We still see agriculture, which is part of our off highway segment as, as being down. So while we're seeing some positive signs in mining, and construction, agriculture still is a weight in that, in that segment. And then lastly, on distribution, you know, we feel pretty good about where distribution inventories are. So, you know, we don't see, we don't see an issue. So really, selling through with the at the market rate there. Where we have visibility again. You know, we don't have visibility across the entire distribution network, but where we do have visibility feel pretty comfortable with the inventory levels. And so, you know, so, again, see that being a some growth next year. I'll say, you know, low low single digit close to neutral growth. But, comfortable with where the inventory is, so it should be a contributor next year. Robert Wertheimer: Thank you. Emily: Thank you. The next question comes from David Raso with Evercore ISI. Please go ahead, David. David Raso: Thank you so much. Quick clarification of it. I didn't hear it. Volume growth in 2026. Do you expect volumes to turn positive in the first quarter? I know for the whole company, they were still down slightly in the fourth quarter. Just making sure that's that's the starting point. Lucian Boldea: Yeah. So let me roll along. Michael Discenza: Yeah. So let me address the Q1 organic sales. We said that we expect those to be flattish year over year. And what that means, obviously, with pricing coming in up, that means volumes would be slightly lower. Again, there's a function of just the comp that we're talking about. We had a pretty strong volume in Q1 a year ago. The some timing on a couple of market segments, renewable being one of them. That drove that comp to be a little more more challenging. So a down volume up pricing, and then flat flat year over year organic growth. And then from an EBITDA standpoint, also flat year over year. From a margin standpoint. David Raso: Okay. Thank you. So my real question, you made the comment about 80/20 across the portfolio exiting some underperforming businesses, but you made the comment you know, but remember, it could take some time. When I look at the bridge for '26, you pull out the tariff relief separately, you pull off you pull out the currency. Seems like you're implying only mid-twenty percent incrementals on the organic piece. Right? The 25¢ in the bridge on slide 16. Are there costs embedded into your actions that are weighing on those margins? And just give us a sense of what you meant by take some time. I'm just trying to make sure I understand Is 26 a year of cost? And we don't see benefits till '27. I'm just trying to get a sense of the cadence Yeah. Of what you were implying. Lucian Boldea: Yeah. Okay. I appreciate the question. And so, you know, we introduced 80/20 in the last conference call as really being directed at the portfolio. And the idea there was let's critically examine the portfolio, and look at where do we want to double down on investment. Again, the intent is to invest more in growth but with a finite set of resources, that also means walk away from certain things. And so that process is well underway. We've identified the parts of the portfolio that we want to deemphasize. Obviously, to deemphasize those, there's really two ways of doing that. You're either having to extract yourself or exit a piece of business, or you have to go through an M&A transaction. In any event, those need to be handled confidentially. And, obviously, when we have something to announce publicly, then we will. What we've also communicated this morning was that we're expanding that 80/20 discipline now the entire enterprise. And so what that means is really now looking at our operation. So looking at not only our customer and product mix, and how do we simplify that, looking at our supply chain, our footprint, how do we simplify that. The latter part, so this broader 80/20 naturally has an upfront investment and then has a benefit if you look at companies typically who have done this, I would say there's a couple of quarters of cost then the benefits start. And so you've kinda have a couple of quarters of cost, a couple of quarters where the cost and the benefit may be neutralized each other, and then you get into net benefit. That's usually what Now we're very, very early in this process. We're just using the experience of our partners that we work with. We have an external firm that we're working with, and their experience is very aligned with what I'm saying in terms of the timing. But at this point, what I would say is there's not a significant amount of cost or a significant amount of benefit baked into what we're giving you today. Between now and Investor Day, we plan to have all this fleshed out, and so that's one of the things that we do we do plan to communicate at that point. It's really a road map not only on the portfolio, but also a road map on the cost actions that we're taking and really the simplification. And, again, the motivation for the simplification is twofold. One is think there's opportunity for margin, but, two, really, to free up resources for growth. David Raso: And at the meeting, would we expect or maybe you haven't decided, to get multiyear targets when it comes to sales and earnings and I assume, obviously, some quantification around the savings you just discussed. Lucian Boldea: Yeah. I can maybe foreshadow a little bit the table of contents because that much we know, I think we're still working on the content. But we're clearly now laying out a very disciplined transformation for the zero to thirty-six months time frame, and that involves the portfolio 80/20. That involves the simplification. That involves the doubling down regionally. To grow our acquisitions, that we already have. So that transformation road map will be very clearly laid out with the timeline, with what the objectives are. And then obviously, that's the bridge to something, and then we also will share with you what that something is and how we envision the company transforming as we move forward. So that second piece is a little more forward looking, but the first piece, that thirty-six months certainly will have not only growth algorithms for top line for bottom line, but then, obviously, financial targets for ourselves. But as much visibility and transparency as we can, we will give you so that you can follow along with us and obviously hold us accountable to delivering what we tell you. David Raso: Alright. That's great. I appreciate the color. Thank you. Lucian Boldea: Sure. Emily: The next question comes from Stephen Volkmann with Jefferies. Please go ahead. Stephen Volkmann: Thank you. Thank you. Good morning. Maybe I'll just run with that for a second. The evolution, I don't know if you're if you're willing to comment on this, but, you know, a lot of 80/20 and sort of simplification does involve exiting certain products and maybe even certain businesses and you know, the PLS impact of 80/20 is kinda usually the first step. And, you talked about the cost but I'm just wondering, is there a scenario where there's significant portion of revenue that gets exited as part of this process before we go forward? Lucian Boldea: Yeah. Thanks for the question. If we look at sizing, even what's in scope, so if you start with the portfolio itself, you know, we're talking about a single digit percentage of the company that we're considering. Some of the product lines that we're talking about, you know, we've communicated before. Our intent to look at our auto OEM business. So that would be part of that total. So you know, in the end, we're not looking to shrink to the perfect company. That's for sure. We're looking to grow the company. So the entire objective of 80/20 is to reposition ourselves, simplify ourselves, lean ourselves out, have really robust processes for growth. If you look at the organizational announcements, that's we've made the first thing we put in place was the Chief Technology Officer, head of marketing, to really look at macro trends, what happens in the industry, and how do we align our portfolio for growth, how do we align ourselves with higher growth verticals than maybe where we've been historically that ultimately will align our M&A portfolio as well. With that. But the answer to your question is no. We don't intend to shrink significantly, and we intend to also work very hard on these regional growth opportunities that we have in the short term to offset some of those exits to the extent that it possible. Again, we'll have to get the timing just right, and sometimes you don't control that. But in the end, it's not the intent to shrink. Stephen Volkmann: Got it. That's helpful. And then just to pivot as you're thinking about 2026, I mean, it sounds like you're fairly optimistic and your slide 15 shows a fair amount of growth end markets there. But you have this 2% organic growth target. I would think you could do, frankly, better than 2% just on pricing. So I guess I'm a little surprised that that are you do you think about this as conservative? Is there some reason that pricing would be this low as you start to capture things like steel costs and, tariffs and so forth. It just feels like I would have expected more than that. Lucian Boldea: Yeah. Look. I'll let Michael walk you through the through the waterfall in a minute, but let me maybe make a few high level comments. So I think if you look at the price and what we've said with price around tariff cost, we said that we will recapture the margin by the end of the year. So when you're looking at a whole year versus a whole year, that obviously doesn't show you the true run rate picture of where we're gonna end 2026. It just gives you the area under the curve. And so there's that comment I would have on pricing. And certainly, we're all awaiting or where the Supreme Court decision comes on tariffs. And so all those things certainly have an impact in what additional pricing is warranted or not depending on where we where we end up with the with pricing as the year progresses. So you know, on volumes themselves, you know, where we sit today, I would say, is what we see. As we look we look out, as far out as we can see. The visibility into the back half of the year, obviously, is way more limited, and we can all speculate on scenarios or look at history where our recovery would have been better. But this, we view as realistic based on what we see today. I'll also remind you that there is a limit to how fast whether it's ourselves or the entire supply chain, can ramp up with increased demand because everybody has kind of rightsized their operations to the demand. So if you see a big snapback, then that certainly will result in some growth on the more growth on the order book but the translation into revenue will also take take a little bit of time. And ramp up. So that's where that's where it sits. You know? Is it conservative? Is it not? I would say we've done our best to try to be try to be realistic, but we're also cautious here given the dynamic environment. So, Michael, if you wanna comment on the margin, maybe Yeah. Well, just maybe elaborating a little more on on price volume. I think you know, we say 1%, and I would say 1% plus pricing. And I the important thing to know is that we have consistently over time achieved solid pricing. And, we expect another year of solid pricing, and we'll continue to push price higher, where and when we have the opportunity. So, you know, so as Lucian said, starting the year, maybe, with what we have visibility to, both on the volume and pricing side, but, it doesn't mean that, we're not gonna continue to look for opportunities throughout the year. So I would that's how I'd characterize that. Cautious, with what we can see and, continuing to look for opportunities as we move forward. Stephen Volkmann: Got it. Okay. Appreciate the color. Emily: Our next question comes from Angel Castillo with Stanley. Please go ahead. Angel Castillo: Just wanted to continue on the price cost conversation a little bit. Obviously, you talked a lot about uncertainty with tariffs and a lot of moving pieces there that we won't know for a little bit. But just can you talk about the other buckets, whether it's labor or materials and just your general kind of strategy in terms of how we should be thinking about any kind of material headwinds? Again, outside of tariffs? Michael Discenza: Sure. Thanks, Angel, for the question. So maybe just answering that last part first, the material. We look for there will be material inflation. So, it is an inflationary environment. But we talked about cost savings in 2025. And some of those cost savings were absolutely built around material cost savings tactics. And so we'd look for those to continue, and while we expect some logistics headwinds, I would say material and logistics costs should be a positive for us, heading into next year. We do have labor inflation across both our manufacturing and SG&A footprint. So labor inflation will be a headwind next year. Well as variable compensation. I referenced in an earlier comment, variable compensation is a headwind for us as well. You know, as we as we inflect to a year where we're projecting growth. That's typically what happens for us. So we do have inflationary pressure. We have cost savings tactics. You know, net net, we will be a positive price cost. And, as you saw on the walk, tariffs will be a positive for us. And then on the overall price cost, we see a net positive. So overall, contributing to that 30% incremental you know, is cost savings tactics to offset the inflation combined with pricing, and that's how we get there. Angel Castillo: Thank you. And then maybe just switching over to industrial automation. I think you talked about strong growth there in the fourth quarter. Can you just talk about what your order books are showing kind of exiting the year or I guess into January? Terms of the growth in automation and how that kind compares to the maybe the mid single digit outlook that you you provided for the full year. And then Lucian, you don't mind just maybe commenting maybe bigger picture, know? Given your background, I guess, do you kind of see the longer term strategic role of automation within the business as we think about accelerating growth? Your overall kind of portfolio strategy, M&A, etcetera? Lucian Boldea: Yes. Look, I appreciate the question. And I made a comment earlier that we're certainly very interested in aligning our portfolio a little bit better, and that's why we have a new CTO. That's why we have a new head of marketing with macro trends and then markets really are driven by those macro trends. And if you think about that, electrification, automation are kinda the top of the list. Of macro trends that we are already aligned with and need to further align with. So to answer the first part of your question, certainly, automation was a driver for us. In terms of increases we see, especially our exposure there on the industrial motion, linear motion in particular, where we've benefited from that. That's actually a big driver. And one of the things we talked about is taking these acquisitions. So I'll remind you that our linear motion business is primarily a European business historically. We've invested significantly in resources in The Americas to grow that, and we're up 20% in that business, it's off of a smaller base, but we're up 20% in The Americas in that business as a result of that effort and investment. So certainly, shows that there's opportunity, and a lot of that is in automation. As to your bigger question on the automation of the market itself, look. Think humanoid has gotten a disproportionate amount of press because it's obviously exciting. At some point, it will be part of our future. We are participating in that as well. We share in that excitement. Working with OEMs on key programs, and, you know, we're certainly looking forward to, to success in that, in that market. But I would say that's still our leaks, it's still at the prototyping, at the designing phase. But what is not at the prototyping and designing phase is industrial automation overall. And I think when you look at how we participate there, there's a lot of product lines where we participate. So you think about our automated lubrication systems that we have in our industrial motion portfolio. If you think about where we participate with the drive with harmonics, with our linear actuators in factory robots. Think about our medical robots through our CGI. Acquisition, our cone drives going to autonomous guided vehicles, and then, last but not least, humanoids. So really a broad product portfolio here. Across the enterprise that positions us very nicely. So you might see this as a topic at Investor Day where we would cover this in a little more detail, but we're certainly overall excited. This is a trend. This trend and then electrification utilities, power gen are certainly two that early looks says that there's an opportunity here for us to align ourselves better and to have a more comprehensive offering because we just have so much content and bringing that together into a customer solution, into an engineer solution is really the way forward. Maybe, if I could just add a reminder, and Lucian referenced CGI, but for most of 2025, CGI would have been in our acquisitions, inorganic bucket. That flipped at the end of the year and now is part of our automation segment. And, we've seen very strong growth from that acquisition and, very happy with where it is. So Lucian referred to it, but I just wanted to from a modeling perspective, remind you that it's now part of automation. Angel Castillo: Very helpful. Thank you. Emily: The next question comes from Steve Barger with KeyBanc Capital Markets. Please go ahead. Christian Zyla: Good morning, everyone. This is Christian Zyla on for Steve Barger. Thanks for taking the questions. Michael Discenza: Good morning, Christian. Christian Zyla: You mentioned at times on this call. Morning. You've mentioned a few times on this call about the CTO and executive appointments. So maybe this is a follow-up to that previous answer. But can you just talk more specifically about how those new appointments will translate to innovation and sales growth? Like, what specifically will you be doing differently with these new appointments? And what parts of your business are you focusing on initially? Is that inward facing, or is that more market facing? Lucian Boldea: Yeah. Absolutely market facing. So first thing we're trying to do is create the appropriate ecosystem and the framework and the processes and the discipline to be able to invest more. So if you look at what we invest today, in R&D, know, there is room there is room for, for increasing that potentially, but what you have to have for that is really clear, really good alignment on what are the focus areas. Be very clear with you as to what macro trends are we following, what are our focus industries where we try to bring solutions, and then that drives our innovation portfolio, and it also drives our M&A portfolio. And so really, the early days of both the CTO and the head of marketing is really to establish the growth processes, establish the growth framework, and really clarify those across the company so that we have one set of metrics, one set of language that we can compare apples to apples. We can track timelines. We can execute. And like with all innovation, we can fail fast, and pivot and move to success. So that's the intent of the early days. By Investor Day, we hope to share with you what those focus areas are, what the macro trends are, and then, as we give you our multiyear outlook, then we'll also be able to give you some glimpse into what the investment and what the outcome can be from that effort. But, you know, I'll remind you, this is not a new muscle. This is a hundred and twenty-five-year company that's built on technology that's built on innovation, that's built on patents. So this is really doubling down on our roots just focusing a little better on macro trends and recognizing that we need to align our growth a little better with high growth verticals, as we do the portfolio work and exit some of the more challenging verticals. Christian Zyla: Fair enough. And then just my second question. Kind of on M&A. M&A backdrop looks favorable, interest rate environment is positive, yet you guys haven't really added anything to your portfolio, which seems uncharacteristic for The Timken Company. You feel your portfolio is in a good spot, or is the greater priority or 80/20? Just has this fallen down the priority list Just any thoughts there. Thank you. Lucian Boldea: Yeah. I would say it's not down on the priority list. But maybe a couple of comments. So definitely, it's not because, you know, we were solely on delevering. I think that was certainly just the effect of good cash generation and good discipline and the opportunities that we had. What we do want to do and maybe the reason there was a little bit of a pause on M&A is really roll out a strategy very clearly and doing that at Investor Day. And then really rolling out that road map of what's in play, what's not, and then how we look what is our philosophy, how do we look at M&A. And I think I shared this in a prior call know, we look at this universe of good businesses, then inside of that, when businesses are transactable, and then inside of those two circles, is where are we the natural owner. So how do we define that for you so that when we explain an M&A transaction or we announce an M&A transaction, it's very clear that we're the natural owner here. I think there is still a very active pipeline that we have. We're working on that pipeline. There are new areas that we're looking to focus as we flesh out our strategy, so that exists. And then there's always the list of acquisitions that will fill our portfolio very nicely we've had for some time. Those are more of I would characterize those opportunistic because we know they fit, but it's a matter of, when are they available, when are they transacting, So in that case, call that a little more opportunistic. But, activity is not down on M&A. But I think there is more now on defining what it needs to be defining what we want, and then also, frankly some focus on the portfolio 80/20, what are the pieces that, that maybe are on the other side of the ledger, not on the acquisition, but maybe on the divestiture. Christian Zyla: Appreciate the color. Thank you. Emily: The next question comes from Kyle Menges with Citi. Kyle, please go ahead. Kyle Menges: Thanks for taking the question, guys. I was hoping if you just provide a little more color on the auto and truck outlook, just in terms of what you're seeing in the end markets for 2026? And then how is the auto OE pruning factoring into that outlook? Lucian Boldea: Yes. So I think let me start with Q4. So I think if you look at the Q4, auto and truck was down, and it was as Michael said earlier, both heavy truck and automotive OE was down aftermarket was more flattish. We don't see big changes to that, as we head into Q1 at this point, and no reason to call that very different. I think as to the pruning of auto you know, a lot of progress, I would say, in the last ninety days. Give you a little bit of color of where we are. So, you know, these are long-standing customer relationships with customers that we've done business with for quite some time. And so we had to work with them to find appropriate outcomes that work for both as we do this exit. And so those conversations are mostly complete, some still ongoing, but mostly complete. And I really have to express my appreciation to our customers they work with us, and I think we're headed to some outcomes that work for both. By Investor Day, we hope to have those finalized so that we can communicate with you a specific timeline, but I can give you a little bit of color now. Know, the arrangements that we're looking at will have us see more significant revenue decline in 2027 but both in '26 and in '27, expect to have some margin uplift from these negotiations. So again, I think that's a good outcome for all the parties involved. And it will position us to give you visibility in a way that you can track our progress on how we're doing with that pruning. Kyle Menges: Helpful. Thank you. And I it would be helpful to hear a little bit more color on expanding the 80/20 philosophy across the entire enterprise and maybe the impetus for that as you look more now at the operations and supply chain footprint. I guess, is that because you see some low hanging fruit there to go after? And, yeah, maybe just talk a little bit about what you could execute on as you look to implement 80/20 across the entire enterprise and how maybe the timing would look as well. Lucian Boldea: Yeah. I mean, look. What I can tell you at this point is we're a few weeks, maybe a month into this in the broadening the effort away from just the portfolio to the overall operation. So you can more refer to what is typical for a company our size and what you can expect. And I mentioned in terms of timing, a couple of quarters of heavy analysis, heavy training, the organization on the discipline, You know, picture big training. This is a little bit like lean where you really go through pretty extensive training. You collect a lot of data that has very specific metrics. We have done some of that. We're starting pretty broad training. Here in another week. And that's global around the world. So that is the early phases of it. The early insights from the analysis would tell you no surprise, when you apply to a portfolio this big, that the product complexity is quite high and a disproportionate amount of revenue rest on very few customers or very few product lines and then you have to ask yourself a couple of questions, which is do you really need to spend a lot of energy on a fragmented tail in the market? Or is that really valuable to customers? And can you collect more price on that? Is there another way to create value? But in the end, it is about simplifying. And the reason to simplify is to get a little more margin, but also to free resources for growth. Because in the end, the not only theory, but vast experience of firms that have done 80/20 firms like Strategix who we're working with, who are very versatile. Is as you double down on that focus on your top customers, top products, top market, you can actually create offerings for them where you can grow way more there. Than you would lose on the other side by shedding some more fragmented business that really has a higher cost to serve than maybe your accounting ledger would say. So that's where we are. Again, early, in the days for me to give you anything definitive. I'm just trying to provide color more on what is our process and where we are and what is typical in 80/20. And so far, our data says that there's no reason to believe we would be vastly different from what is typical. And so we're very, very excited about it. Which is why we're making this, this investment right now. Kyle Menges: Good to hear. Thank you. Michael Discenza: Sure. Thank you. Emily: The next question comes from Joe Ritchie with Goldman Sachs. Please go ahead. Joe Ritchie: Thank you. Good morning, guys. Lucian Boldea: Morning. Joe Ritchie: Morning. I wanted to hey. Morning. Yeah. I just want to get a clarification on the 2026 Outlook bridge. The 10 to 15¢ that you have in there for tariffs, I'm assuming that includes the pricing that you put through for those tariffs already. And then and then also because you've kind of had this, you know, two to three quarters a headwind, is the expectation that you'll see most of this benefit in the first half of the year as well. Michael Discenza: Yeah. Sure. Thanks for the question. Yes. The answer is in that $0.10 to $0.15. It does include the price benefit of that, and we are, as you noted, putting in price actions, which were more heavily weighted in the second half. So on a year-over-year comp basis, will look a little more favorable in the first half than the second half. Having said that, we are going to continue to put pricing in throughout the year. And as we've committed to previously, we will recapture the margin on the tariffs, but we don't expect to do that until we're exiting 2026. So from modeling, the pricing benefit you know, because, we were getting that towards the second half, we'll come in stronger in the first half, and then, and then exiting the year, we'll be at call it, margin neutral on price tariff. Joe Ritchie: Okay. Great. Thanks, Michael. And then the question the other question I have is Lucian. I know that the business is short cycle. I also know that, you know, you don't have a lot of volume growth baked into your expectations. But, look, it was interesting to see the ISM print over fifty you know, just this past week. I'm just curious just, like, as you're looking at kind of, like, leading indicators across your business on where you potentially see an inflection? Like, what are you looking at really closely, and, like, where is you know, where do you see maybe some potential sources of optimism you know, given the backdrop seems to be getting a little bit better? Lucian Boldea: Yeah. I think when you look at the order book in general, you know, off highway, general industrial, renewables, wind, not solar, but wind and aerospace, those are certainly areas that would tell us to be optimistic. General industrial, we expect the sector to be up mid single digits versus 2025. So that's still strong. I think where you still see is these later in the cycle businesses, Oil and gas is kind of the poster child of that that tends to be the last one that rebounds. So those are businesses that are still still slower. Think, as I said, heavy industries, power gen, strong, aggregate, strong, but oil and gas and metals are still is still slow, and that weighs down that entire sector. So that's the that's kinda overall if you step back and look at the look at the segments. And then by region, as we mentioned, Europe was actually the pleasant surprise in Q3, and we almost didn't believe it. In Q4, it continued to do well. And US is doing okay. LATAM is down in China. Continues to be down, and solar is a big contributor to China being down. But India's more than making up for so we're certainly excited about that. Joe Ritchie: Okay. Thank you. Emily: The next question comes from Tom O'Sano with JPMorgan. Please go ahead. Tomo O'Sano: Hello, everyone. Hello? Lucian Boldea: Hi. Tomo O'Sano: Thank you for taking my questions. Question to Lucian. While we understand that the more details will be shared at the main Investor Day, could you share how you have spent your first one hundred you know, plus days as CEO, especially, like, on a process side, what approaches or activities have you undertaken to identify opportunities for organizational transformations and in what areas do you see the greatest potential for improvement, please? Lucian Boldea: Yeah. Thanks for the question, Tomo. So if I just look back at the last hundred days, the first thing I usually do when I try to learn new business is visit the factories. And so I've spent a lot of time trying to see how we operate, how we make it it teaches you a lot about the business. It teaches you about the sources of differentiation. It teaches you about how unique you are how easy is it for somebody to do what you're doing because, ultimately, strategy has to do with your competitive advantage. So I would say I overinvested there to try to understand our operations. Likewise, you alluded to it. Understand the business processes. And what I would say is both on the operations side and on the business processes side, I found opportunities. And what I found opportunities is not to invent something new, but to really do a better job at translating best practices across the enterprise. So this company has gone through a lot of acquisitions over the last few years and, really, almost anything you think about, somebody in The Timken Company is doing it very well, but how do we institutionalize that across the enterprise? And I would say that was probably the first sixty, eighty days, and then the last thirty to sixty was okay. So what? So now what do we do? And what we are working on now is really a very disciplined operating model that's based on a single version of the truth transparency, accountability, metrics that are simple enough, leaned out enough that, that they're not burdensome, and they're reflective of the size company we are. But at the same time, really rigid enough that you can operate a business of this complexity at scale operate it efficiently. So a lot of work going on right now. On the operating model. At the same time, work on 80/20 as I said, on simplifying the operations, simplifying the supply chain. So, really, tackling the entire operation tackling it so that it's nimble, it's lean, it's quick, and then as we do the 80/20 and we focus our growth into our macro trends, into our growth areas, then we can operate with agility and speed. But that's really been the first, first hundred and twenty days, and I can tell you I'm very, very excited about what I found because rarely do you find a combination of a very strong balance sheet very strong cash generation, tremendous heritage in terms of technology, excellent customer reputation and relationships, a very willing and engaged team that I'm working with, a very willing and engaged workforce overall that's very proud and very, very ready to take this to the next level. So we're really excited about May 20 to share with you what we have so far and where we're headed. And, and so yeah. Can't wait to be able to share that. Tomo O'Sano: Thank you, Lucian. And just one follow-up Free cash flow generation was pretty strong in Q4, and what are the major drivers behind this performance? And as I look forward to 2026 with the $350 million free cash flow target. Which areas will we focus on achieve this? And do you see any potential upside? Michael Discenza: Yeah. Sure. Thanks, Tomo. This is Michael. Yeah. So really, in the fourth quarter fourth quarter is typically a strong free cash quarter for us anyway. And across the board, excellent performance in working capital. The team's brought in AR, reduced days. So, really, it was working capital management on top of the earnings that contributed to the fourth quarter. You know, looking forward to next year, it's you know, it's another year of, with improved earnings, and then we are expecting CapEx in the, call it, three and a half percent range. Which is on the low end of our typical range. So that doesn't help with cash flow, but, obviously, spending on the lower end, taking less free cash flow. Or less operating cash flow. So know, so that's what we're looking for for next year is just, I'll say, continued working capital performance. And leveraging the earnings. Tomo O'Sano: Thank you, Michael. Michael Discenza: Thank you, Tomo. Emily: Thank you. We have time for one more question. And so our final question today comes from Chris Dankert with Loop Capital Markets. Please go ahead. Chris Dankert: Morning. Thanks for squeezing me in here, guys. Appreciate it. Morning. I guess, Lucian, as you've been looking around the enterprise, manufacturing footprint has been on kind of a long term move to cost optimized regions, I'm thinking Mexico, U.K, what have you. As 80/20 kind of really kicks in, are you seeing further opportunity in the manufacturing footprint How impactful are tariffs in terms of thinking about that realignment? Maybe just what the opportunity is on manufacturing footprint would be helpful. Lucian Boldea: So the one word answer to your question is yes. We see opportunity. The manufacturing footprint of the future or at least of present is very different from what it's been in the past. You know, not too many years ago, was put it in one place, have a lot of scale, and there forever. And the name of the game now is agile and nimble. And because of tariffs, primarily because of geopolitics, because of supply chain potential supply chain disruptions. And so we're very fortunate to have that nimble footprint right now, very nicely globally spread, as you said. You know, if you look at our flagship factories, there's one in every region that is very strong or more than one, frankly, in every region. We have very strong in India. We have a strong footprint in China, a good one in Eastern Europe, good one in North America. So and that's both across engineered bearings and industrial motion. But in the end, it is also about efficiency. So what that means is as we look at certain markets, and these are not general-purpose factories necessarily. They're more aligned with certain industries. As we look at doubling down in certain industries and then pulling away in others, then that also creates some opportunity. But what I want to also tell you is another way we look at this is to say what export opportunities within that macro region does our footprint create. So our India footprint has certainly been instrumental in us gaining share in India. What does it do as a base for exports in emerging regions, whether that's in Sub Saharan Africa, whether that's in Central Asia, whether that's in The Middle East, whether that's in Southeast Asia, likewise, our China footprint. Really thinking about those businesses, that's why we appointed those regional leaders too. Thinking about those almost like a local business that's looking at the regional export markets and trying to leverage that footprint, that cost position. So it's an exciting opportunity. Our regional leaders are certainly very excited about that to have a little more of that entrepreneurial spirit. But to do that, you really have to have, back to the earlier question, have to have that global framework. You have to have the processes. You have to have the operating model in place so that you can allow that, call it, global systems, regional autonomy, and decision and empowerment and, and allow that balance to happen. So that's what has me most excited is how do we leverage the footprint, but we also have room to simplify what we have, and, really, that will help us with our margins. Chris Dankert: Yeah. I mean, sounds like you're really thinking about things holistically. So looking forward to hear more about that at the Analyst Day, and I'll leave it there, but best of luck on '26, guys. Lucian Boldea: Thank you. We appreciate it. Thank you very much. Emily: Thank you. This concludes the Q&A session. Sir, do you have any final comments or remarks? Neil Frohnapple: Thanks, operator, and thank you, everyone, for joining us today. If you have any further questions after today's call, please contact me. You, and this concludes our call. Emily: Thank you for participating in The Timken Company's fourth quarter earnings release Conference Call. You may now disconnect.
Operator: Thank you for standing by. At this time, I would like to welcome everyone to the Atmos Energy Corporation Fiscal 2026 First Quarter Earnings Conference Call. [Operator Instructions] I would now like to turn the call over to Dan Meziere, Vice President of Investor Relations and Treasurer. You may begin. Daniel Meziere: Thank you, Janie. Good morning, everyone, and thank you for joining us. With me today are Kevin Akers, President and Chief Executive Officer; and Chris Forsythe, Senior Vice President and Chief Financial Officer. Our earnings release and conference call slide presentation, which we will reference in our prepared remarks, are available at atmosenergy.com under the Investor Relations tab. As we review our financial results and discuss further expectations, please keep in mind that some of our discussion might contain forward-looking statements within the meaning of the Securities Act and the Securities Exchange Act. Our forward-looking statements and projections could differ materially from actual results. The factors that could cause such material differences are outlined on Slide 29 and are more fully described in our SEC filings. I will now turn the call over to Kevin. John Akers: Thank you, Dan. Good morning, everyone, and thank you for joining us today. I wanted to begin today's call by thanking every one of our Atmos Energy employees for their preparation, focus and dedication to safely providing natural gas service to our customers and communities during the very challenging weather conditions of Winter Storm Fern. And for their dedication throughout the year to execute upon our system modernization strategy as we continue our journey toward our vision to be the safest provider of natural gas services. During Winter Storm Fern, all segments of our business, Distribution, Transmission, Atmos Pipeline Texas, our underground storage systems, gas supply plans and our customer support operations all performed very well and to design expectations. I am very proud of our team and their efforts. I would also like to thank the first responders, emergency responders and emergency management services teams across our service territory for what they do every day for our communities. Yesterday, we reported fiscal 2026 first quarter net income of $403 million or $2.44 per diluted share. Our first quarter capital expenditures totaled $1 billion with over 85% of these investments focused on enhancing the safety and reliability of our distribution, transmission and underground storage systems. As a reminder, we rebased our fiscal 2026 guidance to reflect the passage of Texas House Bill 4384. As we stated on our November earnings call and in our investor material, our rebased fiscal 2026 earnings per share guidance is in the range of $8.15 to $8.35 per share. Additionally, we rebased the fiscal 2026 annual dividend to $4 per share, and we plan to grow our dividend in line with our earnings per share growth of 6% to 8% annually. Moving to our Atmos Pipeline-Texas division. We achieved several project milestones during the first quarter. We completed the installation of approximately 55 miles of 36-inch pipeline from APT's Bethel storage facility to our Groesbeck compressor station. This provides additional pipeline capacity to transport gas from our Bethel storage into the growing DFW Metroplex and the Interstate 35 corridor between Waco and Austin. We continue to work on Phase 2 of APT's Line WA Loop project as we have placed 13 miles of this project into service. As a reminder, this project is designed to install approximately 44 miles of 36-inch pipeline to the west of Fort Worth to support growth in this area of the DFW Metroplex. The remaining 31 miles is expected to be placed in service this spring. In addition to the enhanced supply capacity of those projects, we completed a project that more than doubles the takeaway capacity at our Bethel Salt Dome storage facility, providing additional peak day deliverability into the APT system for our LDC customers. Finally, we enhanced APT supply optionality, reliability and system versatility with the completion of 2 interconnect projects, adding 700,000 Mcf per day of additional natural gas supply to the APT system. Across our service territories, we continue to see steady customer growth. For the 12 months ending December 31, 2025, we added nearly 54,000 new customers with approximately 42,000 of those new customers located here in Texas. And during the first quarter, we added over 1,100 commercial customers and 3 new industrial customers. This continued demand from all customer classes demonstrates the value and vital role natural gas plays in economic development across our service territories. The Texas Workforce Commission reported that at the end of December that the seasonally adjusted number of employees was 14.3 million. Texas once again added jobs at a faster rate than the nation over the last 12 months ending December 2025. Our customer support associates and service technicians continue to provide exceptional customer service, achieving customer satisfaction ratings of 98% for the quarter. And our customer advocacy team and customer support agents continued their outreach efforts to energy assistance agencies and customers during the first quarter. Through those efforts, the team helped over 11,000 customers receive nearly $3 million in funding assistance. Recently, our team's customer service efforts were recognized by J.D. Power and Escalent. In December, the J.D. Power 2025 Gas Utility Residential Customer Satisfaction Study ranked Atmos Energy #1 in customer satisfaction in the South and Midwest among large utilities. This is Atmos Energy's fourth consecutive year to receive this honor for the Midwest region. And in January, Atmos Energy was named an Escalent 2025 Utility Customer Champion in both the South and Midwest regions. More than 96% of our customers are located in these 2 regions, and we are very proud of our entire team for their ongoing focus and dedication to providing exceptional customer service. Congratulations, and thank you all. I'll now turn the call over to Chris for his update. Christopher Forsythe: Thank you, Kevin, and good morning, everyone. We appreciate you joining us this morning. Our fiscal '26 first quarter diluted earnings per share of $2.44 represented a 9.4% increase over the prior year quarter. Our first quarter results include $35 million or $0.16 of the impact of Texas House Bill 4384. $20 million was recognized in our Distribution segment and the remaining $15 million is recognized at APT. Our first quarter performance was also influenced by several other factors. Rate increases in both of our operating segments totaled $68 million. Operating income increased by an additional $24 million due to residential commercial customer growth and increased customer load. Finally, APT's through system revenues net of Rider REV increased about $7 million. During the quarter, APT's through system volumes declined approximately 2 Bcf as we performed more maintenance during this quarter compared to the prior year quarter. However, spreads widened significantly to an average of $3.99 compared to $1.56 in the prior year quarter due to rising associated gas production, constrained takeaway capacity and lower demand due to unseasonably warm weather during the first quarter. Partially offsetting these increases was a $23 million increase in consolidated O&M expense. We experienced a $12 million increase in compliance and safety-related spending associated with increased leak survey work in our distribution segment and the timing of maintenance work at APT that I mentioned a moment ago. Additionally, employee-related costs increased approximately $5 million, primarily due to increased headcount to support company growth and higher overtime and standby costs driven by increased service work. From a regulatory perspective, since the beginning of the fiscal year, we have implemented $123 million in annualized operating income increases in our distribution segment. Currently, we have 5 filings in progress seeking approximately $81 million in annualized operating income increases, and we plan to make an additional filing this fiscal year, seeking approximately $400 million in annualized operating income increases. During the quarter, we completed over $1 billion of long-term debt and equity financing, highlighted by the $600 million long-term debt financing we completed in October 2025. Additionally, we settled $472 million in equity forward agreements. Our equity capitalization as of December 31 was 60%, and we do not have any short-term debt outstanding. We also had $4.6 billion in available liquidity. This amount includes approximately $1.1 billion in net proceeds available under existing forward sale agreements, which is expected to satisfy the remainder of our anticipated fiscal '26 equity needs and a portion of our anticipated equity needs for fiscal '27. Our first quarter performance has us well positioned to achieve our rebased fiscal '26 earnings per share guidance in the range of $8.15 to $8.35 per share, and we remain on track to achieve our capital spending plan of $4.2 billion. Thank you for your time this morning. I will now open the call for questions. Operator: [Operator Instructions] And your first question comes from Julien Dumoulin-Smith with Jefferies. Julien Dumoulin-Smith: Nicely done, I got to say, as always. Maybe just to kick things off, you just commented in your remarks and in the Q here about the $35 million benefit for the quarter. Can you talk a little bit about how we should think about that ratably through the year here? And just ultimately, what that might imply as you think about like an annualized benefit relative to the guidance you guys gave? It seems like it puts you guys in a good place. So I'd love to get your thoughts. Christopher Forsythe: Yes. Julien, thank you for joining us this morning. And yes, we're off to a good start for the fiscal year. As we talked about before, the influence or the impact of the deferrals under House Bill 4384 will be influenced by the timing of our spending, the timing of project closings and the underlying operational activities of the company. So it's right now, off to a good start, $35 million quarter-over-quarter. And we are still holding firm right now on our earnings per share guidance of $8.15 to $8.35, and we'll see what the second quarter brings for us. Julien Dumoulin-Smith: Got it. But just pining down a little bit further, would you assume that that's a good run rate, at least for the purposes this year? I know it's CapEx timing driven. Any reason why you wouldn't, for the purposes of our conversation, start to do that or at least do some kind of ratio relative to CapEx against annualized targets? Christopher Forsythe: I think it's going to depend upon the flow of spend in the quarter. As we've had here in the last couple of weeks, they're very busy operationally focused around supporting Winter Storm Fern. So construction activities were down a little bit. Obviously, we're now beginning to ramp that back up. And I think it would be dangerous to say take 35 and multiply it by 4. As a reminder, year-over-year, we did have the impact of the House Bill 4384 in the fourth quarter last year. So I would probably steer clear of just going too strong at this point and just saying 35 times 4 moving forward. Julien Dumoulin-Smith: Yes. No, no, fair enough. And then just as it pertains to the winter storm, I mean, obviously, folks are zeroed in on and certainly cognizant of the impact to customers. How do you think about the preliminary financial impacts here, if you can break that down a little bit. I mean, obviously, there's working capital consideration and ultimately, there's a few other moving pieces. Do you care to elaborate a little bit further just given the history? John Akers: Yes, Julien, maybe rephrase your question because I'm not quite following either where you're talking about gas costs. Julien Dumoulin-Smith: Yes. I was thinking about the just the balance sheet and the earnings impact from the winter storm in the last couple of weeks cumulatively. John Akers: Yes. So let's start with the winter storm itself. It was very significant. As you saw the icing across all of the country. I think 40 states were impacted at one point by the storm. But the storm was not nearly as significant as Uri. I think the upstream supply as we've reported, and I think you'll hear from some of the other folks that do upstream of us, supply performed very well. We had minimal supply issues. And what we did have, we were able to backfill with storage itself to keep a steady, reliable supply of natural gas flowing. And with that, we had an exceptional gas supply plan laid out from baseload to peaking contracts to some spot purchases to our storage supply. So again, I don't think you're going to see the impact as you did in Uri, both on the operational nor a financing from gas supply cost related to Winter Storm Fern. Operator: Your next question comes from the line of David Arcaro with Morgan Stanley. David Arcaro: I was wondering if you could maybe touch on what you're hearing maybe on the ground and in some of your regulatory proceedings going on with regard to affordability pressures. Is this an issue that you're seeing migrate into the gas LDC space? Is it coming up politically surrounding the cost of natural gas? What are you seeing on the ground right now? John Akers: It's always a part of what we talked about with our commissions. It's always top of mind for us. And I'll point you back to our deck in Slides 15 through 17, I believe, that's in the deck there and how we look at the metrics around affordability, but it's always a topic we continue to have with our regulators. They understand the need for our investment just as it helped us get through Winter Storm Fern. You have to start these things a year in advance in prepping your system, putting on additional supply upstream of that, increasing your capacity on your pipelines, bringing on more additional supply points, all those go into that equation for reliability on a go-forward basis for our customers. But again, it's more of the conversation. We're not getting any sort of negative feedback or impression from our regulators at this point as they understand the need to maintain reliability and safety across the system. David Arcaro: Okay. Got it. Understood. And I wanted to check in to see whether you're seeing any inflection or meaningful projects on the gas power side of things, either major power plants moving forward or what we're seeing is on-site power using natural gas at data centers at pretty high volumes. So are you seeing more activity or opportunities there? John Akers: As we said before, we continue to get inquiries around large loads, whether they're data centers themselves or additional power generation. We'll share more about those once we have a signed contract. We don't want to get out in front and have to walk any of that sort of load back at this point. But we continue to get inquiries. Our engineering, our operations teams continue to investigate those and respond to those data requests. But when we have something to report, we'll bring those forward. And as you know, APT already serves some power gen facilities across its transmission footprint as well today. Operator: Your next question comes from the line of Jeremy Tonet with JPMorgan. Elias Jossen: This is Eli on for Jeremy. I wanted to start on the special election that was just recently happened in Texas. There was a Democrat seat, I believe, that flipped. Is there any impact overall? Or I mean, how do you guys kind of see that outcome in relation to the business? John Akers: Yes. We're apolitical. We work with R's and D's and I's or anybody to share our stakeholder strategy, why we do the things we do, why it's important for our communities, why natural gas is important for our customers, why it's important for economic development. And we've been around for 43 years now, and we've been through many administration changes, both at the federal, state and city level, county level as well. And again, we see ourselves as an essential energy source for our communities, and we'll work with anybody that is in public office today or has an interest in what we do. Elias Jossen: Awesome. And then maybe just shifting to the Mississippi rate case outcome and kind of the process going forward. How do you adjust your plan for outcomes in that jurisdiction going forward? John Akers: Well, one, there's -- and I'll let Chris follow up here in a second. There's not an adjustment to plan. Remember, we say on our November call when we lay out our 5-year plan, we update it every quarter. Chris and I both mentioned it on this call. 85-plus percent of our investment goes towards safety and reliability. That does not change our plan. It is all driven by the needs of our system, the growth on our system, the demand across our system, the safety across our system. That's what drives our plans out there. And that's what's going to continue to fuel our plans in the state of Mississippi. Christopher Forsythe: Yes. I would add to that, Jeremy (sic) [ Eli ]. I mean, since the outcome, we have been in regular dialogue with the commission, first, working to implement the tariff that to reflect the order that came out late last year. That tariff was filed in early in early January. We're expecting a decision potentially today on that. Included in that tariff is also a request for deferral like mechanisms as well as other opportunities to potentially mitigate or reduce lag going forward. We still have an annual filing mechanism in the state. It's now on a historical test basis. So we're evaluating and model the impact of shifting that from a forward look back to historical look. And as we've also -- you've probably seen in the public notice in early January, we filed a public notice of our intent to appeal the decision to the State Supreme Court in Mississippi, and we are working through that process as we speak. So a lot going on that we're taking to evaluate, but it's also stepping back in a bigger picture, Mississippi is roughly 5% of the business. So we believe we've got the ability to absorb whatever outcome comes through in our plans going forward. Operator: Your next question comes from the line of Fei She with Barclays. Nicholas Campanella: It's actually Nick Campanella on. I hope you can hear me. I hope everything is well. So I just wanted to ask just the $0.21 Texas benefit in the quarter. Is that something that we can annualize? Or just how would you kind of frame that against the $0.40 guide that you originally pointed to? Christopher Forsythe: Yes. So Nick, so the impact on the quarter was approximately $0.16. And as I was chatting with Julien at the top of the call, it's to say that you can just simply take a run rate, multiply by 3 or 4 to get through that because the underlying operations are impacting the timing of those deferrals. So we said a few minutes ago, we'll just take it quarter-by-quarter as we work through this first year of implementation, and we'll see where the second quarter brings us, and we'll have an update for you at that point. Nicholas Campanella: Okay. Okay. And then just I just wanted to make sure I was just directionally understanding the benefit it's kind of a similar benefit than what was booked in fourth quarter last year. Like would it be kind of like 3x the benefit given you did about $1 billion of the $4 billion of CapEx this quarter. Just is that the right way through this? Christopher Forsythe: Yes. I mean, again, 25% through the year. A lot needs to occur between now and then operationally. As Kevin talked about, we've been focused the last couple of weeks on winter operations, which has put a capital on the back burner. So as we come through that right now, we get back up to speed, we'll see what the impact is on deferrals. But again, I would caution against just taking a simple number and multiply it by 3 or 4 at this point in time. Nicholas Campanella: Okay. Okay. And then just you kind of brought up the strength in spreads. Is there a way to explicitly quantify what the margin benefit was from Waha spread this quarter? Christopher Forsythe: Well, quarter-over-quarter, we attributed about $7 million operating income increase as a result of those activities. Operator: [Operator Instructions] And your next question comes from Ryan Levine with Citi. Ryan Levine: Given the recent Storm Fern and increasing gas demand in your service areas, do you see incremental opportunities to add gas storage? And can you give us some updated color around that opportunity set? John Akers: Ryan, as you've heard us talk about before, we have 15 storage fields placed across Kentucky, Kansas, Mississippi and here in Texas. Additionally, we have third-party contract storage and then we have storage as part of our upstream interstate pipeline capacity as well. That's something our gas supply team and our operations team look at post winter. We'll do a rigorous review of system performance, gas supply plan performance and overlay that with a third-party consulting engineering firm to overlay with customer growth and demand expectations, and then we'll evaluate how that may impact additional needs for gas supply where those may need to come in and any future needs for storage. But it's something we always continue to look at based on past performance, historical weather and customer growth across the system. Operator: There are no further questions at this time. I will now turn the call back over to Dan Meziere for closing remarks. Daniel Meziere: We appreciate your interest in Atmos Energy, and thank you again for joining us this morning. Have a good day. Operator: Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.
Operator: Welcome to the Fourth Quarter Investors Conference Call. Today's call is being recorded. Legal requires us to advise that the discussion scheduled to take place today may contain forward-looking statements that involve known and unknown risks, and actual results may be materially different from any future results, performance, or achievements contemplated in the forward-looking statements. Additional information concerning factors that could cause actual results to materially differ from those in the forward-looking statements is contained in the company's annual information form as filed with the Canadian Securities Administrators and in the company's annual report on Form 40-F as filed with the US Securities and Exchange Commission. As a reminder, today's call is being recorded. Today is February 4, 2026. I would now like to turn the call over to Chief Executive Officer, Mr. Scott Patterson. Please go ahead, sir. Thank you, Tanya. D. Scott Patterson: Good morning, everyone, and welcome to our fourth quarter and year-end conference call. Thank you for joining us today. Jeremy Rakusin is on the line with me, and we'll follow my overview comments with a more detailed review of our financial results for the quarter and the full year. We're pleased with how we closed out the year in an environment that continues to challenge us across several of our businesses. Our fourth quarter results in aggregate were modest than our expectation that we communicated at the end of Q3, with revenues up 1%, EBITDA flat with the year ago, and earnings per share up 2% to $1.37. For the year, we reported solid results that we're proud of in the face of tough macro headwinds. Revenues finished 5% up over the prior year, Consolidated EBITDA was up 10%, double the revenue growth, reflecting a 40 basis point improvement in margins. And earnings per share reflected further leverage, with year-over-year growth at 15%. Looking now at the separate divisions for the quarter. Revenues at FirstService Residential were up 8% in aggregate with organic growth at 5% matching our expectations and the results for Q3. The growth was broad-based across North America generally reflects net contract wins versus losses. Looking forward, we expect organic growth to continue in the mid-single-digit range. There could be modest movement from quarter to quarter, with seasonality and fluctuation in ancillary services, but on average for 2026, we're expecting mid-single-digit organic growth similar to our full-year result for 2024 and 2025. We will face organic growth pressure early in the year relating to declines in certain amenity management services that we provide to some of our managed communities but primarily to multifamily rental and other commercial customers. These services include pool construction and renovation, which is being impacted by the same economic headwinds we're seeing in roofing and home services. It also includes contracts to provide custodian and front desk concierge labor. Several contact contracts primarily with multifamily apartment owners were not renewed at year-end. Some voluntary and a few involuntary all primarily due to pricing. These cancellations will impact our revenue, but have little impact on profitability. We expect to be at the bottom end of our mid-single-digit range at 3% or 4% for Q1. This is unrelated to our core community management business which we believe will carry the division to mid-single-digit organic growth for the year. Moving on to FirstService Brands. Revenues for the quarter were down 3% in aggregate, and 7% organically, with organic growth at Century Fire more than offset by organic declines with our restoration brands and our roofing platform. Looking more closely at restoration, Paul Davis and First On-Site together recorded revenues that were flat sequentially compared to Q3 and down 13% versus the prior year. Somewhat better than expectation, due to our pickup in claim activity during the quarter with our Canadian operations. We benefited in the prior year quarter from Hurricanes Helene and Milton, and generated about $60 million in revenue from the storms. Excluding these specific events, our restoration brands were up modestly year over year. As I described on last quarter's call, revenues from named storms have on average exceeded 10% of our total restoration revenue since 2019. For 2025, revenues from named storms amounted to less than 2% of total restoration revenues. We finished the year down 4% in restoration, relative to an industry that we believe was down over 20%. Our platform investments and focus on day-to-day service delivery continue to drive gains in wallet share with key national accounts and overall market share. Looking forward, we expect to show growth for the full year 2026 assuming we return to historic average weather patterns. Our restoration brands have grown on average by 8% organically since 2019 and we expect that to continue on average going forward. Our backlog at year-end was down from the prior year, pointing to a revenue decline for Q1. However, we've seen an uptick in activity over the last week from the expansive winter storm. It's still very early, but based on activity levels, and the nature of the quick response mitigation work, we expect to show Q1 results that are modestly up over the prior year. Moving to our roofing segment. Revenues for the quarter were up a few percentage points the result of tuck-under acquisitions made during the year. However, as expected, revenues were down organically by over 5%. The demand environment in roofing remains muted. New commercial construction outside of the data center and power is down significantly. On the reroof side, we continue to see tighter capital expenditure budgets amongst our customers and delays with some larger projects. As I noted last quarter, we're confident that our market position and relationships remain strong. Bid activity is solid, and our backlog is stabilized. Our expectation is that we will show modest organic growth this year with sequential improvement quarter to quarter. Looking to Q1, we expect revenues to be up mid-single-digit versus the prior year, and approximately flat organically. Now to our home service brands where revenues were up by 3% over the prior year, better than expectation, and a result we're proud of in an environment where consumer confidence remains depressed. The consumer index was down again in December, marking five months of sequential decline. As I said out on the last few calls, our teams are doing more with less. By incrementally improving lead to estimate ratios, close ratios, and average job size. Current economic and industry indicators do not suggest an improved environment through 2026. Our lead flow the last several weeks is flat to slightly down with the prior year. If this continues, our current conversion metrics would suggest that we will drive higher revenue year over year in the low to mid-single-digit range for Q1 and 2026. And I'll finish with Century Fire where we had a strong Q4 and finish to the year. Revenues were up over 10% versus the prior year with high single-digit organic growth. Century continues to experience solid growth on both sides of its business. That is installation, and repair service and inspection. The growth is broad-based across almost all our branches at Century. We're benefiting on the installation side of our business from solid activity in multifamily and warehouse with some positive exposure to data center construction. Our backlog is strong, and activity levels remain buoyant. Looking forward, we expect another year of 10% growth or more spread evenly across the quarter. Let me now call on Jeremy to review our results in detail and provide a consolidated look forward. Thank you, Scott. Good morning, everyone. Jeremy Rakusin: As you just heard for the fourth quarter, we delivered on our expectations provided on our Q3 call which culminated in solid annual operating and financial performance. As we look back at our consolidated annual results for 2025, we are pleased with the growth we delivered on the earnings lines. Notwithstanding the top-line headwinds we are facing throughout the year. I'll first walk through a summary of these financial metrics and then move on to reviews of our segmented divisional performance as well as our cash flow and balance sheet. Note that my upcoming comments on our adjusted EBITDA and adjusted EPS results, respectively, reflect adjustments to GAAP operating earnings and GAAP EPS, which are disclosed in this morning's release. And are consistent with our approach in prior periods. During the fourth quarter, our consolidated revenues were $1.38 billion, up 1% versus the prior year period. Our adjusted EBITDA of $138 million was in line with Q4 2024, yielding a margin of 9.9% slightly down from the 10.1% level during the prior year. Our Q4 adjusted EPS was $1.37 up from $1.34 in last year's fourth quarter. For the full year, consolidated revenues increased 5% to $5.5 billion and adjusted EBITDA came in at $563 million, up 10% over the prior year, and delivering a 10.2% margin up 40 basis points compared to 9.8% in 2024. Adjusted EPS for the 2025 fiscal year was $5.75, up 15% versus 2024. This five, 10, and 15% top to bottom line annual growth profile reflects the exceptional efforts of our operating leaders across every brand. As they emphasize efficient jobs, execution, the face of market challenges and drove margin improvement where possible. Turning now to a segmented walk-through of our two divisions. For FirstService Residential, revenues during the fourth quarter were $563 million, up 8% and the division reported EBITDA of $51.5 million, a 12% increase over the prior year period. Our margin for the quarter was 9.1%, modestly up from the 8.8% in Q4 2024. The quarterly performance largely mirrored the full-year growth profile for the division, We closed out the year with annual revenues of $2.3 billion up 7% over 2024, including 4% organic growth. Annual EBITDA increased 13% with our full-year margin at 9.8% up 50 basis points over the 9.3% margin for 2024. In summary, the FirstService Residential division achieved key financial targets for the year, getting back to mid-single-digit annual organic top-line growth, while also driving profitability to the upper end of our 9% to 10% annual margin band. Looking next at our FirstService Brands division, the fourth quarter included revenues of $820 million down 3%, compared to Q4 2024. And EBITDA came was $88.5 million down 12% year over year. These year-over-year decreases were due to declines in organic top-line performance and the related negative operating leverage at our restoration and roofing brands partially offset by another strong quarter of organic growth and profitability at Century Fire Protection. The brands division margin during the quarter was 10.8% down 110 basis points from 11.9% in the prior year quarter. For the full year, revenues were $3.2 billion and EBITDA came in at $354 million, both up 4% over the prior year. As a result, our full-year brands margin remained in line with the prior year. At 11%. Finally, two remaining points to highlight regarding profitability below the operating division lines that contributed to the 15% annual EPS growth. First, we reported significantly lower corporate costs both during the current fourth quarter and annually for 2025, versus the comparable prior year periods. Most of the variance was attributable to the positive impact of noncash foreign exchange movements largely reversing the negative impacts we saw in 2024. Second, our annual interest costs will lower throughout all periods in 2025 compared to the prior year due to lower debt levels on our balance sheet and declining interest rates. I'll now summarize our cash flow and capital deployment. During Q4, operating cash flow was $155 million a 33% increase over the prior year quarter. And contributing to annual cash flow from operations of more than $445 million which was up 56% versus 2024. Our capital expenditures during 2025 totaled $128 million and we expect 2026 CapEx to be approximately $140 million an increase proportionate to the collective growth of our businesses. Our acquisition spending during the year totaled $107 million as we remain selective and disciplined in a competitive acquisition environment. Finally, we announced yesterday an 11% dividend increase to $1.22 per share annually in US dollars up from the prior $1.10. Beyond financing these capital outlays, our strong free cash flow contributed to further strengthening of our balance sheet throughout the year. At 2025 year-end, our leverage sits at 1.6 times. Net debt to adjusted EBITDA down from two times at prior year-end. With cash on hand and undrawn capacity within our bank revolving credit facility, aggregating to $970 million we maintain significant liquidity to direct towards attractive investment opportunities as they emerge. Finally, in terms of our outlook, Scott has already provided detailed commentary on the top-line growth indicators for the individual brands. On a consolidated basis for the upcoming first quarter, we are forecasting revenue growth to be in the mid-single-digit range. In subsequent quarters, throughout the year, we expect to see an uptick with high single-digit year-over-year increases in revenue primarily driven by organic growth. Any tuck-under acquisitions during the year will contribute further to this top-line growth profile. In terms of consolidated EBITDA for the first quarter, we expect to be roughly in line with Q1 2025. For the balance of the year, we anticipate EBITDA year-over-year growth in the high single digits at similar rates or slightly better than revenue growth. Consolidated EBITDA margin for the full year is expected to be relatively flat compared to the 10.2% annual margin we just reported for 2025. Operator, this concludes the prepared comments. Can now open up the call to questions. Thank you very much. Operator: Thank you. As a reminder, to ask a question, please press Our first question will be coming from Frederic Bastien of Raymond James. Your line is open. Frederic Bastien: Hi. Good morning, Scott and Jeremy. Just wanna talk about M and A. I mean, cracks appear to be showing in private equity various reports suggesting that mid-market firms are holding on to investments they can't sell and then struggling to raise capital. To buy businesses. Is that you know, that in theory should be positive for strategic buyers like FirstService. From your perspective, are you seeing any change? Is the company is the competitive landscape improving from, say, you know, where it was three, six, twelve months ago? D. Scott Patterson: We haven't seen it yet, Frederic. It's definitely a slower market than, say, twelve months ago. Particularly in roofing, but really across the board. You know, we know of a number of opportunities that have been pulled or delayed until the environment improves. And there's no indication that multiples are trending higher or lower. They still remain high across the board. We haven't seen mid-market private equity deals come to the market you know, I'm just I'm just thinking about it. Really, it's we haven't seen it yet. I would say, Frederic. Frederic Bastien: Okay. Thanks for that. Now obviously, recognizing it's still tough out there, where do you see the best place to deploy future capital? Is it in newer platforms like roofing or restoration or you know, or go back to the more long-dated franchises like California Closet. I know you bought, like, the twenty or so largest franchises in, you know, early probably ten years ago, five, ten years ago. Where do you stand on potentially consolidating the rest of the California Closet franchises? D. Scott Patterson: Yeah. I mean, definitely, we wanna own the major markets. Over time. Particularly if they're underperforming. But it you know, that that will be sort of one step at a time as those families are ready to sell. It's been it's been a few years since we pulled in a California Closets franchise. But I think on average, we would expect to pull in one a year. And I think the same at Paul Davis. Too. You know, it it in the best interest of the brand, if there's an underperforming market, we will look to pull that franchise in and operate it. And, we would expect to see you know, one or two of those a year as well. Otherwise, it would be tuck-unders within our existing platforms. That's our focus. I would say that we are being very patient in the current environment. Multiples are high, and and they there aren't high number of quality companies coming to market. So we are focused on picking our spots and finding the right partners. If there's a situation where the founder is looking to exit that's not a great fit for us. We're focused on partnering and then driving sustainable growth. Frederic Bastien: Thank you. I appreciate your comments. That's all I have. And our next question will be coming from Stephen MacLeod of BMO Capital Markets. Your line is open. Stephen MacLeod: Thank you. Good morning, guys. Lots of great color on the call, so thank you. I just wanted to just just focus on the margins a little bit. With respect to the outlook. Would be fair to say that margin outlook in kind of both segments is is sort of flattish through the year. Presumably, sounds like not much movement in the FSR margin, but maybe you'll see some headwinds in Q1. But on a full-year basis in brands, would you expect both segments to be sort of flattish year over year? Jeremy Rakusin: Yeah. Hi, Stephen. It's Jeremy. Correct. Full year both divisions, roughly in line, and and hence the consolidated margin in line. You know, the the first quarter we expect residential margins to be roughly in line again, consistent with the full year. And the a decline in brands margins in the first quarter. And hence the sort of flat EBITDA with a little bit of revenue growth in the first quarter. Right. So branch margin is a little declining and then picking up in sequential quarters as we see you know, commensurate uptick in revenue growth. Stephen MacLeod: Okay. That's great. Thank you. And then just with respect to you know, Scott, you you you talked about, just the recent freeze that we saw through North America. And and, you know, potentially an uptick in activity. Is I know early days, but is there any way to kinda quantify you know, what that potentially could could look like as the year progresses? D. Scott Patterson: No. It's it's It's it's still very early and taking shape. And some of the areas are impacted. They're still frozen. So there is an opportunity when when the thaw starts. But very hard to quantify at this point. I mean, if we've we've just based on attempted it for Q1, on some of the activity. You know, as I said, we we expect our revenues to be up modestly. Our backlog at year-end was down because we didn't have a carryover from from Q4 storms. which was pointing to a soft Q1. We do think the activity will take us back to you know, through prior year. Modestly. But you know, mitigation work comes in We respond and and move on. And for the most part, the jobs are smaller at this point, and the unknown is the reconstruction. You know, will there be any? Will we get the work, and and how much revenue will it generate? So that will evolve in the coming in the coming weeks and months, but it's still too early to really give you any more than that. Stephen MacLeod: Yeah. Yeah. That's fair. I I I figured that would be the case. And would it be fair to assume that, in Q4, you had basically zero revenues from named storms relative to $60 million last year. Is that right? D. Scott Patterson: Right. Yep. Yeah. Yeah. Okay. Stephen MacLeod: And then maybe just finally, just speaking of capital allocation, would you consider sort of being active on the buyback given given where the stock is and and and given the NCIB you have out outstanding? D. Scott Patterson: That is that is not something that that we've discussed. Stephen MacLeod: Okay. Would be a board-level discussion, and it hasn't come up. Stephen MacLeod: Okay. Okay. That's great. Thanks, guys. I appreciate it. Operator: And our next question will be coming from Stephen Sheldon of William Blair. Your line is open. Stephen Sheldon: Hey, Scott and Jeremy. Thanks for taking my questions. First, just on on kind of margins, great year-over-year margin trends in residential once again this quarter. And then full-year results came in closer to the high end of that 9% to 10% margin range. You've historically talked about there. Can you unpack some of the levers driving that? Is that still mainly being driven by some of the offshoring and AI leverage and things like that and call center operations? And and has your thinking on the margin trajectory over the next few years changed at all? I mean, you already talked about kinda flattish for 2026, but is there an opportunity down the road, you think, where you could potentially get the margin in residential into the double-digit range above 2%? Jeremy Rakusin: Yeah. It's Steven. Jeremy again. The progression, we've we've done a lot of the heavy lifting in those areas. In fact, they started in '24 and really started to play out on the margin improvement in '25. We're starting to lap those now. You know? So a lot of the the and you saw the margin start to taper. Towards the the margin expansion start to taper towards the back end of the year, which is indicative that, you know, we we've squeezed a lot of the the low-hanging fruit. Team's always working on on related initiatives to to those, that you just called out, as well as others. And, again, we don't see much for '26. But, in terms of going above 10%, yeah, that's an opportunity over a multiyear time horizon for sure, and, we'll continue to to evaluate the team's progress in that and then know, call out the opportunities as we see them coming through. Stephen Sheldon: Got it. That's helpful. And then wanted to ask about just the roofing side. And I guess from your view, I get the new construction piece, you know, the that's something that, yeah, you can look at permits and starts with either that's you know, it's been been very weak, and and not not a lot of pickup that we're expecting here over the next year or two. But I guess on the reroofing side, you know, what could it take for that to pick up? You know, I guess the question would really be, how long can commercial properties wait and push out reroofing as I would assume that that that can only be delayed for so long before that owner or manager takes on bigger risks related to it with a bigger loss potential. So I guess, yep, how, you know, how long can can rerouting really stay kinda depressed? Thanks. D. Scott Patterson: Certainly, it it you know, it can't be deferred for for long, Steven. And and we do think the market has stabilized. Our backlog certainly has stabilized, and it's heavily weighted towards reroof as you would expect. You know, historically, we've been two-thirds reroof and one-third new construction, and so we're very much focused on the reroof side of that. So the overall market has shrunk certainly but our momentum in reroof has stabilized. And as I said, we expect to grow this year. And look for sequential improvement quarter to quarter. And you know, generally, feel optimistic. We're bidding work. We feel good about our market position. We believe in our leadership. Locally. Branch to branch. And certainly, we we will continue to invest in the platform this year. And hopefully in further tuck-under acquisition. So we we're feeling we're feeling optimistic that know, we'll we'll start to see quarter over quarter and year over year growth from here. Stephen Sheldon: Very helpful. Thank you. Operator: And our next question will be coming from Erin Kyle of CIBC. Your line is open. Erin Kyle: Hi, good morning, and thanks for taking the questions. I just want to stick on the roofing segment here. Maybe start with more of a macro question. I I guess, your your views as it relates to the new construction cycle in The U. S. And the question is kind of on the basis of you know, if new construction remains depressed here as it it's looking to be do you anticipate competition in, like, the reroof segment just anything you can to intensify further than it's already been? Or I know you mentioned it's stabilizing, but add to speak to just competition in that space would be helpful. D. Scott Patterson: Yeah. I mean, the competition has intensified. Certainly, there are fewer opportunities and and more companies bidding. And it, it has, compressed gross margins. And so we we don't expect that to alleviate in the near term until there is an uptick in the in the new construction market. And I I don't know that I can give you more than that, Erin. Erin Kyle: No. That's helpful there. Maybe I'll switch gears on M and A as well. And you mentioned it in response to your previous question. But I for 2026, is roofing still a focus area for tuck in M and A? And then maybe more broadly here, if we think about your commercial maintenance businesses that you currently operate in, what is the appetite maybe for another large platform deal in an adjacent space or any any larger M and A? D. Scott Patterson: I think we're we're focused primarily on tuck-unders right now and certainly roofing. Is an area where we're we're committed to. Again, you know, I I said we're picking our spots. We're very patient, and it's about the the leadership and the partnership. We're open-minded to larger acquisitions, certainly, and I it would be you know, an adjacency and I'm not sure it would would be a platform per our description, which would be sort of a separate operating team, it's more likely to be within restoration or within roofing or within fire. But we're we're open-minded certainly. But also being cautious around around valuation and in a market that's still you know, in our mind, over. Overheated. Erin Kyle: Thank you. That's helpful. I will pass the line. Operator: And our next question will be coming from the line of Tim James of TD Cowen. Your line is open. Tim James: Thank you. Thank you for the time. My first question, going back to M and A for a minute, appreciate the comments on kind of the the competitiveness in that market. Can you talk about if valuations do remain high, whether it's, you know, through '26 into '27, does that change your approach at all? And what what I'm thinking about rather simplistically is do you change the risk profile of the businesses you buy, or do you, you know, pay higher valuations? How how do you approach it as as multiples, and as the competition for M and A remains relatively elevated. D. Scott Patterson: We would approach it the same way we did this past year. You know, as as Jeremy said, we allocated over $100 million on tuck-unders. But these are these are solid good add-ons. With with great leadership that fills white space for us or or adds to our service line. And these are at valuations that we're we were were comfortable with. And in most cases, we were able to differentiate ourselves from private equity and and increasingly, we're seeing opportunities to do that. With families and owners that want to be in a family where they're not resold. They want a they want a forever owner. And so we're seeing more opportunities like that. And and so I would we're we're not going to, change our risk profile unless the returns change to to hit our hurdle rates, We'll continue to to work hard, and and if if you know, I would think that in 2026, it may well be a capital allocation year similar to '25 in what we're we're comfortable with that. Tim James: Okay. That's helpful. And then, you know, is there any sort of silver lining here potentially in the roofing business with you know, you talked about it being very competitive gross margin pressure. Are you seeing any silver lining in that that may be is kind of shaking out some businesses to to look for, a sale opportunity, or is it too early to to to see that yet in the marketplace? D. Scott Patterson: No. I think that's true. I think that's true. There are we're seeing opportunities that they're they're reluctant to transact because their revenue and and EBITDA may be down from from previous years. But it's you know, the market's not gonna change dramatically in in '26, certainly. So we are seeing we are seeing opportunities. Where the the seller comes to grips with a lower valuation based on on results that that are lower. Than the past few years. Tim James: Okay. That's great. Thank you very much. Operator: And as a reminder, to ask a question, please press 11 on your telephone and wait for your name to be announced. Our next question will be coming from Daryl Young of Stifel. Your line is open. Daryl Young: Hey, good morning, everyone. Just wanted to circle back on margins for a second. I might have expected to see more margin expansion as opposed to the the guide for flattish this year. Just given the operating efficiencies you've had. And I wonder if possibly you're toggling between the price volume equation and some of your end markets and maybe giving away some price in order to to keep the growth going. Is that the right way to think about it, or is is there something else going on that's keeping margins call it, know, lower for longer? Jeremy Rakusin: Daryl, I assume you're talking more on the brand segment? Daryl Young: Well, even within with even within resi as well. Jeremy Rakusin: Okay. Well, I'll touch on Brent. You know, Scott touched on it in roofing. The the competitive environment. A lot of our competitors that were accustomed to getting a lot of new construction work migrating to reroofs and putting pressure on bidding and and gross margin. So we're gonna see roofing margins notwithstanding the uptick in the top line through the year, a compression on margins in that business. And that will be offset in the brand segment by you know, better margins year over year in '26 for restoration. Again, a function of higher normalized activity levels, higher revenue growth, and so forth. So that's really the puts and takes for the most part in the year in brand. And then at residential, we don't get a lot of pricing in that business. It's a very high variable cost business. So, you know, growing revenues and EBITDA in lockstep is is the typical path we happen to garner a lot of efficiencies in in in '25 in the areas that we've spoken about through the year. And starting to lap that now. Again, I mentioned it earlier, we'll continue to look at other opportunities for efficiencies. But I I, you know, I wouldn't be baking in a lot of that into the baseline model for 2026. Daryl Young: Got it. Okay. Thanks. And then you touched on data centers in in one of your remarks. Are these projects getting big enough and, fast enough that that you could potentially have a cross-sell or a go-to-market approach between, say, Century Fire and roofing and and maybe even restoration where you you you kinda create national account strategies across all your divisions? To to tackle the data center build-out? D. Scott Patterson: No. We're not, we're not approaching it that way. Darryl. Century has long-term relationships with a few large general contractors that you know, are involved in new construction of warehouses and also engaged in data center contracting construction. So Century is is benefiting from the from the data center boom. But definitely, picking their spots and being cautious about balancing this work and these customers with other day-to-day customers, and I don't see us tilting more to data centers than the current current mix reflects. Roofing doesn't have the same relationships. And you know, it it I think we're very cautious about really leaning in sustainable growth. rather than focusing on durable, We've seen a few of our competitors jump in and it it really consumes them. And they let down they've they're you know, they've let down their day to day. So we're we're approaching it in a different way. And only at Century Fire at this point. Daryl Young: Good context. Thanks very much. That's it for me. Operator: And this concludes today's program. Thank you for participating. You may now disconnect.
Operator: Ladies and gentlemen, welcome to the Ambu Q1 2026 Conference Call. I am Valentina, the Chorus Call operator. [Operator Instructions] The conference is being recorded. [Operator Instructions] The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Britt Meelby Jensen, CEO. Please go ahead. Britt Jensen: Thank you very much, and good morning, everyone. Welcome to this Q1 2025-'26 quarterly call. I'm here this morning with our Chief Financial Officer, Henrik Skak Bender, and we will go through our results, and I'll start with a business update. So if we look at Page 3 as a start and then moving into Slide 4, starting with the headlines for this call. So on the back of a strong Q1 and even a strong H1 last year, we have delivered a very solid Q1 for this year with strong revenue growth. In particular, on our endoscopy business. We said in November that our growth was going to be stronger in the last part of this fiscal year compared to the first part of this year, but we are quite satisfied with the strong start of the year that we have had. In particular, what I want to highlight is that we have had very strong momentum across all our endoscopy business areas. We continue to see a very strong underlying momentum in conversions from reusable endoscopy to single-use, where we are both winning new customers on a very high rate, as well as we are increasing the penetration with existing customers. In particular, we had a strong quarter on respiratory, but also the other areas look strong. I'll comment on that in a short while. On margins, Henrik will come back to this, but we continue to drive a very high operational leverage while we invest in growth. So that's the balance that we continue to focus on. And then we are adjusting for temporarily high tariff costs that we have seen and also some FX headwind. Finally, what has been a highlight for this quarter is that we launched our ZOOM AHEAD growth strategy. We see that this is being well adopted, and we see strong early momentum as we continue to be on track for delivering on our full year outlook. Please turn to the next page and let us then look at the financial results from Q1. And if we look at our overall business, we now have Endoscopy Solutions making up 63% of our total revenue and Anesthesia Patient Monitoring 37%. Overall, the business grew 8.6% on the quarter. And that is a split between Endoscopy Solutions of 14.4%, and then almost flat -- as anticipated -- on Anesthesia and Patient Monitoring, with minus 0.1% growth. On the profitability side, we delivered DKK 164 million EBIT margin before special items, and that corresponds to a 10.5% EBIT margin. And then we had a free cash flow of DKK 13 million. Before diving into the segments, if we move to the next slide, I'd like to talk a little bit about the market that we operate in. And here, I have 2 key points that I would like to highlight. The first one is that we, as a company, are benefiting from an overall trend towards an increase in global procedures performed with an endoscope, whether it's reusable or single-use. And when at our Capital Market Day, we communicated an underlying growth rate of around 5%. And if we look at the quarter that we just exited, we see also an endoscopy volume growing at around that number. So I think that's one thing that, of course, affects our business. If we then look at what is a stronger growth driver for us, then it's the single-use endoscopy penetration. And here, we see across all 4 areas that we are in a very strong increase. If we take respiratory first, here, we see efficiency and economics is really supporting the conversion from reusable to single-use. And we do also have some flu-related demand that is increasing the penetration in this segment. Then in urology, we also see the accelerated conversion in particular with cystoscopes, but also with our newly launched ureteroscopy market. And this is again driven by efficiency and economics among the customers. And on the ureteroscopy side, also a move towards single-use because of the tough procedures and the scopes being more fragile by nature. Then on the ENT market, this is a market for single-use that is in particular strong in the U.S. and in the U.K. And here, we continue to see a strong growth in single-use endoscopy penetration, very much driven by moving from reusable to single-use when performing the procedures. Then -- gastroenterology, this is a market that has not really converted to single-use. It's the lowest single-use penetration of just below 1%. However, where what we track is some niches that are out of the suite, where we see a very nice and solid conversion to single-use as they are seeing the benefits of these solutions in the clinics. So if we then move to the portfolio and some of the highlights on the next slide of progress across our portfolio. Then I'm excited about our respiratory area, where we have recently introduced our SureSight Mobile. So this I'll come back to later, but it's basically a handheld and much more mobile version of our video laryngoscope solution. And this one, we have introduced so far in North America and Great Britain. Then when it comes to urology, what we see here is two things. One, we see a continuous penetration increase of our advanced solutions, aScope 5 Cysto and also aScope 5 Uretero. And then what we have launched in the quarter is aScope 4 Cysto in China, which is locally manufactured at our factory in China. And this is the first time we're introducing this solution in China. Then when it comes to our EndoIntelligence, we are also continuing to focus on this as an area of growing importance; and here, we have, in the quarter, advanced our documentation to help optimize efficiency for our customers and reduce the administration burden. And we are also continuing to expand our capabilities that can support our hospitals in integration to the EMR systems at the hospital, where they can upload pictures and videos to the patient files. Now let's look at the results in the different areas, starting with respiratory. So this is an area where we continue to see very strong momentum across respiratory. We saw organic growth in the quarter of 8.3% against a very strong Q1 last year. And if we look at where the growth is coming from, it's actually driven by the broad bronchoscopy portfolio we have with different sizes, both across aScope 4, but also strong growth with our aScope 5, where we see customers being willing to pay for these premium solutions. And then we have SureSight, the SureSight video laryngoscope that we launched around a year ago that, that is starting to generate meaningful revenue. So when we take a step back and look at some of these strong trends that we see in this market and to guide a little on what to expect when you look ahead, we expect an acceleration in our growth levels in this segment for the coming quarters, which will be driven by both the aScope 4 and aScope 5 increased penetration and also driven by increased adoption of our SureSight solution and cross-selling of that into bronchoscopes. Talking about SureSight, let's move to the next page and look at the launch of our mobile version, which is expanding our overall portfolio in respiratory. So maybe a short recap on what we have shown before that the video laryngoscope market, if we look at the U.S. where the market is largest, this represents a DKK 4 billion market in the U.S. alone. If we then look at laryngoscopy, it's also a method that is increasingly done using a video laryngoscope instead of direct laryngoscope. So that's basically using a laryngoscope with a camera. And in the U.S., this method represents now 50% of all intubations that are done in the U.S., and it's a number that we see growing with around 20%. Then moving to our own solution. So we have launched the SureSight Mobile, which is basically the solution that you see at the top picture here on the slide. And what this supports is very much emergency airway management because it's a product that you can basically see the picture from the intubation directly on the screen. It means that you can have it in the pocket in an ambulance at different parts of the hospital and then have easy access to that, which opposites the Connect version that you put into and connect with 1 of our 2 screens, the aView 2 Advance or the aBox 2. So overall, this is a very strong addition to the already attractive portfolio that we have in respiratory. It works with the same 10 blades that we have launched for the SureSight Connect, where we launched, as a reminder, 5 blades together with the Connect version around a year ago. And just before summer, we launched the additional 5 blades. So we now have 10 blades that both support this SureSight Mobile version as well as the SureSight Connect. So now let's move to the other endoscopy segment on the next slide, which is Urology, ENT, and GI, which is a segment that has become slightly higher than the respiratory segment now with a 21% growth in the quarter versus last year. So momentum is strong, as I mentioned in the beginning, across all the different areas that we have here with urology being the largest and biggest growth contributor, something we also expect will continue. When we look at urology, growth was primarily driven by continued penetration of our aScope 4 solution, where, again, revenue is coming from continued new customers being added as well as increasing penetration with existing customers. And then we also see revenue increasing from our more newly launched solutions, and that is our aScope 5 Cysto and our aScope 5 Uretero, reflecting also -- I mean, the speed of the uptake of these solutions in particular -- when it comes to our ureteroscope, reflect the length of the sales processes that is slightly longer for these at the hospitals because these are more complex procedures by nature. So in these segments, we -- if we look at what we expect as we look ahead, we did see a strong underlying momentum, which we expect to continue. What we also saw was that towards the end of the quarter, we saw a slight increase in the number of orders that came in before year-end, which also means that we think that there are good reasons why the growth in the coming quarter can be slightly lower than the 21% that is highlighted here. But I do want to say that this is more the timing of orders that is a result of that, and it's not related to the underlying growth momentum that we see in urology as well as the other segments represented here. So before leaving endoscopy, maybe on the next slide, let me briefly comment on EndoIntelligence, which is our area of growing importance that supports our endoscopes across all the areas that we operate in within endoscopy. Because where we really stand out is that we have one software platform, our EndoIntelligence, that all our endoscopes connect to. So that basically means, and we see health systems paying more and more attention to this that we -- that they can have our -- either our aView 2 Advanced or our aBox 2 and then basically, they can use our full endoscopy portfolio on these monitors. And it's exactly the same user-friendliness, the same functionality that you have for a number of the functions. So it's very easy to use across all the different areas. And this is where we are unique with our broad portfolio. Then it also has a lot of benefits and scale advantages because as we invest in advanced software features, we can also easily apply these across all the different areas that we are in. And an example here is also that we are working on, and that we launched for training purposes, is the AI bronchoscopy navigation training, where basically you can use the solution to see where in which parts of the lungs you have expected, something that is not available on our aView 2 Advanced or aBox 2 yet, I should say, but which is again part of our overall EndoIntelligence offering. When we then look ahead, there's a lot of development ongoing within this area, where we are looking at how we can -- solutions that can improve our navigation, detection, and documentation in the different areas, as we see a clear need and demand for among our customers. Also, we see increasing benefits of using technology to improve our image quality across the different areas, which again is a key lever to improve detection rates. Then last but not least, the whole integration with connected devices and with the hospital systems is also something that we see is remarkably increasing or easing the workflow at the hospitals, which is a key focus as they are overburdened with a lot of administration and still face in many countries, staff shortages. So overall, an area that we will continue to talk more about and integrate in the solutions that we have. Then let me briefly also comment on the next slide on our Anesthesia and Patient Monitoring business, because this was more or less flat versus last year when we look at it organically. Our Anesthesia declined by 1.2% and Patient Monitoring grew then on the other hand, 1.1%. We still see the same dynamics in these markets as previously. And you may remember that last year, we grew in the quarter 18%, very much driven by selective high price increases. So we are more back to normalized growth levels now, where you should expect going forward growth around 3% to 5%, as we have communicated. Also, you should expect the growth coming a lot from volume increases, but also still have some price increase development, although much more modest that we have seen in the past couple of years. And looking at the coming quarters, we remain very confident around, again, the dynamics in this segment and that we continue to see nice growth rates driven by already very strong solutions as well as a highly loyal customer base. So before handing over to Henrik, let's move to the next slide and let's -- well finish with a few highlights on the key focus areas of our strategy. So customer centricity remains a key area where we are doing a lot of initiatives to continue to serve our customers better. What I want to comment on in this quarter specifically is our Recircle Program. So our program, where we take back endoscopes for recycling, which is live in 4 markets and where we have now expanded to cover 50 hospitals and over 100 clinical departments. And in the quarter, we also expanded this to not only include the endoscopes, the full range of endoscopes, but also now the SureSight blades. On innovation relating to the EndoIntelligence, that we discussed, we continue to also strengthen our capabilities within software and AI technology and have some very strong capabilities to drive the innovation in this area specifically. Then on the business platform, an important point here is that we continue to invest in expanding our commercial execution to support the high-growth agenda that we have. And then also what we do is that we continue to also have our Mexico factory improving both utilization and output, which is very much supporting specifically the growth in North America. So with that, let's move to the next slide. This concludes my presentation, and I'll hand over to Henrik to go through the financials. Henrik Bender: Thank you, Britt. Good morning, and welcome to the call, everybody listening in. Happy to take over and take you through a couple of key notes on the financial review. Before we go to the next page, I just want to reiterate what Britt also opened the call saying we are very happy with the solid start of the year and very satisfied both with the results, but also in particular on the strategic progress. With that note, let's take us to Page 15. So overall, as Britt opened was saying earlier, we had a growth of 8.6%. Adjusting for FX, the reported growth was 3.2%. We continue to still be impacted by a U.S. dollar/DKK depreciation, which impacts our reported growth, particularly for North America, but also with the mix of FX, the growth in the Rest of World, something that I'll come back to later. Overall, the growth is particularly driven by Endoscopy Solutions now representing 63% of our total revenue and a total growth for the quarter of 14.4%. Anesthesia, as Britt just mentioned, had a negative growth, while Patient Monitoring had a slightly positive growth, meaning that overall, that segment was more or less flat. With that, let's have a closer look at the geographical split of our growth on the next page. Overall, we're still on a very, very solid growth trajectory for our key markets in North America and for EMEA, both growing close to double digits. The solid growth in North America, particularly driven by Endoscopy Solutions and for EMEA, driven by both Endoscopy Solutions and actually also still our Anesthesia and Patient Monitoring business. For Rest of World, we did see a decline in organic growth, mainly driven by order fluctuations, as we do see in some of these markets, very big orders for one quarter or the other, as many of these markets are still covered by distributors, which means that there will be order fluctuations across the year. Looking at the same numbers in reported currency, North America growth was almost flat because of the USD/DKK depreciation, and the Rest of World had a higher negative growth again in reported currency because of the negative FX effect. If we then turn to margin and start with gross margin. Overall, our gross margin was in line with expectations. We had a solid first quarter at 60.8%, which is lower than last year same quarter, but higher than the average for the full year last financial year. The overall gross margin is continuing to increase, driven by a combination of higher endoscopy sales versus A & PM, continued stronger and strengthened price governance and as Britt mentioned on the strategic update, and increasing utilization, particularly of our Mexico factory, which helps us ensure that we have lower production overhead and therefore, supports an increase in gross margin. Overall, we therefore feel well on track on how gross margin should develop both for this financial year, but also towards our long-term targets, supporting our EBIT margin expansion journey. Speaking about EBIT margin, let's go to the next page. Overall, the EBIT margin for Q1 landed at 10.5% reported, which was a decline of 5.6 percentage points versus the same quarter last year. We did, as communicated in our Q4, expect and also report a significant cost of tariffs, which is driving down the EBIT margin for the quarter. And combined with that, we also had a negative development in FX, meaning that if we adjust for the combination of the two, we saw an underlying adjusted EBIT margin of above 15%, which actually is very well in line with our EBIT margin expansion plan for this year and again, also for the long-term targets. Overall, therefore, we feel on a solid start. As Britt said also in our opening, we communicated that we see a lower EBIT margin for the first half, and we are going to see a higher EBIT margin for the second half of this fiscal year, and this represents a solid start in accordance with our plans. Turning to free cash flow. We did report a low free cash flow for the first quarter. Overall, this is fully in line with the typical pattern of our free cash flow, where we always pay bonuses and tax in the first quarter. And therefore, this is also in line with expectations. Specifically, the free cash flow for the first quarter was impacted by negative development in net working capital, in part due to us lifting some of our safety stocks across the world to manage and mitigate some of the political uncertainties we see. Furthermore, the free cash flow was also impacted, of course, particularly by the higher tariff costs for this quarter, specifically if you compare this quarter to the same quarter last year. But overall, on free cash flow, also a solid start. Speaking about solid start and then looking at our outlook on the next page, we therefore also -- as Britt also said in her opening, maintaining the outlook for the full year with a solid growth of 10% to 13% organic driven in particular by Endoscopy Solutions at plus 15% growth. We see still further acceleration in respiratory. As Britt said, for the first quarter, the respiratory growth was impacted by the very high comparables for the same quarter last year, but we see that accelerating throughout the quarter. On Urology, ENT, and GI, we see a continued momentum versus where we landed full year last year. We had a good first quarter. We are seeing some order patterns that are benefiting Q1, which means that we are seeing slightly lower growth expected for Q2, but overall across the year, a continued momentum versus the same growth levels we saw for the last financial year. For Anesthesia and Patient Monitoring, despite a flat growth for the first quarter, we still maintain a guidance of mid-single digit as the first quarter was mainly impacted by high comparables. On EBIT margin, the impact from the external factors, particularly tariffs, we are still seeing playing out, as expected, and these will mainly impact the first half of the financial year. So the first quarter, as we just saw, but also now into second quarter. Overall, we feel on a solid track on delivering on the 12% to 14% guidance despite the tariffs and despite the FX headwinds. Last but not least, as I said, the first quarter had a lower cash flow and therefore, also lower cash conversion, fully in line with expectations; and we also still feel very comfortable that we'll be able to deliver on the cash conversion guidance for the full year. So overall, again, a solid start of the year, something we are very happy with and also a lot of great progress on our strategic focus areas. With that, I hand it back to the operator and open for questions. Operator: [Operator Instructions] The first question comes from Thyra Lee from UBS. Thyra Lee: I just have two, please. Firstly, I wanted to follow up on your comment about the pull forward into Q1 within the Urology, ENT, and GI business. Could you just give us a little more color on why you saw this customer behavior? If you could size the benefit that it contributed in Q1, and also how you expect Q2 growth to be impacted from this? Then the second, please. You saw an absolute tariff impact of over DKK 50 million. On my math -- and please correct me if I'm wrong -- this suggests an impact from tariffs only of almost 3.5 percentage points on the margin this quarter, which sits significantly above the average 2 percentage points that you're flagging for this year. Could you just tell us whether we should expect Q2 to also see an impact of above 2 percentage points to a similar quantum, or should it be more in line with 2 percentage points? Britt Jensen: Thank you for good questions. Let me answer the first question on Urology, ENT, and GI, and then I'll let Henrik answer on your tariff question. So I think overall, I think I want to take a step back and say that if we look at the overall business, Urology, ENT, and GI -- and let's maybe focus on urology, which was where your focus was in the question, we see very strong momentum in our urology business. So that means that we continue to see our new -- an inflow of new sizable customers, and we also continue to see an increasing penetration with the customers that we already have. So I think that makes me very confident. If we look at the past year and as you also see in the slides, the way that we show it and measure internally, we very much focus on the rolling 12 months because we do see some fluctuations quarter-over-quarter. And what we saw, and this is basically also what we are highlighting here. In the last 4 quarters, we have had growth between 16% and 21% roughly. So that also illustrates that and this quarter, it was 21%. That illustrates some of the fluctuations we have because orders are placed in one quarter relative to another. And we, of course, track our orders, and I do want to highlight that we do not, I mean, encourage with rebates or anything like that customers to buy in one quarter versus another. So let me just make that clear. But what we did see towards the end of Q1 that we are reporting on, we did see a stronger order -- number of orders coming in. So this is basically also when we then look at the overall rolling 12 months and look at how we see the pattern of new customers and increased penetration, that leads us to believe that there could be a slightly lower growth rate in Q1. So this is basically just what we are -- in Q2, sorry, yes, in our Q2. So this is basically what we are flagging and what to expect. But again, I want to highlight, it doesn't take anything away from the underlying momentum where we see aScope 4 Cysto continuing to be very strong performing and a product that we are selling a lot. And then we do see the growing momentum on aScope 5 Cysto, where actually customers are willing to pay a premium for that product. And then we also see a very good increase in our aScope 5 Uretero. But again, with longer evaluation times and thereby longer selling cycles than we see in the scopes targeting simpler procedures. So I hope that that explains a bit what we see. Again, highlighting that we don't see any cautious or any need to be negative -- have a more negative view on this segment. It's simply the quarter-over-quarter fluctuations here. Henrik Bender: To follow up on the second question and perhaps just a final note on the first, Thyra. I think for us also, we are illustrating this as a symbol and a signal of how we are becoming better and better at understanding the dynamics with our customers and predicting what patterns we should see, exactly, as Britt said, not pushing order flows into the customers, but rather managing it together with the customers. On the absolute tariff cost, you are right with an above DKK 50 million tariff cost realized in the first quarter. That means an above 3 percentage point negative impact in the first quarter on EBIT margin. And yes, you should expect also an above 2 percentage point tariff cost for the second quarter. That basically brings me back to when we -- as we explained earlier or end of last financial year, the tariff cost impacts our P&L with about a 1 quarter delay. And given that we are still in the tariff regime, where we are moving production to Mexico and thereby compensating for the tariff costs, and we've been doing so for the last 6, 9 months, then there will still be an above average for the year tariff cost impacting us in Q2, which will then go down further in Q3 and Q4. Operator: The next question comes from Jesper Ingildsen from Carnegie. Jesper Ingildsen: So I have a couple of questions as well. On the other Endoscopy business, I don't think you've called out specifically how much this phasing is equivalent to, but also whether we should see this in context of the 21% growth you delivered in Q1 or more like against the 20% trend line that we are typically seeing for this segment? Then maybe on margin, even when adjusting for the tariffs, it seems like you have a pretty big step-up in OpEx here in Q1, and particularly in the administration cost. Anything to call out here in terms of one-offs? Or how should we think of this for the rest of the year? Then lastly, on the margin side as well. You have updated your FX table in your report as well. So you're obviously assuming more pressure from FX, both on top line and on margin. Maybe if you could specify what kind of pressure we're talking about? And then maybe also similarly, what kind of potential impact we could see from increasing silver prices when it comes to your single-use electrodes? Britt Jensen: Thank you, Jesper. I'll maybe take the first one. And I'm not sure. I mean, please correct me if I'm not fully answering your question. But again, the 21% that we -- growth that we had in Urology, ENT, and GI, that -- I mean, we focus mostly on the urology because that is the largest part of this segment. But actually, what -- when we look across, we actually see solid growth across all of these 3 areas. So that's just one thing to be clear about. Then I think your question was around the effect on the order flow, when we had a higher-than-normal order flow in -- towards the end of December. And maybe just a comment on that also relating to what I said before. I think -- why did we see this, you may ask. I think what -- some of the dynamics that -- I mean, that we expect is that, as you know, many are finalizing their fiscal years of our customers, the 31st of December. And sometimes depending on where hospitals and clinics are in their own budgets and that has actually, we have seen in previous years also has an effect on how they place their orders. So that is what we have seen. It's -- I mean, we are monitoring this obviously very closely into this quarter. It's not because we are flagging a big concern that we see right now, but it's more as we try to predict the inventories that we know are at the customer levels and when we should expect orders. This is basically where we see some of the quarter-over-quarter fluctuations and which is also why we are -- I mean, we are not really concerned because the key numbers that we track internally, and I know we don't share this is that we see a steady flow of new customers coming in, and we also see when we have the customers in that their penetration. So the share of procedures where they use our scope relatively to typically a reusable scope that, that is going up. And we do not see anything of concern here. So this is also why we feel quite comfortable around the growth here. So hopefully, this clarifies the answer. And that -- I mean, that is not only for -- that trend for urology, it's also when we talk about ENT and the customers we have in GI. Jesper Ingildsen: If we were talking about like, let's say, 1 to 2 percentage point that was -- that supported the growth in Q1 or we're talking a significantly larger contribution. Henrik Bender: Yes. So I think we don't size it explicitly, but it's a few percentage points. So I think this is why we want to be a little bit more clear on the impact and therefore, how you should interpret the 21%. On the margin question, Jesper, then I guess the 2 points you asked about was one on OpEx, OpEx ratio development and second, the impact from FX and other commodity prices. So on OpEx overall, you're right, there was an increase in the OpEx level, both on selling and distribution costs, where you see obviously the tariff cost impacting. But also on top of that, even if you adjust for that, you can see, as Britt explained also in the strategy update, our investments in commercial execution, i.e., salespeople in the front line, but also the whole infrastructure around our commercial execution still materializing. And this is a part of the plan of expanding our footprint of driving further organic growth and ensuring we have a strong field force in place. Specifically on admin costs, there's not anything particular to call out. There's a few extra costs related to some of our transfers and implementation of the changes that impacts the quarter 1, but there's not anything other structural to point out and neither a structural higher cost level than what we have been indicating before. In terms of external factors, you are right. We also in the table called out the FX developments between where were the -- when we reported Q4 last year, i.e., beginning of November and now we start of February. And most notable from that table in the report, of course, is the U.S. dollar drop, which is also what we monitor the closest. And of course, therefore, further drop in the U.S. dollar depreciation versus the DKK would still have a negative impact on our business. Net-net, the business is still, you can say, naturally hedged with the fact that we have our production across China, Malaysia, and Mexico. but that hedge comes with about a quarter delay, as we also explained in quarter 3 and quarter 4 last year. So there are still some FX fluctuations, and with the geopolitical uncertainty, that is still a topic that we will follow closely, but might impact one quarter over the other structurally over time. Not something that we are concerned with versus our '27, '28 or '29, '30 targets. On silver price explicitly, obviously, there's been quite some fluctuation in silver price over the past weeks and even this week. I think the short and the long is that, yes, it impacts our -- some of our BlueSensor business within Patient Monitoring. It's not a significant impact, as I think I explained to a number of you on the call also during the last few months and therefore, not something that we point out specifically. Jesper Ingildsen: So in terms of the FX drag and then potentially from silver, it's not like we're looking more towards the lower half of the EBIT margin target for the full year at this point in time. Henrik Bender: We don't guide where we are in the range, but just maintain our view that this is still the range despite what we've seen in terms of external headwind. Operator: The next question comes from Martin Brenoe from Nordea. Martin Brenoe: I actually have a few, but I'll just start with two questions, and then I'll jump back in the queue again. Maybe just catching on what you said in the prepared remarks, Henrik, I noticed that you said that there was an acceleration of respiratory in the quarter. So could you maybe help me explain how that development or trajectory looked like and what the exit rate was in Q1? Let's start there and then take the second question after that. Henrik Bender: Sure. So as you correctly noted, both Britt and I talked about an expected acceleration in respiratory. We don't comment on what was it 1 month versus the other. But what we're clearly pointing out is that Respiratory had a, relatively speaking, lower growth in Q1 at the 8.3%, particularly given the high comparables. For the quarters ahead, we are expecting an acceleration from a combination of the underlying conversion to single-use of aScope 4 and aScope 5, the pickup in a higher ratio of aScope 5 share of that bronchoscopy sales and then specifically the SureSight launch, which now with the mobile increases our ability to do conversions, full conversions at hospitals, which both drive SureSight sales and also drive even more bronchoscopy sales. And that acceleration we expect to see continue throughout the rest of the financial year, not commenting on how we should see one quarter versus the rest, but more commenting on you should see an acceleration across the year. I just want to remind you all that we also guided for this financial year as part of our guidance, which we released in Q4 that we are expecting an acceleration of the respiratory overall growth, where last year landed at 11.4%, and we're expecting that to accelerate for the full financial year. Martin Brenoe: Then with the risk of sounding a bit like a stalker here on this call, I noticed, Britt, that you have been in the very East in China, and you also flagged the aScope 4 Cysto launch in China. So I'm just a bit curious about this move that you're making here. Can you maybe just talk a little bit about the sort of the timing of the launch? What is the ASP versus your global ASP of the aScope 4 Cysto in China? And potentially not holding it up against you, but when should we expect China to become a meaningful contributor to your urology franchise? Britt Jensen: Yes. No, and thank you for those questions, and happy to comment on China. So basically, maybe where I should start is that China is quite a small part of our business. It's significantly below 5% of our total business. So it's a very small market now. But obviously, I mean, it's a market where we -- despite health care reforms and volume-based procurement, we actually see opportunities. And I think that's really where we have spent some time diving into that to understand more from a -- more the long-term potential and is correct. I was in China last week also to understand a little further and to follow up on some of the decisions we made based on previous visits there. I would actually say that, I mean, when we look at the market, I mean, despite some companies really being significantly challenged in China, we actually see a healthy potential for our solutions in China. And the key difference relative to other companies, you could say, is that we have actually products that are serving a real need and that are also innovative. And we have spent quite some time understanding the situation with the volume-based procurement before we invest. I would also say, coming from a very low base, I mean, it will take a number of years before this is meaningful revenue. But we -- as part of the strategy, we also said that we invest in selected markets in Asia. China is one of them. India is another one, again, coming from a low base. But on a longer term, we believe that this is the right thing. We have a manufacturing facility in China that is -- that we have had for over 25 years that is actually running very well. So we can actually leverage that also to -- for our position in China and in urology, where we are very competitive with the solutions that we have. I think, again, what we are really leveraging here is that we have very strong and attractive manufacturing costs because of our scale relative to many other players. So that also means that we can be competitive. And then we also have solutions that are differentiated on a number of areas, and we continue to invest in innovation to a different level than other players. So that's actually what makes us quite confident. But let me just finish by pointing out that U.S. and Europe will continue to be the biggest opportunity when you -- and where you will see most of the DKK growth coming from in the future. Operator: The next question comes from Tobias Berg Nissen from Danske Bank. Tobias Nissen: I just have two questions. Also, you mentioned the order pull forward in Urology, ENT, and GI, like suggesting some budget flushing in this area. What kind of similar patterns have you seen, or have you seen a similar pattern in respiratory? And what are the underlying, you can say, customer dynamics here? And also in terms of flu, anything specific to call out here also into year-end and perhaps something you've seen here in January? That would be my first question. Britt Jensen: Yes. Thank you, Tobias. I can take that. So I think in respiratory, we have seen more of a what I would call a normalized order pattern. So I think that -- I mean, we have not seen anything that -- I mean, where we think that there has been an increased buying for customers' own inventories. So that -- I mean, that's number one. Number two, in terms of flu levels, I mean, there has been -- I mean, the flu levels peaking also here around year-end with increased hospitalizations in the U.S. in particular. Now it has in the last couple of weeks been going down again. I think -- I mean, we do benefit from hospitalizations from flu, but we -- it's in a lower and lower driver of our respiratory business because our scopes are increasingly used for other purposes. So that's also why, I mean, a couple of years ago, this took up much more space than it does now. So -- but we do have some impact that I will not quantify overall. I think when both Henrik and I talk very positively about the respiratory segment, that's not something that should be seen as a short term or as the next quarter momentum. This is actually more of a longer-term underlying momentum that we see because we simply see, I mean, number one, an increased conversion to single-use endoscopy from reusable where we see very strong win rates of our -- from our solutions. So this is number one. And then number two, with an expansion of our portfolio with SureSight, I mean that is tapping into a new market, but it's also helping boost the bronchoscopy sales, both of aScope 4 and aScope 5 Broncho. So that's more of an overall positive effect that is less driven by some of these short-term elements. Tobias Nissen: Just as in terms of -- you mentioned your high strong win rates here. Have you seen those go up after you expanded that portfolio, both with SureSight and also the newest SureSight Mobile might be a little bit too early to comment on that one. Britt Jensen: Yes, exactly. Yes. So I mean, the SureSight Mobile, I mean, it's too earlier to say, because we are introducing it, and we are doing that just to clarify, where we are testing it with some customers to make sure before we do the broader commercial launch. So we are not at the broader commercial launch of that yet. But we definitely see that -- I mean -- and this was also very much our expectation with the launch of SureSight that, in particular, after we launched this -- I mean, the full set of blades, so early summer where we had 10 blades available, we have seen actually a stronger momentum because many of our customers actually like that we have: the full solution where they can use both the aScope 4, aScope 5 Broncho and SureSight on the same monitor and system. So this is actually very much something we see as a positive, and that we see also helping our win rate and our general penetration in the hospitals. Tobias Nissen: I just have two short ones here. Perhaps just on Rest of the World, here, organic growth was a bit on the softer side, around minus 2%. And just looking at Q4, it was slightly up at 1%. Anything specific to call out here? Or is there some order fluctuation? What's going on? Then just on Anesthesia and Patient Monitoring on a bit softer side this quarter due to these tough comps. But what are you seeing like in terms of leading indicators that should underpin this mid-single-digit growth you're guiding for the full year? Henrik Bender: So I can take both, Tobias. So on Rest of World, if we start with that, then it's a mix of two things. So first, as I noted in my presentation, part of Rest of World beyond the markets, as Britt say, where we are deliberately focusing China and India are 2 examples, which are part of this category. Then this category or these geographies also represent a number of distributor markets, where you will see 1 or 2 orders a year. And therefore, depending on whether it is one quarter or the other, that will, of course, impact the growth rate quite significantly. Specifically, if you go back and look at the same quarter last year for Q1, we had a number of big orders in this Rest of World geography last year same period, and that's a big driver of why you're seeing a lower growth now. On top of that, these markets are also still relatively speaking, more linked to our legacy business, Anesthesia and Patient Monitoring, relatively speaking, less to our endoscopy business. And therefore, they are also more impacted on where are we on A & PM versus where are we on ES, something that we are trying to change. And frankly, back to the question from one of your colleagues on the China visit, one of the reasons why we are pushing this agenda in these -- the endoscopy agenda in these markets because, of course, we see the same potential, though only at an earlier stage of the maturation curve. So that also means -- to follow up on your question, that Rest of World, we believe, will be a very nice growth driver over time once we are through the change of the legacy business and even more focus on endoscopy. Then ending on A & PM and the softer growth, I think as we explained, again, the growth for the quarter is mainly actually related to comparables. Comparables will become easier across the year. So that's one part of the answer to why we still feel comfortable about the mid-single-digit outlook for this business group. The other one is that we also still see us winning volume and also still see some areas, though much smaller for potential price increases. One of your colleagues again asked about raw materials. Obviously, when we see these raw material prices increase, we also go out and work on price increases on our products. So it's a combination of those 2 things that means that we still feel comfortable with a mid-single-digit growth for this segment or business group despite the low growth in Q1. Operator: The next question comes from Yiwei Zhou from SEB. Yiwei Zhou: It's Yiwei from SEB. I have two left here. Firstly, on the -- just follow-up on the tariff payments impact in Q2. I previous got impression that the payments would be a similar level as in Q1. So there will be a bit more than DKK 50 million, but less than DKK 60 million. I was just wondering in Q2, can you confirm that it will be the case? So the margin impact would be more than 2 percentage points or 3 percentage points instead of 2 percentage points. Henrik Bender: So I think it's nice that you're trying to make us become more specific, but I think I will just repeat my answer from before and say, as we communicated earlier, tariff costs will be higher in H1. Now you saw a level for Q1 alone. I'm not going to comment specifically on Q2 relative to Q1, but just repeat what I said earlier, being that we do expect tariff cost to be above the level for the full year also for Q2, i.e., above 2%. Yiwei Zhou: Now in this context, if we calculate, I mean, you guide 2 percentage point for the full year, and you are confident to mitigate when you go into next year. So how should we understand the second half? I mean, if I understand correctly, first half, you already have like more than DKK 50 million in Q1. Q2 will also be pretty high. Then you need to deliver a step-up in the second half sort of to mitigate and also to ramp up the production. But we understand, I mean, this production ramp-up will take effect gradually through the year. So how should we understand the step change in the sort of the margin impact here in the second half? Henrik Bender: So two clarifications. I think, one, we are guiding around 2% for the full year. So not explicitly 2% exactly, but around 2%. I think the second thing I will say is that, as you correctly note, the production transfers are a gradual process, but particularly the products that have the highest cost impact in terms of tariffs are the ones that are now really ramping up and have actually been ramping up for the last few months. Because as I also said earlier, the realization of the tariff cost happens with about a 3-month delay in our P&L. In other words, therefore, I feel very comfortable in terms of the momentum shift, to use your word there, i.e., drop in tariff costs that we are expecting to see in Q3, Q4 because it's driven by the production transfers we are seeing happening right now and the ramp-up that have been started and are in the middle of taking full effect as we speak. So in that sense, those are the main drivers of that cost momentum shift, i.e., drop in tariff costs between Q2 and into Q3 and ultimately Q4. Yiwei Zhou: Then next question to Britt. Also, on the cystoscope potential in China. To my knowledge, this market segment in China has been very competitive and there has been a lot of conversion post COVID. And there's also a number of Chinese single-use players competing to each other pretty intense. Britt, what gave you the confidence to enter this market? Britt Jensen: Yes. No, this is a good question. And I think you're absolutely correct that there are a number of players in this market. However, I think -- and I mean, you know a lot about this market, obviously. But I think if you're in a position like we are, where you have number one very competitive, low manufacturing cost relative to competition. And then number two is a company that invests in innovation, then you can actually have a strong position in the marketplace. And it is also a large and attractive market. So far not -- I mean, it has not been included in the volume-based pricing. I think when you look at China overall, the market that is slightly more competitive, I would say, is the market for ureteroscopy specifically. So I think that with our experiences in the Broncho segment with our bronchoscope, where we are actually -- I mean, where we are -- despite also competition, we are by far market leaders in the segment and some of the -- I mean, the benefits that we have in terms of a competitive solution, we believe that there is -- I mean, we will not be the only player in this market, that's for sure. But -- but I think we should be able to gain a sizable position winning over competition also over time. Yiwei Zhou: I just want to follow up on this. I mean in the Chinese endoscopy market in general, we know that the Japanese reusable manufacturers used to have a very high market share and China has always been their main focus. But given sort of the increased geopolitical tensions now between China and Japan, I mean, based on your learnings from the trip, are you seeing that -- do you think this will potentially push sort of a faster market conversion to the single-use in China? Britt Jensen: Yes. No, it's a good -- this is actually a good point. And I discussed, I mean, with a couple of different, I mean, local out there around the whole Japan situation. I'm not -- I mean, I'm not fully convinced to be honest, around how much that will impact. I think what will more drive the market growth is, I mean, there's a need in China for health care to a broader part of the population and the fact that we are able actually to support with our solutions delivering that they can do more procedures less -- I mean, more at lower cost and also the whole investments into the capital equipment that is -- that some of them also struggle with. I think that is more one of the drivers. I'm not -- and it could be the whole China, Japan issue can have an effect, but I'm not fully convinced that that's more maybe based on the mixed signals that I got, but it's a good perspective. Operator: The next question comes from Delphine Le Louet from Bernstein. Delphine Le Louet: Just a quick follow-up effectively on the tariff, and specifically to the Mexico ramp-up and actual levels of manufacturing and production and the one we can expect over the course of the year. So I really understand, and thank you for the precision regarding the lag effect in between the manufacturing and in a way, the invoicing. The second question will be -- and will deal with the CapEx allocation, probably broadly and just thinking about the free cash flow. And so thinking about the CapEx when it comes to allocation to innovation and when you think about the innovation in between the products and also in between the, let's say, EndoIntelligence you've been axis on. So that would be interesting to see and also if there is a bit of a seasonality here. Finally, can we get a broader view, Britt, on the sales force organization in North America, how that has changed over the course of Q1? What is left to be made? Any comments on that would be appreciated. Britt Jensen: Yes. Thank you, Delphine, for good questions. Let me start with the last one, and then I'll hand over to Henrik. So I think we have -- I mean, we have definitely -- while we have a strong presence in North America in terms of our own commercial field force that is actually working well, we have -- based also on the growth and the demand, we've seen a number of areas where we could optimize. And as you also know, we brought in a new leader, Scott Heinzelman, who joined us end of August. And together with the team, he has been implementing a number of initiatives that can basically support also our way of serving the customers and improve how we do that. So you can say one thing is, I mean, slightly restructuring how we approach the customers, not only in terms of territory restructuring of our product focus, but very much also in terms of how we are set up to better address the health systems rather than the individual doctors, given how the U.S. market is evolving. And then, I mean, we already have a pretty good position and set up with -- to work with IDNs and GPOs, but that's also where we have seen some ways that we can further strengthen our presence. So I think some of what we are doing to just sum up is that we are adding some more headcount and as we are -- we have been adjusting the structure a bit to make sure that we have enough feet on the ground to serve our customers. And then some of it is also improvements in how we operate. That will also give us some more ability to serve the customers. So I feel confident we have -- to your question on timing, we have done some of these initiatives in Q1, but that will -- I mean, it will actually be more something that we are focusing on in this quarter and next quarter. Henrik Bender: So on your other two questions, I'm not sure I fully understood what exactly you're looking on in tariff costs specifically. But I think the ramp-up, as I understood your question, I think it was mostly related to the ramp-up in Mexico, the timing effects and how much further we can ramp up. I think the overall message there remains that we have a very big factory, fortunately. In Mexico, we feel very good about that and particularly now under the USMCA trade agreement with U.S. that is, of course, has been and remains a very critical strategic site of ours in North America next to our factory in Noblesville. We are still have plenty of extra space in Mexico. And I think I've been quoted before for saying we only take up about 50% of the physical space there. I think now we're starting to go a little bit above 50%, but not much. So there's still a lot of space left. And that ramp-up is a continuous ramp-up at the same efficiency level, as we also discussed before, as we see in Malaysia, when you account for slightly higher direct production costs, but on the other hand, of course, lower distribution costs between Mexico and Malaysia. So it's happening at a net 0 gross margin impact when we transfer our product. So overall, we're really comfortable about that. And that ramp-up is happening. And as per an earlier question, particularly now on some of the higher-value products that have been driving higher tariff costs. And therefore, as we see that happening right now, that will also flow into the P&L, not in this second quarter, but particularly in the third and fourth quarter of this financial year. So I hope that answered the question on tariff costs and the link to Mexico. On CapEx allocation, you are right that we are continuing to increase our CapEx allocation or CapEx investments in general. I think they mainly fall in 3 categories. So there's, of course, the serving of the existing hardware portfolio of particular endoscopy products, which is the vast, vast majority of the focus of our R&D investments. But a larger and larger share of this also goes towards EndoIntelligence, i.e., software, AI, but also the monitor and the monitor processing itself. I'm not going to split that in detail, but those are taking up a higher and higher portion. And as you can see also in the notes of the quarterly announcement where you can see R&D costs adjusted for depreciation and amortization and then added back CapEx, you see quite a significant higher investment R&D-wise this quarter versus same quarter last year. The only last thing on CapEx is, of course, we are also then looking at what are other investments across the company, they fall in the category of, like, Britt said, some of the systems and tools we're doing for commercial investments and ultimately, also what are the inorganic opportunities we see next to all of this that could accelerate our innovation road map and could, you can say, yield further growth potential on top of our organic growth ambition. Delphine Le Louet: All right. But please, just to be back into this production ramp-up, can we think about a 60% by the end of the year in Mexico? Or is it too -- in a way too aggressive? Henrik Bender: I think that's probably a little bit too aggressive in the sense that the physical space is so big. So I think the way you should rather see it is that we want a higher and higher share of the North American market to be served by Noblesville and Mexico. Again, we're not giving specific percentage ratios, but there is a substantial step-up happening that has actually been undergoing for the last 12 months, but now is still undergoing right now as we speak. Operator: We now have a follow-up question from Jesper Ingildsen from Carnegie. Jesper Ingildsen: Just have a question on the Section 232. I wondered if you had a view on the timing of potential outcome here and whether you think that the U.K. -- USMCA would still stand in if this goes through. Just wonder if you had any insight to that and maybe on the back of discussions with the AdvaMed. Britt Jensen: Yes. No, thank you for that. And I think it's -- we are, of course, in close contact with people that are close to the matter. And I think it's a little premature to speculate too much. However, I think -- I mean, the signs at least that we see now, and obviously, we are preparing for different scenarios is that it's, number one, it's likely that it will come out in the next month or maybe 2. I think that seems to be the case. Then you could say also in terms of USMCA, that seems to be so fundamental in terms of how -- I mean -- and important to the U.S. market. So it seems also, again that this setup is expected to continue. So I think we, of course, prepare for different outcomes, but it seems to go in a direction like that. And then, of course, on top of the Section 232, there's also the whole court case around tariffs in general. And we are a little unsure right now about whether they're waiting for that before the 232 conclusions. But I think it looks -- I mean, with the different scenarios that we have been planning for, it looks very likely right now that -- I mean, that it will end in a way that supports our ongoing plans. Operator: We have a follow-up question from Martin Brenoe from Nordea. Martin Brenoe: Actually, most of my follow-ups were taken in the previous follow-up, but just one simple question. When you are doing these mitigation actions, can you just verify for me whether you are behind the plan in terms of the mitigating actions, you are on the curve or you are ahead of the plan here end of Q1 would be very helpful. Henrik Bender: That was a clear and simple question. We are on plan, neither ahead or behind. So we are on plan. Operator: Ladies and gentlemen, that was the last question. I would now like to turn the conference back over to Britt Meelby Jensen for any closing remarks. Britt Jensen: Thank you very much. And my only closing remark will be a thank you for listening in on today's call and also thank you for very good questions. So we wish everyone a good rest of day from here. Operator: Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call, and thank you for participating in the conference. You may now disconnect your lines. Goodbye.
Operator: Good morning, and welcome to the Old Dominion Freight Line Fourth Quarter 2025 Earnings Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Jack Atkins, Director, Investor Relations. Please go ahead. Jack Atkins: Thank you, Gary. Good morning, everyone, and welcome to the fourth quarter 2025 conference call for Old Dominion Freight Line. Today's call is being recorded and will be available for replay beginning today and through February 11, 2026, by dialing 50669658, access code 901145. A replay of the webcast may also be accessed for thirty days at the company's website. This conference call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements, among others, regarding Old Dominion's expected financial and operating performance. For this purpose, any statements made during this call that are not statements of historical facts may be deemed to be forward-looking statements. Without limiting the foregoing, the words believes, anticipates, plans, expects, similar expressions are intended to identify forward-looking statements. You are hereby cautioned that these statements may be affected by the important factors, among others, set forth in Old Dominion's filings with the Securities and Exchange Commission and in this morning's news release. Consequently, actual operations and results may differ materially from the results discussed in the forward-looking statements. The company undertakes no obligation to publicly update any forward-looking statements whether as a result of new information, future events or otherwise. As a final note before we begin, we welcome your questions today. But ask that you limit yourself to just one question at a time before returning to the queue. At this time, for opening remarks, I'd like to turn the conference over to the company's President and Chief Executive Officer, Marty Freeman. Marty, please go ahead. Marty Freeman: Good morning, and welcome to our fourth quarter conference call. With me on the call today is Adam Satterfield, our CFO. After some brief remarks, we will be glad to take your questions. Old Dominion produced solid financial results during the fourth quarter that reflect our ongoing commitment to revenue quality and cost discipline. We once again delivered best-in-class service to our customers, and our yield continued to improve. Although our operating ratio increased to 76.7% for the quarter, we believe our profitability metrics will continue to lead our industry and they reflect our team's ability to operate efficiently despite the challenging environment. I want to thank our OD family of employees for their dedication to our customers and their unwavering commitment to executing our long-term strategic plan. Our team remains focused on controlling what we can control to ensure that we continue to deliver an unmatched value proposition for our customers. The foundation of this value proposition is our ability to deliver superior service at a fair price. Our customers know that they can expect the highest standard of service from Old Dominion every day, which positions them to drive value for their own customers. We are pleased to once again provide 99% on-time service in the fourth quarter and a cargo claims ratio of 0.1%. Our track record of consistently delivering superior service has helped us to win market share over the long term while also supporting our ongoing commitment to revenue quality. We maintain a disciplined approach to yield that is designed to offset our cost inflation over the long term while also allowing us to continue to make strategic investments in our capacity, our technology, and most importantly, our people. While these investments have increased our overhead cost in the short term, we believe they will support our ability to grow with customers in the years ahead. Our consistent investment in capital expenditures throughout this economic cycle has differentiated us from our competitors over time. This is also a fundamental component of our value proposition, which has been critical to our ability to win more market share over the last decade than any other LTL carrier. During the fourth quarter, our team continued to operate efficiently while also managing our discretionary spending. These efforts are reflected by how well we have controlled our variable operating costs over the last few years despite the decline in our overall network density and other inflationary headwinds. To put this in context, in 2022, when we generated a company record operating ratio of 70.6, our direct operating expenses were approximately 53% of revenue. In 2025, our direct operating costs as a percent of revenue were also 53% despite the loss of network density associated with the decrease in volumes. Our efforts to enhance productivity have been made possible by key technology investments as well as business process improvements, which we believe will allow us to improve our operating ratio and business levels ultimately improve again. As we begin 2026, we are cautiously optimistic that we will see some recovery in demand within the industry. With the combination of our industry-leading service standards and more network capacity than we've ever had, we are better positioned than any other carrier to capitalize on an improving economy. As a result, we are confident in our ability to win market share, generate profitable revenue growth, and increase shareholder value over the long term. Thank you very much for joining us this morning. And now Adam will discuss our fourth quarter in greater detail. Adam Satterfield: Thank you, Marty, and good morning. Old Dominion's revenue totaled $1,310,000,000 for 2025, which was a 5.7% decrease from the prior year. Our revenue results reflect a 10.7% decrease in LTL tons per day that was partially offset by a 5.6% increase in our LTL revenue per hundredweight. Excluding fuel surcharges, our LTL revenue per hundredweight increased 4.9% compared to 2024. On a sequential basis, our revenue per day for the fourth quarter decreased 4.1% when compared to the third quarter of 2025, with LTL tons per day decreasing 4.8% and LTL shipments per day decreasing 6.5%. For comparison, the ten-year average sequential change for these metrics includes a decrease of 0.3% in revenue per day, a decrease of 1.3% in LTL tons per day, and a decrease of 3.1% in LTL shipments per day. The monthly sequential changes in LTL tons per day during the fourth quarter were as follows: October decreased 5.3% as compared to September, November increased 2.6% as compared to October, and December decreased 4% as compared to November. The ten-year average change for these respective months is a decrease of 3% in October, an increase of 2.7% in November, and a decrease of 6.8% in December. For January, our revenue per day decreased 6.8% when compared to January 2025, due to a 9.6% decrease in our LTL tons per day that was partially offset by an increase in our LTL revenue per hundredweight. LTL revenue per hundredweight excluding fuel surcharges increased 3.9% in January. Our operating ratio increased 80 basis points to 76.7% for the fourth quarter of 2025. While we continue to operate efficiently and diligently managed our discretionary spending during the quarter, the decrease in our revenue had a deleveraging effect on many of our operating expenses. Our overhead costs tend to be more fixed in nature, increased 140 basis points as a percent of revenue due to this effect. The increase in our overhead cost also includes a 70 basis point increase in depreciation as a percent of revenue, which reflects the continued execution of our long-term capital investment plan that Marty just discussed. Our direct operating cost as a percent of revenue improved by 60 basis points as compared to 2024. This was primarily due to the net impact of adjustments we record in the fourth quarter each year that are related to third-party actuarial reviews of our injury and accident claims. The results of this annual review impact both the salary, wages, and benefits and the insurance and claims line items on our income statement. We were otherwise able to effectively manage our direct variable cost to be consistent with the prior year. Old Dominion's cash flow from operations totaled $310,200,000 for the fourth quarter and $1,400,000,000 for the year, respectively, while capital expenditures were $45,700,000 and $415,000,000 for the same periods. We utilized $124,900,000 and $730,300,000 of cash for our share repurchase program during the fourth quarter and the year respectively, while our cash dividends totaled $58,400,000 and $235,600,000 for the same periods. We were pleased that our Board of Directors approved a quarterly cash dividend of $0.29 per share for 2026, which represents a 3.6% increase compared to the quarterly cash dividend paid in the first quarter of 2025. Our effective tax rate for the fourth quarter of 2025 was 24.8% as compared to 21.5% in the fourth quarter of 2024. We currently expect our effective tax rate to be 25% for 2026. This concludes our prepared remarks this morning. Operator, we'll be happy to open the floor for questions at this time. Operator: We will now begin the question and answer session. Before pressing the keys. Our first question today is from Jordan Alliger with Goldman Sachs. Please go ahead. Jordan Alliger: Yes. Hi. Good morning. I was wondering, might as well ask that, can you provide some sort of thoughts and perspective on both, any indication on demand and what you're seeing and hearing from customers and thoughts around possible better tone to volume as we move through the year. And then maybe it's all in conjunction with that, your thoughts on seasonality as we go from Q4 to Q1 from margins? Thanks. Adam Satterfield: Yes. I'll just start with the demand and let someone, I'm sure, will probably get at that OR question. But I think we've seen some positive signs that we've been really pleased with really over the last couple of months that have been developing. And then the release this week of the ISM was certainly very positive to see. And maybe as an indication of hopefully what things will be for the remainder of the year. Obviously, over time, we've seen that ISM it's a leading indicator and typically a couple of months after that inflects positive, we see volumes somewhat do the same. But just getting back to recent trends for what we've seen the thing I've been most pleased with is the increase in wafer shipment. And I think we've talked for multiple quarters now when trying to make the call on when is the demand environment going to finally turn. We've talked about looking at that weight per shipment, for example, as really the indicator within our business. So that really increased. We were down about fourteen fifty pounds in kind of September, October time frame. We saw that increase to fourteen eighty-nine pounds in November, which is above what our long-term seasonal increase would be for that month. And then we saw it increase further to fifteen twenty pounds in December. Again, that was about a 2% increase. Ten-year average is about a 1% increase from November to December in weight. So it pretty much performed in January. We're right at fourteen ninety-two pounds, so a little bit of a decrease, but that was right in line with seasonality. And I think somewhat impacted by a little disruption we had to our operations the last week of the month. We'd actually been trending higher than that as we progress through the month. So really good to see when looking at the tonnage per day, the weight per shipment, all those factors leading into the start of this new year. And hopefully, finally seeing the turn that we've been predicting for the last couple of years take shape. Jordan Alliger: Thank you. Operator: The next question is from Chris Wetherbee with Wells Fargo. Please go ahead. Chris Wetherbee: Yes. Hey, thanks. Good morning, guys. Maybe I'll just pick up on that and ask about the first quarter kind of sequential from an operating ratio perspective and maybe any thoughts you have on revenue per day for the first quarter as well? Adam Satterfield: Yes. Obviously, the revenue per day is going to lead right into it. And given the data that we just discussed for January, we're out a little bit behind seasonality. Again, on a revenue per day standpoint. I feel like we'll close that gap. We've seen good performance since early, but probably a little catch up in business this week where we had the weather disruptions last week. So, I think that will normalize. But hopefully, we can close the gap with seasonality as we progress through the remaining months of the quarter. Just from a big picture top line standpoint, I feel like our revenue for the full quarter will probably come in somewhere between $1,250,000,000 and $1,300,000,000. The low end of that range would be if we underperform seasonality at a rate similar to what we just did in the fourth quarter. And then the top end would be normal seasonality. And if you take normal seasonality from January through February to March, that would put us kind of right there in the middle. So, we'll see how that continues to take shape. And obviously, we give our mid-quarter updates that will allow for tracking. So with that said, the ten-year average change in the operating ratio was an increase of 100 to 150 basis points from the fourth quarter to the first. And I think we can get to the top end of that range. So I would say an increase of 150 basis points is probably the target and then maybe a plus-minus 20 basis points to continue to allow for some of that revenue uncertainty. Operator: The next question is from Scott Group with Wolfe Research. Please go ahead. Scott Group: Hey, thanks. Morning. So Adam, wanted to just you talked about the weight per shipment improving. Can you have a do you have a sense of of what's driving that? Is it are we starting to see some of the truckload stuff spill back? Is it just underlying industrial getting better? And then maybe just help us, I know that the yield trends decelerate a little bit into Q4 and maybe starting in Q1, is that just the weight getting better or is, you know, any thoughts on just, you know, how to think about yield trends as we're going from here? Thank you. Adam Satterfield: Yeah. The I think the weight is is probably coming from all the above. Looking at our contract customers, weight's up a little bit. Our smaller mom and pop customers which actually we saw a little bit more growth out of or better performance, I say growth in the fourth quarter. Weight per shipment was up as well. And so I think that exactly what you said as the truckload market is changing, we've talked a lot about the spillover effect and how that's impacted volumes. Over the last couple of years. I think we're probably in the early innings of some of that starting to normalize. I don't know that we're completely there yet, but just given how there's some supply rationalization there, It certainly feels like that is beginning to happen. And the weight certainly will put a little bit of pressure on our yield metrics. But our guidance for revenue per hundredweight for the fourth quarter was to be up 5% and that would have been normal seasonality. So we came in right at 4.9%. Normal seasonality for the first quarter would be about 4.5% increase on a year-over-year basis. I feel like we've probably got at least a 50 basis point headwind. It looks like right now with the change in weight per shipment. So that's actually a good thing. And January kind of came in right at about that 4% threshold. So that's about what I would expect. Unless we see further increases in the weight that may put pressure on that revenue per hundredweight metric. But the reality is that's what we're hoping to see. We want to continue to see that weight per shipment going up. Because the thing that's being missed when we talk about revenue per hundredweight is what's the revenue per shipment? And that will continue to go up as the weight increases. That's going to be ultimately what we're looking at for success. How are we managing our revenue per shipment? And our cost per shipment. And we've obviously, the last of years, the operating ratio has gone the other way because we've had more cost than revenue there. On a per shipment basis. So that weight continues to go up. That's going to help us continue to build density in our network. It's going to allow for us to have more true yield on a per shipment basis and hopefully allow us to turn the corner. And get right back to produce an improvement in our operating ratio and long-term profitable growth. Scott Group: Thank you, guys. Adam Satterfield: Thanks, Scott. Operator: The next question is from Ravi Shanker with Morgan Stanley. Please go ahead. Ravi Shanker: Great. Good morning, everyone. So maybe just a bit of a color here. I think you and your peers have spoken of some level of share shift away from LTL to TL in the down cycle, and you've expected that to come back when the market tightens up. I mean, now that TL rates have been pretty tight for a couple of months, are you starting to see that come back? And what do you think is the cadence of that coming back to the cycle? Thank you. Adam Satterfield: Yeah. I think that, you know, it's a a natural sort of change that happens. I think that when you look at that truckload environment and a lot of those carriers are barely breaking even or worse. We've seen some capacity rationalization, if you will, in that environment. And I think that's changed the pricing environment there. And so hopefully, we'll continue to see those trends change at a time where it feels like overall industrial demand ready to start showing some signs of improvement again. And again, we say we're cautiously optimistic about all this because we had improvement in the ISM last year at about the same time. And then we had the event in April that threw cold water on everything. So we're in a great spot to continue to handle any business that comes our way. We've got more capacity than we've ever had in their network. We've got capacity with our equipment and capacity with our people. So we can respond to the inflection as it happens. And I think that's what has differentiated us from our competitors in the past. The ability to be able to take on significant volume growth the early innings of the cycle. Is when we've gained the most market share in the past. That's certainly what we're going look to as this cycle eventually inflects back to the positive. Ravi Shanker: Understood. Thank you. Operator: The next question is from Ken Hoexter with Bank of America. Please go ahead. Ken Hoexter: Hey, great. Good morning. Adam, maybe just to follow on that or Marty, your thoughts on headcount down 6%. Shipments down almost 10%. So we're seeing a bit of a decoupling. Is there more opportunity as you think about the cost cycle? Or is that more being prepared, as you just mentioned, to capture that? And similar to cap seems like you're aging the fleet. Little bit as you reduced it from what down to $415,000,000 this year, down another to $265,000,000 next year. So now is there a cost impact on maintenance and the like? So maybe just it's a cost issue, but maybe you're talking about being more prepared for the upside. Thanks. Marty Freeman: Yes, we're definitely prepared for the up cycle. The average age of our fleet actually improved this past year. It's now down to an average of three point nine years for our tractor fleet. And that's about where we like it, somewhere around four years. We've been below that before, and we've let it age up a little bit. But really pleased with our operations team as they've continued to try to right size the fleet and make sure we've got all the equipment the places we need, but also managing through our cost inflation from a repairs and maintenance standpoint. When we went through go back to 2022, 2023, we had cost per mile inflation that was more in the 10% to 20% type of range for each of those years. And we've been sort of flattish, just some mild increases, if you will, over the last couple of years. And I think that's a reflection of the management team's efforts in that area and continuing to rightsize. But from an employee count standpoint, I think we continue to manage through. And at the local level, our managers are making sure they've got the right amount of people and got the ability to flex hours up to meet the increased demand from our customers. So we're in great shape there. We'd anticipated that we would see a little attrition through the fourth quarter. That's about what we saw happen. And so the overall head count drifted down a little bit throughout the fourth quarter. As we somewhat expected. So, I think that will likely be here. And when you look over the long term, the change in headcount, the change in shipments really kind of match with one another. But what we'd expect to see is when we get into the early phase of the recovery, the number of hours worked by employee will increase on a per employee basis. We'll be able to step those hours up to meet the increased volume needs as they come. And so you should eventually see the volume growth that's leading any growth in headcount before those two numbers kind of converge again. Ken Hoexter: Thanks, John. Operator: The next question is from Reed Tse with Stephens. Please go ahead. Reed Tse: Hey, guys. Thanks for taking my question. In the release, you pointed to pretty low CapEx number relative to what you expected year coming into 2025 and kind of what you've done historically. Can you talk about maybe what's driving that lower CapEx expense this year in those expectations behind, that guidance? Adam Satterfield: Yes. It's just a function really of how what the volume environment has been for the last couple, three years. And we've continued to run our CapEx plan and that too is something that I think has differentiated us over time. From our industry. In fact, we've spent about $2,000,000,000 in capital expenditures over the last three years. And the volume environment obviously has not been robust. But I think we're in a really good spot when you sort of go down the elements of spend from a service center standpoint, we've got some projects that are in flight and that's a lot of the spend. That we've got this year. But we've got a little over 35% capacity in our service center network. We're handling a little over 40,000 shipments per day right now. And our network is built to handle more like 55,000 or even more. We've done more in certain months back in 'twenty one and 'twenty two. So we've got a lot of flex there to be able to grow. And the same thing with the fleet, just like I mentioned earlier, we've continued to right size the fleet if you will, and take some of the older units out. But we've got some that continue to need to be replaced. And that's the majority of what's in the spend there in that category for this year. So it is lower than as a percent of revenue than our typical range being 10% to 15%, but that's really just a function of the consistent investment that we've made over the past three years and kind of where we stand now and just wanting the business to grow into the network that we've got built. And when that starts happening, you think about our fixed cost, and Marty alluded to this in his comments, our overhead cost, if you go back to that 2022 period, they're up four fifty five hundred basis points. And that's really the difference in that record operating ratio then versus what we just completed in 2025. But once we start getting leverage on all these assets that we put in place, that overhead cost as a percent of revenue can swing back very, very quickly. And the density will allow us to further improve our direct cost as a percent of revenue as well. So that's what gives us the confidence that when we start seeing growth coming back in our business that we can get our operating ratio going back to that 70 type of threshold and beyond. Reed Tse: Got it. Thank you, Adam. Operator: The next question is from Jason Seidl with TD Cowen. Please go ahead. Jason Seidl: Thank you, operator. Good morning, Marty, Adam and Jack. Want to go back on sort of your employee headcount numbers and as well as how should we think about driver pay and dock order pay as we move throughout the year if some of your cautious optimism comes true when we start seeing a rebound, do expect that number to go up a little bit as we move throughout the year? Marty Freeman: Well, Jason, we always give an increase to our employees. And when we operate at a 75 we're in the fortunate position to continue to reward our employees first. And from a stakeholder standpoint, we prioritize our employees, and we want to make sure they're rewarded continue to be motivated to take care of our customers. And when you give 99% on-time service and a cargo claims ratio that's below 0.1%, I think our employees have certainly delivered. So we continue to give healthy raises. We did so in the 42% of salaries and wages and 25%. And or at least in the fourth quarter. And but we expect that we'll have a little bit of headwind there on those benefit costs probably be somewhere in the 41% of salaries and wages in 2026. So And then the final piece is the four zero one match that we make. And I think that's what ties everything in together. And we give a discretionary match every year that's up to 10% of our company's net income. So we continue to put a lot of dollars into our employees' four zero one plans to help them and their families prepare for retirement. Jason Seidl: That's great color. Should we expect the next sort of raise to be next or this September? Or do you think it'll be sooner than that? Marty Freeman: No. September is usually the timing of our our raises. Jason Seidl: Okay. Fair enough. Appreciate the time. Operator: The next question is from Jonathan Chappell with Evercore ISI. Please go ahead. Jonathan Chappell: Thank you. Good morning. Adam, after two years of speaking to sub seasonality, it seems like a little bit more cautiously optimistic as you said and you laid out a first quarter where the middle of the range is February and March are in line with seasonality. A lot of your peers, even though they haven't reported yet, are talking, to a of, like, if we do x in volume this year or tonnage, that leads to y in OR. If you took that February, March midpoint of one q enrolled seasonality going forward, where would that put your tonnage on a year-over-year basis? And by association, where would that put your OR improvement for this year? Adam Satterfield: Yeah. You know, I I think we normally just take it one quarter at a time. And obviously, there's a lot of ifs and buts that have got to play out and could play out. In that scenario. But what they say, you have some butts and beer and nuts, you have a hell of a party. And so I'll I'll let all you guys, you know, sort of go through all those gymnastics. But just looking at more in the short run, because I don't want to undersell what the long term could be, We've produced some serious improvement in our operating ratio once we get into those stronger demand environments. When we see the script flipped, still remains to be seen. But the second quarter, we've kind of laid framework out for the first quarter. And the second quarter. Typically you see revenue grow sequentially about 7% and the average operating ratio improvement is sequentially 300 basis to three fifty basis points. So, that would if we see all of that, if we see the spring surge that typically would happen and lead to that 7% type of sequential increase. Then that would put the operating ratio pretty close to being flat on a year-over-year basis in the second quarter. And then we would just have to sort of take it from there. But But I still think we don't want anyone to really get out over their skis necessarily. At this point from an expectation standpoint. It remains to be seen if this really is going to lead into that spring surge that we would typically see. We certainly feel like the stars are coming into alignment, but we felt that way before and in particular about February and March. So that's why we continue to say we're cautiously optimistic about how things might develop for this year. But I think that's why you're seeing some of the pullback in capital expenditures and doing other things that we feel like we needed to do to continue to manage our costs. And we've controlled our variable costs, and I couldn't be more pleased than I am with our operations team. And if you think about the loss of network density, if you go back over the past couple of years, we've added about six service centers and there's a lot of cost comes with that, just overhead cost and network line haul cost, pickup delivery with the loss of density. So to be able to manage those costs, says a lot to our team. Says a lot to the continued investment in technology the tools that we give the team to help kind of manage those costs and also to the yield discipline. If you weren't disciplined with yields throughout, we wouldn't have been able to keep those costs consistent as well. So, a lot goes into it. And it's a total team effort from sales, operations, pricing cost and you name it. It all kind of feeds into how we've been able to continue to produce strong profitable growth over the long term that the last ten years despite this three-year freight recession, we've still got a ten-year average growth rate of about 15% in our net income. So this says a lot to what we've done, but we think about the future, we got a lot of room for growth ahead. And operating ratio improvement. So, I'm happy with what we've done, more excited about what can come. Jonathan Chappell: Great. Thanks, Adam. Operator: The next question is from Eric Morgan with Barclays. Please go ahead. Eric Morgan: Hey, good morning. Thanks for taking my question. I wanted to just follow-up on the pricing discussion. Sounds like weight per shipment is having a mix effect in the first quarter. Just curious how we should think about what the cadence might look like looking a little bit further out, especially if that if you do kinda hold that 1,500 pound level, I think that'd be a larger increase in 2Q and 3Q from last year. So just curious how we think about that impact, as well as maybe length of haul a little bit lower here. Should we just kind of naturally see that yield number trend a little bit lower from mix? Thanks. Adam Satterfield: Yes, I think so. I mean just looking at what normal seasonality would be we'd be in kind of that 4% to 4.5% type of range. And again, if we have even more of an increase in weight, it could be lower. When you look back at some of our stronger years, from an overall revenue standpoint, volume environment, those types of things, we've had revenue per hundredweight growth that's been more in the 3% range. And that was my point earlier with the comment that sometimes, I think we get so down in the weeds and thinking about revenue per underweight. Kind of missed the big picture of what's really the revenue trends doing. And what's our revenue per shipment versus cost per shipment. So, I'd love to see our weight per shipment go back up to 1,600 pounds, which is where we've been in stronger demand environments. And yes, that might put pressure on that revenue per hundredweight. That's going to do wonderful things for the overall top line revenue as well as what we would be able to do an operating ratio standpoint. So we'll continue to kind of manage through that. But certainly, we'd hope we see that weight per shipment and if we're talking about some revenue per hundredweight that might be a little bit lower than what was reported, last couple of years. That's probably a good thing in the sense of what's really going on with the demand environment. It's certainly no change with what our yield management philosophy fee is or how disciplined we continue to be as we manage cost and manage yields. Operator: The next question is from Rishi Harnane with Deutsche Bank. Please go ahead. Rishi Harnane: Okay. Thanks, guys. So Adam, you mentioned that last week you saw some disruption. Maybe just clarify what went into that. Was it just weather? And did that weigh on your costs? Should we expect higher costs this quarter or two in light of that weather? Is that embedded in your 150 basis points change in OR target? Also another clarification, curious if the government shutdown had any impact on 4Q or potential impact this quarter from that on you or the industry? This quarter. And then so those are that's a clarification. And then I guess just my real question beyond those clarifications is incremental margins. You said, you know, you have more excess capacity than you've ever had in your network. Know you said you're quite excited about what's to come. Should we think that your incremental returns on growth can be higher than we've ever seen? I believe you eclipsed 40% post-COVID, but that was accompanied by really strong revenue growth. So I'm not sure if that's a unique situation. Adam Satterfield: Yeah. I'll probably spend more time addressing the last real question. But yes, the snowstorm last week obviously was disruptive and that was baked into our revenue and margin guidance and really nothing material to speak from a government shutdown standpoint. But I think just thinking about incremental margins to me, one, we got to get back to revenue growth to produce them. But I like to think about that breakdown in our income statement structure, and we talk a lot about our direct variable cost. Those were 53% of revenue in 2025. So if you bring on $1 of business, you should be able to generate a 47% incremental margin if it just takes variable cost. From that standpoint and just get complete leverage on all your overhead. And typically, is what happened in the early innings of our recovery. We just see more of that variable cost. And getting that leverage there before you've got to get back into investing in new service center expansion and new equipment and those other assets. But as you add new service centers, that creates incremental costs. You've got a new service center manager and a team of employees at the facility and the office and salespeople and things like that. So it all kind of ties in together. But when I think about just where we stand now, 75% operating ratio, we've been at a 70.6. We've talked before about getting to a sub-seventy operating ratio. I think that sort of mid-40s makes sense in the an incremental margin standpoint makes sense in the early innings. But then let's just stay focused on getting back to achieving that sub-seventy operating ratio. And we certainly can get there. I referenced this earlier, but when you look back at some of our really strong years with revenue growth, we've had operating ratio improvement in the 300 or more basis point range in any given year. So that's what we'll be focused on. That will help drive that 75,000,000 back to the 70,000,000. And when we get to 70,000,000 when we beat that goal, that's when we'll establish the next one and probably give new incremental margin longer-term type of goals that we're looking at as well. Rishi Harnane: I like it. Thank you. Operator: The next question is from Tom Wadewitz with UBS. Please go ahead. Tom Wadewitz: Yes. Good morning. So Adam, I think there's you know, this ISM print was so large that such a big step up that and some of the commentary wasn't as bullish as the number and the orders going up a lot too. What what do you hear from customers? Do you hear that much kind of good news and enthusiasm about, you know, improvement in active activity or do how do you kinda look at what your what your customer feedback is and just kind of thinking maybe relative to such a big ISM number, which I know historically is, you know, is really good read for LTL? Adam Satterfield: Yeah. I think that, you know, obviously, we solicit feedback constantly from our customer base and our sales team. In the fourth quarter. We build a bottoms-up forecast and we marry that with a top-down forecast where we're looking at other macroeconomic indicators and things are starting to feel a little bit better even in the fourth quarter last year, I feel like we've had some really good customer conversations in the sense of what they were anticipating their volumes might look like, the amount of business that they would tender to us. And so forth that gave us a little sense of optimism. And I just continue to say that, that's one month of a print with the ISM. And that's why we want everyone to be cautious with it. We're still looking at at volumes that have been down on a year-over-year basis. And but we feel like things are getting better and we're still talking about revenue that would be down on a year-over-year basis in the first quarter. But one of the things about our business model is, I feel like when you think about our long-term strategy of giving superior service, allowing that service to support a fair price pricing targeting 100 to 150 basis points of yield above price or cost rather, That's allowed us to improve our cash from operations. There's a flywheel effect to our business model. And we've got to get that flywheel effect going again. So as we can get into the early innings, it's those first rotations are a little bit slower. We're just making sure everybody is thinking through all of those factors. And it's not just going to turn around on a dime starting tomorrow. Because that one economic data point came out. But if we are in the early stages of this, I think history repeats itself in this industry. And you certainly can see how we've outperformed the other carriers when we get into those early stages of recovery. And we're certainly in position. Our team is in position and ready to roll. So we're ready to put it on the trucks and see revenue growth coming again as and the operating ratio improvement will follow. Tom Wadewitz: So you are hearing positive input from customers but maybe not to the degree of the move up in the ISM number. Is that a fair understanding of what you said? Adam Satterfield: That's fair. Tom Wadewitz: Okay. Thank you. Operator: The next question is from Bruce Chan with Stifel. Please go ahead. Bruce Chan: Thanks operator and good morning guys. Adam, you talked about 35% spare capacity in the network. And I know, these past couple of years, we've been a little bit more focused on door and facility infrastructure. Just wondering if that number is similar for the fleet and linehaul network especially with some of the better planning tools that you have and, you know, maybe how we should think about additional fleet CapEx versus, you know, maybe flexing PT higher if, volumes do indeed accelerate? Adam Satterfield: Yes. We don't have that much excess capacity in the fleet, if you will. That would been heavy with our fleet, but probably not at that same type of level. We try to keep that a little bit tighter. You always want to have spare capacity, if you will, especially in the trailing equipment. You know, if you got that much excess power, it just hurts you. It's very punitive from a depreciation. Per unit standpoint. So but part of our CapEx this year we've got about 105,000,000 that's slated, I think, for equipment. And so that's something that we'll continue to look at replacing where we need to replace. We use a tractor for about ten years. So we've got some that are at that point of being replaced. And but continuing to right size the equipment pool as well and making sure that we've got equipment in all the right places where we're seeing growth to keep the line haul network in balance. And we continue to make adjustments to the line haul throughout the year. Team has done a phenomenal job of making sure that we're meeting service standards. We continue to tighten some of our transit times in certain lanes as well. Despite the limited density that the been in the network. So looking forward to get more freight back in the system will make some of that a lot easier, reduce our empty miles, allow us to start running more directs and bypassing some breaks and so forth. And that's what gives me comfort in knowing that those direct costs that we've talked about that are 53% of revenue in 2025 that we can really show some strong improvement in that number. Once we get density flowing again. Bruce Chan: Okay, great. Thank you. Operator: The next question is from Ari Rosa with Citigroup. Please go ahead. Ariel Rosa: Hey, good morning. So I was hoping you could address competitive dynamics in the industry. Just maybe speak to what your level of confidence is that this cycle will play out like past cycles? And specifically, I'm curious about just the role of Amazon. We've been hearing a lot about their growth ambition or them looking to expand in in the LTL space, and then, obviously, FedEx is planning the separation of its freight business. Just talk about how you feel your position. I know obviously service continues to be exceptional at OD, but just talk about how you think the cycle could play out this time around. Thanks. Adam Satterfield: Yes. Well, all the carriers that are there, top 10 carriers are 80% or so of the industry. And they're all the same other than yellow. That was there before. So we've been competing against these companies for years. And I feel like capacity within the industry continues to be tight and maybe more so than what the perception out there is. When you look at the total number of service centers, back in 2022 versus what was reported at the 2024. We've seen about a 6% decrease in the number of service centers in the industry. And when you look at shipments per day per service center, those two metrics at the '2 versus the '4 are about the same. So you take an environment that was tight back then and when you look at the growth numbers for other carriers, despite how strong the volume environment was in 'twenty one and 'twenty two, at least for the public carriers, I think the growth in tonnage in 'twenty one was about 4%. When we grew 16%. So most of the carriers run their networks a little closer to full utilization. And I think that's a structural difference that that we have. We own the majority of our service centers and about 95% of our doors overall. And so we're comfortable with continuing to invest through the cycle and having more of that late capacity out there to grow into. And that asset ownership gives us that ability to do so. So that's why we're confident that when we see the demand environment growing again that I think we'll be able to significantly outgrow the industry. And when we do so, we'll see stronger returns coming in. And despite the challenging environment that we've had for the last few years, we're still producing returns on invested capital of 25% to 30%. And when you look at GAAP numbers, true GAAP earnings we've got some competitors that have got net income margins in the low single digits. And so I think that will be the opportunity what we see in past cycles is that's when other carriers will increase rates more and take advantage of supply and demand imbalance. And but for us, we want to continue on with just more of a consistent strategy. And that's when we see that big density opportunity, if you will. And that's what what we're expecting when we finally see the turn in the cycle. Ariel Rosa: Very helpful. Thanks. Operator: The next question is from Jeff Kaufman with Vertical Research. Please go ahead. Jeffrey Kaufman: Thank you very much and congratulations. A lot of my questions have been answered at this point. So I want to go back to the equipment discussion you were having. Some of the truckers I've been talking to said, listen, we're having trouble quoting our freight liners or our internationals because of the section two two tariffs and people aren't certain what the rebates are gonna be. But we've got more fundamental pricing on our domestically produced trucks like our Pete's and Kenworth's. I was just kind of curious what you're seeing on the equipment side in terms of quoting activity from the OEs in the wake of some of the tariff changes? Adam Satterfield: Yes. I think that there are always challenges that we go through when we look at the cost of equipment and how we plan for equipment and so forth. And it seems like every engine change and new regulation it's done nothing but increase the cost of equipment. And for us, as I just mentioned, we typically will use a tractor for ten years. So when you think about the per unit price, ten years ago versus today, it's significantly different. That's a big driver of some of our cost inflation. When you think about those on a per unit basis. So, So that's part of why we when we look at the number of units we were going to buy this year, you take that all in consideration. But at the end of the day, you need the fleet that you need, and you've got to build the pricing of those units and every other element of cost that we deal with. Into our cost model. And let that drive the output of what we need. But I would say again, that's just one element of cost. If you go up and down our income statement, and you look and think about per unit inflation, we've been able to average cost per shipment inflation of about 3.5% to 4% over the last ten years. Each line item has had significant inflation and more so than that number. That's the importance of why we stay so focused on our cost and managing cost and managing efficiencies and discretionary spending. We're doing all these other things. We're driving operating efficiencies that really minimize the true inflationary impact that we're seeing from things like insurance costs. Group health and dental medical costs, the cost of equipment and so forth and so on. So our team has done a great job leveraging technology's business process improvements to be able to keep our cost inflation low. And then that, in turn, allows us that when we think about trying to target 4% to 5% type of increases that we've generated over the long term in our revenue per shipment, that's that positive 100 to 150 basis points delta that we want to be able to generate those two. But we can't take our eye off the ball when comes to managing costs. You've got to think about costs day in and day out in good times and bad. And I think that's what our team has done over the really over the course of our history, but over the past few years in particular. Jeffrey Kaufman: Thank you. Operator: The next question is from Brian Ossenbeck with JPMorgan. Please go ahead. Brian Ossenbeck: Good morning. Thanks for taking the question. Maybe just to quickly follow-up on the cost per shipment. Inflation you're expecting this year, is it still 3.5% to 4%? And you outlined some of the equipment and health care costs. Is that something you still think is reasonable to expect this year? Then maybe just to follow-up on the competition side. Private companies are obviously getting a bit bigger here as well in in the wake of Yellow going out of business. Wanted to see if you thought that had a any impact, on how the next cycle, upcycle, might play out for the industry. Thanks. Adam Satterfield: Yes. So the cost inflation, we're I think it's going to probably be a little bit heavier again this year. I'm thinking it's probably going to be more in the 5% to 5.5% range. And that's core inflation, not really thinking about what fuel might do. And right now, we're looking at fuel prices that have been lower on a year-over-year basis. So we'll see how that continues to play out. But I feel like we've as I mentioned earlier, we're looking at a little more inflation from an employee benefits standpoint. I think we're going to continue to see some pressures there. Within our group health and dental cost in particular. And then we've made some continued improvements to our paid time off policies and so forth that I referenced. So, anticipating some inflation there, continued inflationary increases. As just mentioned on the equipment on our insurance programs and other things. So if we can get some density coming back in the system, I think that is something that could turn that number into maybe seeing some improvement and working it back down. But if you just sort of stay in more of a neutral volume environment, if you will, I'm thinking that we're going to be more in that 5% to 5.5% range. And remind me again the second part was just the impact of Yellow being out. Brian Ossenbeck: Just how private companies seem to have taken up some of that extra capacity that has meaningful impact on how the industry might play out or the cycle might play. Adam Satterfield: Yes, think many of those service centers ended up with the private carriers. As it's been reported. But again, looking at overall capacity for the industry, number of service centers is the best thing we have. That looks to be down. Versus about 6%. And there may be some service centers that were swapped adding a few more doors, I think that's a good proxy for capacity that's been removed from the market. So again, if you had a capacity constrained industry, back in 'twenty one and 'twenty two, the number of shipments per day per service center are the same in 2024 with where we were back in that capacity constrained environment. I think we're going to see capacity constraints when we start coming back into a stronger demand environment. And that's what gives us the confidence that we'll be able to to win market share and outperform the other carriers from a volume standpoint in the early stages of that recovery. Brian Ossenbeck: All right. Thanks very much, Adam. Operator: The next question is from Stephanie Moore with Jefferies. Please go ahead. Stephanie Moore: Great. Good morning. Thank you. I wanted to maybe circle back to a prior question that was asked where you kind of talked through a a bottom bottoms up analysis of talking with customers and maybe some of the slightly more optimistic conversations you're hearing from them. Is there any any way you can parse out the end markets or there's any concentration of end markets where you're hearing some of that optimism from customers whether it's within industrial, is it large infrastructure kind of data center plays, is it within consumer, Any additional insight would be really appreciated. Thank you. Adam Satterfield: Well, you know, 55% to 60% of our revenue is industrial related, and I think that's similar for the industry. That's why I assume this is so highly correlated with the industry volume. So kind of hearing it across the board. I think that seeing some improvement there. We've had feedback that inventories have generally been lower. So we're thinking that we're going see some inventory replenishment. But I think it's sort of different factors for different customers. Our business is so diversified. We move everything, including the kitchen sink. So you've got, if housing starts improving, you'll see things like fall faucets and so forth that will have increased demand there. And obviously, all of the products that go into someone moving into a new home. But I think that'll be important to see some continued improvement there. If we continue to see on the industrial side. At the end of the day, what drives it all is a healthy consumer. And so consumer confidence and consumer strength and buying patterns will drive whether or not we see sustained improvement in the demand and volume environment. And so hopefully, when people start seeing if tax returns look better and they've got more discretionary income to go spend, And then inventory does need to be replenished. Those will all be good things that will create freight that will find its way on our trucks, we're looking forward to it. Stephanie Moore: Thank you so much. Operator: The next question is from Christopher Koon with Benchmark. Please go ahead. Christopher Koon: Hey, good morning. Thanks for taking the question at the end of the call. I really appreciate the time you guys given today. It's, you guys don't talk about it as much, but are there any AI initiatives that you are kinda undertaking and in the next 2026 and beyond that we should be focused on? Adam Satterfield: Yes. I would put it in the broader context of technology investments. And obviously, AI is kind of the buzzword of the moment. And we've got some investment there that's going into some of the tools. But I think from a bigger picture standpoint, you think about Old Dominion I think the investment that we've made in technology, it goes back decades. And we've got OD technology is one of our branded products. And so we've been at the forefront of tech investment, I think, for years and years, that will be no different going forward. But there's got to be investment going to end up with a return. We don't want to just say we're investing in, you know, machine learning and and and AI just to be able to say it, where's the proof in the pudding? And I think when you look at our cost performance in 2025, that's kind of the proof. And we wouldn't have been able to manage our line oil costs like we have if we've not continued to invest in and refine the tools that our teams are using. And it's the same thing on the dock. It's the same thing within our pickup delivery operations. We've got to continue to make investments in products that are going to have a return associated with them. You don't want to invest in something that going to cost you more on the technology that you would other what you're going to save potentially. And sometimes, could be the case. But I think that our focus will continue to be what I just said, investing where it's going to drive operating efficiencies. The other key part, though, will be continue to invest in something that drives a strategic advantage from a customer service standpoint. If we can continue to try to stay ahead of the game, have systems that drive sticky customer relationships. Those are kind of the two big key factors that we think about when we think about the dollars that are invested in tech initiatives year in and year out. Christopher Koon: Got it. Thanks. Appreciate it, Adam. Operator: This concludes our question and answer session. I would like to turn the conference back over to Marty Freeman for any closing remarks. Marty Freeman: Thank you all for your participation today. We appreciate your questions. And please feel free to give us a call later if you have anything further. Thanks and have a great day. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: In March, Greetings, and welcome to the Gladstone Investment Corporation Third Quarter Earnings Call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mr. David Gladstone, Chief Executive Officer. Thank you, sir. You may begin. David Gladstone: Well, thank you, Latonya, and good morning to everybody. This is David Gladstone, Chairman of Gladstone Investment. And this is the earnings conference call for the third quarter ending 12/31/2025 for the 2026 fiscal year. And it is the March 31 year. We hope we get all of our shareholders on board and analysts in order to tell you about the future of the company. We are listed on NASDAQ under the trading symbol GAIN for the common stock, and then we have three preferred stocks: Gain N, Gain Z, and Gain I. Three different registered notes. Thank you all for calling in. We are always happy to provide updates to our shareholders and analysts and provide a view of the current business and the environment that we are in. Two goals of this call are to help you understand what happened to us during the last quarter and give you our current view of the future. And now we will hear from Catherine Gerkis, our Director of Investor Relations in ESG, to provide a brief disclosure regarding certain regulatory matters concerning this call. Catherine, go ahead. Catherine Gerkis: Good morning, everyone. Today's call may include forward-looking statements which are based on management's estimates, assumptions, and projections. There are no guarantees of future performance, and actual results may differ materially from those expressed or implied in these statements due to various uncertainties, including the risk factors set forth in our SEC filings, which you can find on the Investors page of our website, gladstoneinvestment.com. We assume no obligation to update any of these statements unless required by law. Please visit our website for a copy of our Form 10-Q and earnings press release for more detailed information. You can also sign up for our email notification service and find information on how to contact our Investor Relations department. We are also on X, at Gladstone Comps, as well as Facebook and LinkedIn. The keyword for both is The Gladstone Company. Now I will turn the call over to David Dullum, President of Gladstone Investment. David Dullum: Thanks, Catherine, and good morning to everybody. So I am pleased to report again that the '26, which as David Gladstone mentioned, ends on March 31, that we continue to build on the prior quarters, a very strong performance in this fiscal year. Driven by our continued growth in the portfolio and the results of our existing portfolio companies. So we ended the third quarter with an adjusted NII of $0.21 per share, total assets of about $1.2 billion, which is up about $92 million from the end of the prior quarter. Now this increase quarter over quarter in assets resulted from one new buyout investment during the current quarter along with fairly significant appreciation of our investment portfolio. So with the new buyout investment, we currently have 29 operating companies and a very healthy pipeline for new acquisitions. In this regard, to date, for fiscal 2026, we have invested $163 million, which is in four new portfolio companies, which compares to about $221 million that we invested for all of fiscal year 2025. These new investments are consistent, of course, with the buyout strategy where we grow the portfolio through the acquisition of operating companies at attractive valuations, and where we generally are the majority economic owner. We also make our acquisitions through a combination of equity and debt, and with the equity providing the potential upside through capital gains upon exit, and the debt securities, of course, generating the operating income, which supports our monthly distributions to shareholders. And that is a very important aspect of our portfolio. So this is one of the factors that in fact differentiates us from other traditional credit BDCs. The aspect that we provide both the debt and the equity when we make an acquisition. So from our operating income, we maintained our monthly distribution to shareholders of $0.08 per share, or $0.96 per share on an annual basis. Put this in perspective since inception in 2005, and through 12/31/2025, we have invested in 66 buyout portfolio companies for an aggregate of approximately $2.2 billion and exited 33 of these companies. This resulted in the total investments currently being valued at $1.2 billion while generating approximately $353 million in net realized gains and $45 million in other income on exit. So as we look forward, what we are finding is there is very good liquidity in the M&A market. This creates a very competitive environment for new acquisitions certainly at what we would consider reasonable valuations. Now while this is challenging, we do seem to be able to compete effectively, as I mentioned, the investments we have made in the fiscal year. So we are out there working hard, effectively competing for these acquisitions that do indeed fit our model. And again, this is where we are both the equity and the debt to complete the acquisition. And one of the things that we do in looking at the debt securities that we do, we need a meaningful what we call fixed charge coverage and income yield on our total investment. So that is indeed in excess of our cost of capital. As I mentioned earlier, we closed on four new investments during the first nine months of the fiscal year. We are continuing to be in varying stage diligence on some possible new opportunities, including accretive add-on acquisitions to existing portfolio companies. I would just like to elaborate on the add-on acquisitions that I mentioned. Given the way in which we manage our portfolio, it is not unusual for us to be constantly looking for acquisitions to add to existing portfolio companies and indeed are able to grow the value of our overall investments and portfolio by this add-on activity. So this activity all could lead to closing on new buyout investments during the balance of the fiscal year. And as it relates to the income that is generated for the portfolio, there is one word and question that seems to keep coming up. We hear about what we call spread compression and given that interest rates generally given SOFR coming down and so on, that these interest rates may be declining. I want to again emphasize that one differentiator for GAIN from other credit-oriented BDCs is that we put floors on our debt securities while we have a stated rate, which indeed is spread over SOFR. Now so while we may see a decline in yield, because SOFR has come down, granted that is coming down from a higher level, we still have the protection of the floors. And I think it is a very important point that we need to stress, and you will hear more about this from Taylor Ritchie, our CFO, in a little bit. So, again, the floor is usually set high enough, which establishes an effective yield on our total investments, which does help to mitigate this quote spread compression or the decline in SOFR over time. Taylor Ritchie: As to our existing portfolio, most of the companies have experienced very good results to date and this is reflected in a very significant increase in our net asset value. And though we continue to be cautious due to supply chain disruption, tariff, and the other issues going on in the economy, we feel very good about where we are with our portfolio companies. We are working with all of our companies in evaluating things such as supply chain alternatives, other cost efficiencies that we need to help navigate the current environment. So in summing up the quarter and looking forward to the rest of the fiscal year, our current portfolio is in good shape. We have a strong and liquid balance sheet. A good level of buyout activity with a prospect of continued good earnings and distributions over the next year. So with all of that, while we hope to navigate the challenges of this uncertain economic landscape. So I will turn it over to our CFO, Taylor Ritchie, and he can tell us a bit more detail. Taylor? Taylor Ritchie: Thank you, Dave, and good morning, everyone. Looking at our operating performance for the third quarter, we generated total investment income of $25.1 million, down slightly from $25.3 million in the prior quarter. The decrease was primarily driven by a decrease in dividend and success fee income, partially offset by additional interest income resulting from the continued growth of our debt investment portfolio. The weighted average principal balance of our interest-bearing investments was $699 million in the current quarter, representing an increase of $30 million compared to the prior quarter. After adjusting for the prior year's collection of past due interest income from investments that were previously on nonaccrual status, our portfolio's weighted average yield decreased modestly from 13.2% to 12.9%. This 24 basis point decrease is in line with the 32 basis point decrease in SOFR during the quarter and was mitigated by the interest rate floors included in each of our debt investments. Excluding non-accrual investments and revolving lines of credit, the weighted average interest rate floor for our debt portfolio was 12.1% as of December 31. We continue to underwrite our new debt investments with elevated interest rate floors in the 13% to 13.5% range to mitigate potential declines in SOFR. With over half of our debt portfolio currently at their interest rate floors, we believe our yield is well protected against future rate declines. Further, the overall interest rate floors will offset higher interest expense that will result from the future refinancing of our low-cost long-term debt that will be maturing in the coming quarters and years. Additionally, dividend and success fee income declined by $400,000 quarter over quarter. Dividend income from our equity investments is dependent on the portfolio company's ability to pay the distribution, while also having sufficient earnings and profits to support the characterization of the distribution as dividend income. Success fee income is derived from an interest rate associated with our debt investment that accrues off-balance sheet for both GAIN and the portfolio company and is not contractually due until a change of control event. However, similar to dividend income, a portfolio company may elect to prepay a portion of this accrual from time to time. Given that collection of both dividend income and success fee income is dependent on multiple factors, the timing of this income will be variable. Net expenses for the quarter were $31.6 million, up from $21 million in the prior quarter. The increase was primarily due to a $9.9 million increase in the accrual of capital gains-based incentive fees. Base management fee expense increased by $500,000 compared to the prior quarter as a result of new buyout investment activity and a significant increase in unrealized appreciation of our investments. Credits from the advisor, the level of which is correlated to the timing and volume of new originations, declined $400,000 quarter over quarter. Interest expense decreased $200,000 in the current quarter due to the timing of the issuance of our 6.875% notes and the reduction of our 8% notes. In new investment activity. This resulted in a net investment loss of $6.5 million compared to net investment income of $4.3 million in the prior quarter. Overall, portfolio company valuations in the aggregate increased $7.2 million. This unrealized appreciation was driven by both increased performance at some of our portfolio companies along with higher valuation multiples across the portfolio. The increase was partially offset by decreased performance of other portfolio companies. Adjusted net investment income, which represents net investment income or loss excluding any accrued or reversed capital gains-based incentive fees, was $8.2 million or $0.21 per share. Compared to $9.2 million or $0.24 per share in the prior quarter. We believe that adjusted net investment income remains an indicative metric of our ongoing and core performance as it removes the impact of capital gains-based incentive fees, which is an expense recorded under U.S. GAAP each quarter but is not yet contractually due. For the current quarter, we continue to have three portfolio companies on non-accrual status. We have been working closely with each of these three companies, working alongside their management team to support efforts to return to accrual status or pursuing exits where appropriate. Our non-accrual investments represent 3.8% of our total book portfolio at cost and 1.5% at fair value. Our NAV increased to $14.95 per share compared to $13.53 per share at the end of the prior quarter. The increase was primarily a result of $1.77 per share of net unrealized appreciation and $0.09 per share of net realized gains. These increases were partially offset by $0.24 per share of distributions to common shareholders, $0.016 per share of net investment loss, and $0.03 per share of realized losses associated with the redemption of our 8% note. Moving on to our balance sheet, our ability to maintain sufficient liquidity, financial flexibility, and managing a fluctuating interest rate environment is essential to supporting growing our portfolio. As part of our proactive balance sheet management, we redeemed the full $74.8 million outstanding balance of our 8% notes using proceeds from the recently issued $60 million 6.875% notes and borrowings under our line of credit. This redemption and new debt issuance reduced our interest burden for $75 million of debt capital by approximately 110 basis points. Further, we expanded our credit facility to include City National Bank with a $30 million commitment level. As a result of this expansion, we now have a total commitment level of $300 million under our facility. As of yesterday's release, we had approximately $171 million from our remaining share of During the quarter, we raised approximately $3.2 million in net proceeds through common stock, which began program issuances. While the price level of our common stock limited the number of days we were active on the ATM, we will look to sell under our ATM program in the future when prices are accretive to NAV. We believe that we are in a sufficiently strong liquidity position with our ability to access the debt capital markets and, when possible, the equity markets to support both the refinancing of upcoming debt maturities and our pipeline of new buyout opportunities. Overall, our leverage remains in a strong position with an asset coverage ratio as of 12/31/2025 of 201%, providing what we believe to be ample cushion to the required 130% coverage ratio. Focusing on our distribution to shareholders, we ended the prior fiscal year with $55.3 million or $1.5 per share in spillover. Sufficient to cover our current monthly distribution of $0.08 per share for an annual run rate of $0.96 per share, as well as the $0.54 per share supplemental distribution we paid in June. As of December 31, our estimated spillover was approximately $22.9 million or $0.58 per share. We ended the quarter with total distributable income of $108.7 million or $2.73 per share. Total distributable income primarily consists of the net unrealized appreciation of our investments as well as the GAAP adjusted balance of our spillover presented on our balance sheet. Including the $0.54 supplemental distribution in the current fiscal year, we paid an aggregate of $3.26 per share across 13 supplemental distributions over the last five fiscal years. In addition to the $4.68 per share of monthly distribution during this time. This track record reflects our ability to maintain a stable monthly dividend while also delivering incremental returns to shareholders, underscoring the strength and consistency of our focused equity-oriented investment strategies. Looking ahead, we expect supplemental distributions to remain an important component of our overall shareholder return strategy with the amount and timing of future payments driven by realized capital gains on our equity investments along with other capital allocation considerations. This covers my part of today's call. I will now hand it back over to you, David, to wrap us up. David Gladstone: Well, thank you. Very nice, Taylor, and nice by Dave Dullum and Catherine as well. And this will tidy over our shareholders until the next call, which will be at the March, the annual, as well as the third quarter. The call and Form 10-Q should bring everyone up to date. We have reported solid results for the quarter ending 12/31/2025, including new investment activity and a strong liquidity position. To grow the portfolio throughout the fiscal year. We believe Gladstone Investment is a very attractive investment for investors seeking continued monthly and some supplemental distribution from potential capital gains and other income. The team hopes to continue to show you a strong return on investment in our funds. Now let's stop for some questions from the analysts and other shareholders. Please come on, Mathewa. Thank you. Operator: We will now conduct a question and answer session. Once again, that's star one at this time. The first question comes from Mickey Schleien with Clear Street. Please proceed. Mickey Schleien: Yes. Good morning, everyone. Dave, a good portion of the appreciation in NAV quarter came from three investments, Shilling, Old World, and SFEG. Can you discuss the operational or valuation changes that drove that appreciation for each of those companies? David Dullum: Sure. Mickey. Nice to chat with you. Yeah. And actually, we had a pretty significant those three you mentioned were large numbers, but we have a number of other companies indeed also that had relatively speaking, pretty significant increase as well. But fundamentally, all the ones that were these large increases were fundamentally no multiple change, but pretty much all because of EBITDA increase. So, which is obviously the best situation. So, yeah, that was true of all three of those that you specifically mentioned. Mickey Schleien: The yeah. Sorry interesting. I do not know if it is pronounced Shilling or Shelling, but Shilling and Old World are obviously consumer-oriented companies, and we are reading, you know, so much about the k-shaped economy. So what sort of different about those two companies that is allowing them to grow their EBITDA even with the headwinds in the consumer sector? David Dullum: Yeah. I think the only answer I can give is the products that they make and sell obviously. Shilling is a very interesting business. And they have a very unique product, which makes up a reasonable portion of their overall revenue, something called needle. It is one of these things where you squeeze for a variety of reasons, and they have different types of that. And that product has had huge demand even with, as you point out, forget consumer demand generally, but the whole tariff increases that we have seen in their products, of course, a significant portion comes from the Far East. So even with that, they have literally been able to maintain a level of demand that just frankly has allowed the company to perform at an exceptionally high level. Overall Christmas, obviously, Christmas tree ornaments, you are familiar with those, I think. You have seen them, and, again, they are a well-run business. All of these companies are very well run. They have got great management teams on pretty much, frankly, all of our portfolio companies right now. And they have just been able to, I guess, really the consumer demand side of things, as you say. I do not have any further specific real insights to that other than, again, good management, quality products, and been able to manage through the tariff impacts. Mickey Schleien: That is really good to hear. Dave, you also recently invested in Rowan Energy. Can you walk us through how you underwrote that deal, particularly how you assess the cyclicality of the energy equipment, fracking, sand filtration sector and what assumptions you made about where Rowan stands in its business cycle? David Dullum: Mhmm. Best answer I can give you, Mickey, we can certainly chat about this offline if you need and, you know, bring some of the other folks involved that would more directly involved in those companies. But as you know, we have a couple of investments now that are in the energy-related sector. One company in particular, E3, which also had a very interesting and nice increase in valuation, and what we have there is a quality and experienced team running that particularly E3, and that frankly helps us to move off into and to be able to evaluate companies such as, you know, what you mentioned, Smart Chemical is another one. And so we have knowledge and experience within our portfolio to help properly evaluate that. So right now and through those lenses, we feel like where these guys are in their cycle that we still have upside and been able to manage it through valuations, frankly, that also are at a level that are not really, I will use the words carefully, but overpaying, so to speak. But, anyway, it is one that we can talk about in more detail if you really want to later on. Mickey Schleien: I appreciate that. Dave or maybe Taylor, if I look at the table in the press release regarding flow rates, I want to make sure I understand it. Is it correct to say that about half the portfolio has about 80 basis points of downside in average yields? Taylor Ritchie: Yes, but the way for us to get there, we would need significant decreases and so forth. So it would not just be 80 basis points would get to that level of 12.1% floor. We would need closer to 210 basis points to be able to bring SOFR down to a level where the other portfolio companies would then hit their floors. So there is some wiggle room. And as you could see, with the fact that the basis point decrease right below that table there, the 25, 50, 75, 100% or 100 basis point decreases and so forth. You can see as that decrease occurs, the decrease to the overall rate is not one for one. And that is because we start hitting the interest rate floors of more of the portfolio companies. Mickey Schleien: Okay. Yeah. I understand. And lastly, you know, given sort of typical portfolio companies that you are attracted to, is it reasonable to say that there is sort of limited risk from AI in the portfolio and how are you looking at that in terms of the pipeline? David Dullum: Yeah. The terminology, of course, is pretty broad. Right? AI. Yeah. I guess what I would say is that most of our companies are, to the extent that AI is important, they are actually using it to some degree. And I think you, in fact, if you recall coming out to our conference last year, we had a fair amount of stuff on that, and I think you heard some of that as well. So a number of our portfolio companies are utilizing various aspects of AI, which is enhancing, you know, their either their efficiency and whether it be designing some of the product you mentioned, Shilling. Again, they have actually, for a couple of years now, they have been using some aspect of AI in helping them to really design efficiently some of their products and so on. So I would say, yeah, we are more a beneficiary to some extent than necessarily, as you point out, where we have a tech company that might be directly in that space and there may be real competition for that, I would say we do not have that in our portfolio. So you are correct. Mickey Schleien: Yeah. That is good to hear. Those are all my questions. I appreciate your time this morning. Thank you. Operator: Thank you. Who is up next? The next question comes from Christopher Nolan with Ladenburg Thalmann. Please proceed. Christopher Nolan: Hi, thanks for taking my question. As a follow-up to the unrealized gains, were those mostly related to equity gains in the portfolio? Taylor Ritchie: Yes. So they were predominantly equity. We did have a handful of portfolio companies that experienced debt or debt fair value increases as the overall TV for that portfolio company was increasing. As a result of both multiple increases and EBITDA increases. But the bulk of it, yes, it is equity-driven. Christopher Nolan: And then in the comment section, you guys said, there is good liquidity in the M&A market. I have heard from other managements where credit is widely available to all these middle market companies, but equity is less so. Do you have a different take on that? And if equity is less prevalent, does that give you a competitive advantage? David Dullum: Yeah. So I guess, Chris, my response to that might be from my experience, our experience, I think maybe the folks that, let's say, we compete with are traditional BDCs, excuse me, traditional private equity guys, to the extent that they are able to access leverage at more attractive rates, I think that is where, you know, why if they can put less equity in and slightly higher leverage or lower rates, they are doing some of that. I think this gives us an advantage, though, as well because we are bringing, again, the equity and the debt, and we can moderate that so we get the leverage on our own equity. But I would say that it is competitive, frankly, with the M&A direct M&A shops because valuations, while we are seeing some elevation, frankly. On elevations, the fact that they can get, you know, leverage at lower rates, relatively speaking, makes them pretty competitive as well. So to your point, that might put in less equity, put in a bit more leverage, and be competitive with us even though we are doing the debt and the equity. So it gives us a slight advantage in that when we deal with the management team and we are trying to buy the business, we at least are speaking for the whole capital stack, and we have a bit more certainty there. Versus, say, a traditional firm that might have to go out and try to raise the debt, whereas we at least can speak for all of it. So it gives us a slight edge, but, yeah, it is a there is a fair amount of capital out there in both that I would say that certainly the debt market and clearly on the equity side. From our experience. Christopher Nolan: Great. And final question. Given the decline in base rate over the last year or so. Will that have any positive effect in the discount rate used in your evaluate in your fair value calculations for your portfolio companies going forward? Taylor Ritchie: Okay. Clarify that question again for me, Chris. Say it Sure. Christopher Nolan: Yes, the risk-free rates have gone down. Even the Fed cuts rates. And does that affect the discount rate used in your discount cash flow evaluations when you are fair value in an investment? Taylor Ritchie: Well, most of our investments are being fair value using a TEV valuation. So we are really looking at what EBITDA is times the multiple that we are setting for that portfolio company. So using a DCF model is not as prevalent for our overall valuation approach. But yes, you are correct. In theory, that would improve it, but that is not how we are really valuing the bulk of our investments. Catherine Gerkis: Right. Christopher Nolan: Great quarter. Very unusual in terms of the dynamics. You know, you guys have a super gap EPS profit and an NII EPS loss and a super jump in on that per share, but good show. Thank you. Operator: Thanks, Chris. Victoria, you have another question? The next question comes from Erik Zwick with Lucid Capital. Please proceed. Justin Marca: Thanks. Good morning. This is Justin on for Erik today. Just wondering if you could speak on the current state of underwriting conditions and specifically if you are seeing any pressure on terms or structure given the tighter spread environment? David Dullum: Yeah. I would for us, I would say, Justin, probably not. As I mentioned earlier, because of the availability of leverage lower leverage, so when we are competing for a deal, for us, we still try to stick with our formula. Typically, it is about 70% of our assets or the investment that we make is in debt, in the debt security, 30%, roughly is in the equity security. So when we combine those, we are driving for an effective yield on the total dollars. Relative to our essential cost of capital being very cognizant of, you know, the income aspect of it for dividend distribution, but, likewise, we look for, you know, on the upside, we always try to see a way to say two times cash on cash on the equity side of things. So our model really has not changed. What we have found, yes, indeed, there have been a couple of deals that we have been working on that we liked and we are, you know, we are bidding on, you will. And we were, you know, a couple of turns off on the multiple. But, you know, we stay pretty disciplined. And given what we are seeing out there, I do not see us having to change too dramatically our model. I mean, if we saw something we really like and we could say put a bit more debt on it and generate more income, so long as we were not sacrificing too significantly the equity side of things, we will do that. But, that is not necessary because of the markets just because the way we might look at the deal itself. If that helps. Justin Marca: Yeah. Thanks. And, Dave, in your prepared remarks, you described the pipeline as very healthy. Can you talk about how it is looking compared to maybe a year ago? And are there any specific sectors where you are seeing better deals than others? David Dullum: Yes. I would say compared to a year ago, probably similar. I do not certainly not lower. We are seeing them really across all sectors. We have seen recently a few areas. The consumer side of things, as actually Mickey was asking earlier, even though our experience of our portfolio and our consumer companies are doing really well, the consumer side of things are a little bit obviously slower, a great part because again, we talk about tariffs. And so when we look at a new deal, that is a consumer-driven, you have to really be very sensitive to the cost of product because of tariffs and so on, and that has some effect there certainly. It is business services. We are seeing reasonably good things in the business service area. Interestingly enough, on the manufacturing side, seeing things. I just kind of reflected in our portfolio kind of in the aerospace and defense area. Certainly aspects of what the government is doing, etcetera. So we have seen somewhat of a pickup in that area. So generally speaking, I would say pretty much across the board, everything is looking we are seeing about the same certainly as about a year ago. And if there is any one area that might be a little weaker in terms of looking forward, might be somewhat in the consumer area. Other questions? Okay, thanks. Justin Marca: Thank you, Justin. It was good to see sorry, I just got one more. Go ahead. Yes, sir. It was good to see that your nonaccrual was stable quarter over quarter. Just wondering if you could talk about your current outlook for quality and if there are any near-term opportunities to resolve any of the remaining names that are on non-accrual? David Dullum: Yeah. I would say this. The ones that are currently on nonaccrual in differing degrees, I feel better about them honestly today. If you had asked me that question perhaps a year ago. In part because we are taking some actions. Again, they are all generating actually positive EBITDA. There are some structural reasons why we do not have them back yet on accrual. But between some of the things that we are doing with them, we might even see if a potential exit, and certainly improvement to the point where we actually will be able to get them back on accrual. So I see it as a positive looking forward versus it being a negative. No, I agree. And where we stand with these three companies, there is no or it does not feel like we are in a next quarter it will change, but the outlook is much more positive. And every quarter, it looks more positive. So we are encouraged by where each of the three are trending. Justin Marca: Great. Thanks for the That is all for me today. Operator: Okay. Thanks, sir. Well, Troy, any other questions? There are no further questions at this time. I would like to turn it back to you, Mr. Gladstone, for closing comments. David Gladstone: Okay. Well, thank you. We appreciate all those questions. We hope there are at least double questions next time. We always like to answer your questions because that shows a light on all of the things we are doing. And you have to remember that these are not just portfolio companies. These are platforms, and we are getting people that are coming in and getting money from us because they are getting some of their money that they have made over the years back now. But they have equity and going forward. So it is a bite now and a bite later of income for people who are joining us. We are all oriented toward these platform companies. And thank you all for appreciating that. It is a different way of running our business, but one that works for us. So thank you all for calling, and next time, we will see you in April. Operator: Thank you. This does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation and have a great day.
Linda Conrad: Welcome to Adient plc First Quarter 2026 Earnings Call. I'd like to inform all participants that today's call is being recorded. If you have any objections, you may disconnect at this time. I will now turn the call over to Linda Conrad. Thank you. You may begin. Thank you, Denise. Good morning, everyone, and thank you for joining us. The press release and presentation slides for our call today have been posted to the section of our website at adient.com. This morning, I'm joined by Jerome Dorlack, Adient plc's President and Chief Executive Officer, and Mark Oswald, our Executive Vice President and Chief Financial Officer. On today's call, Jerome will provide an update on the business. Mark will then review our Q1 financial results and our outlook for the remainder of our year. After our prepared remarks, we will open the call to your questions. Before I turn the call over to Jerome and Mark, there are a few items I'd like to cover. First, today's conference call will include forward-looking statements. These statements are based on the environment as we see it today and therefore involve risks and uncertainties. I would caution you that our actual results could differ materially from these forward-looking statements made on the call. Please refer to Slide two of the presentation for our complete safe harbor statement. In addition to the financial results presented on a GAAP basis, we will be discussing non-GAAP information that we believe is useful in evaluating the company's operating performance. Reconciliations for these non-GAAP measures to the closest GAAP equivalent can be found in the appendix of our full earnings release. And with that, it's my pleasure to turn the call over to Jerome. Thanks, Linda. Jerome Dorlack: Good morning, everyone, and thank you for joining us to review our first quarter results. Today, we will focus on the quarter's solid performance and provide an update to our fiscal year 2026 outlook. We will also discuss new business awards and launches as well as share some insights on our expectations for the future beyond fiscal year 2026. Before we get into the results, I would like to take a moment to acknowledge the hard work and dedication of our more than 65,000 employees who work diligently every day to deliver on our commitments, especially in light of the significant challenges during the past quarter. The management team and I appreciate the team's collective efforts, which resulted in a solid start to fiscal year 2026. I would also like to thank our customers around the world who continue to recognize Adient plc as the world's preeminent CDN supplier. Thank you. Turning to slide four, which summarizes our first quarter results. The beginning of the year was filled with uncertainty. The Novella's fire, the Nexperia shortage, and JLR productions were all unknowns. But as the Adient plc team does time and time again, we managed through each of these events by leveraging a resilient operating model. Thankfully, the uncertainty of these events is nearly behind us, and we are focused on execution to meet the needs of our customers. For the most part, volumes are expected to recover within our fiscal year, and we expect to mitigate much of the overall impact of these events. Our revenue for the quarter was up 4% year over year, primarily driven by FX tailwinds from Europe. Excluding FX, revenue in China was up significantly as expected, delivering on our growth commitments and more than offsetting production headwinds from North America. We remain laser-focused on new business wins and ensuring we remain our customer's supplier of choice. We are supporting our customers' onshoring efforts in North America, both direct and indirect, and continue to view Adient plc as a net beneficiary of onshoring. While we have no new programs to announce at this time, we remain highly optimistic about the near-term potential for a large domestic OEM program. Our free cash flow generation and balance sheet remain strong, which allowed us to allocate capital in a disciplined manner. We returned an additional $25 million to shareholders through share repurchases this quarter, which Mark will detail further in his section. And we ended the quarter with $855 million in cash. Focusing beyond the operations and the quarterly financials, I would like to highlight that we have issued our 2025 sustainability report, which we will talk about in more detail in a few slides. Finally, as we look beyond the quarter to the full year, we are raising our guidance for revenue, adjusted EBITDA, and free cash flow, which Mark will outline in more detail during his section. Let's turn now to slide five. As fiscal year 2026 has become another year of transition for the industry, analysts and investors have been asking about fiscal year 2027 and beyond. So we wanted to provide our perspective on this year as well as some insights on where Adient plc is heading. We have said a key factor impacting this year's outlook is volume, which is very true. We are a volume-driven business. Production volumes are trending higher, particularly in North America, and overall industry volume indicators remain positive. With this production outlook and our resilient operating model, we are confident that we can deliver solid business performance. As a result, we are able to raise our guidance. But this year is about much more than just volume. It's about launching several key and complex new programs flawlessly. It's about continuing our drive for automation. It's about exceeding our customers' expectations with new and innovative products. It's about ensuring that our teams have the tools and the skills to evolve as AI takes hold. These are the things we are focusing on this year that go beyond our drive for operational excellence. Whether it's cross-functional or cross-regional, our teams are collectively working together to ensure Adient plc is equally focused on operational excellence and growth. As a result, this is what we expect for the 2027 fiscal year and beyond. We expect our investments in automation to ensure continued positive business performance as most projects have a payback under two years. We are capitalizing on approximately 400,000 units of near-term onshoring opportunities that will support our customers as they continue to reevaluate their manufacturing footprints. Our innovative products and processes, such as Sculpt to Trim, will help us win new business as they are expected to improve styling and also reduce costs by nearly double-digit percent. We have accelerated our growth with China domestic OEMs and will exit this year with 60% of our revenue in China from domestic OEMs. We expect this trend to continue. We expect our growth in cash flow generation to continue to reinforce our disciplined and balanced approach to capital allocation. It is for all these reasons that Adient plc is well-positioned for long-term shareholder value creation. In addition to outlining our expectations, I also want to provide some additional specific context around our growth opportunities. As we have discussed, onshoring in North America remains a clear focus, and we are actively working with all of our customers to support their onshoring activities. To date, we have won approximately 150,000 units of direct onshoring business and hope to be able to provide an update on another significant win in the near term. For clarity, when we talk about onshoring, onshoring for us means business that is produced outside of the borders of the U.S. and has moved within the borders of the U.S. In addition to direct onshoring opportunities, we've also won indirect opportunities resulting in an incremental 25,000 units. For 100,000 units of new and conquest business to The Americas. The collective impact of these wins and anticipated wins is an additional estimated revenue of $500 million, with $300 million impacting fiscal year 2027 and the full $500 million impacting fiscal year 2028. Looking beyond The Americas, the growth outlook for Asia is also solid. We expect China will continue to have double-digit growth through fiscal year 2028 in spite of relatively flat overall vehicle production. In addition, Asia, outside of China, is expected to grow above market in both fiscal year 2027 and 2028. Turning to Europe. Our teams continue to win new business in Europe. We expect these wins to offset the impact of our planned strategic program actions in the region and also expect these wins to be margin accretive. Now that we have outlined our future expectations, let's turn back to the near term and talk about the regions on the next slide on Page seven. For The Americas, as we have discussed, the team delivered positive business performance in the first quarter despite the production disruptions and expect their favorable business performance to continue. In addition, they are focused on executing key launches, including the Kia Telluride and the Rivian R2. Our manufacturing teams are also focused on expanding automation across plants wherever possible. Commercially, the team is laser-focused on growth and onshoring opportunities they will continue to aggressively pursue as we already mentioned. In Europe, the overall industry remains challenged by volumes, capacity, and the importing of vehicles from China. This will continue to stretch the industry and the European team. But they remain committed to delivering positive business performance for the remainder of the year just as they did this quarter. The European team is also focused on a complex launch with a German customer. The team continues to pursue and win new and conquest business, and restructuring activities remain on track as planned. Finally, in Asia, the team is aggressively pursuing innovation and is winning new business as customers recognize Adient plc as a supplier of choice. This would not happen without Adient plc's focus on operational excellence, which the team will continue to demonstrate as they launch new programs throughout the year. In China, the team continues to strengthen relationships with both China domestic OEMs and suppliers to drive top-line growth. As you can see, in each of our regions, Adient plc's resilient operating model is focused on driving value for all of our stakeholders. Turning to Page eight. We continue to win new and conquest business in all regions we operate in and have many successful ongoing launches to highlight. Starting in EMEA, as highlighted during our last earnings call, it appeared as if the region was showing signs of stabilization. We have seen customers move forward with some sourcing decisions, which is positive. We have recently won new metals business with Ford on a compact crossover SUV. We have other sourcing decisions pending. We expect to see some of these benefits on these programs coming online in late fiscal year 2027 and early 2028. We have also just successfully launched complete seat business on the Mercedes GLB for the region. With that said, we are also hearing some mixed signals from customers on near-term volume concerns, and so Europe remains a bit more of a wait and see at this point. In Asia, our momentum continues to build, highlighted by new conquest business with leading domestic OEMs. Key replacement business and the successful launch of the HypTech A800, which features a zero gravity passenger seat and showcases the region's ability to deliver innovation at scale. And finally, The Americas, we continue to strengthen our position with key replacement wins such as the Honda Pilot and MDX metals business, and we successfully launched the region's first long-distance JIT program with the Chevy Volt, which we commented on eighteen months ago as a conquest win. A clear demonstration of our operational capabilities and our ability to meet customers' evolving needs. Before we move on, I want to underscore why we continue to win new and conquest business across every region. These wins are not coincidental. They're a direct result of our team's excellence in operational execution and their track record of successful launches and innovation not only in product design but also in manufacturing. I'd like to recognize the entire Adient plc team and the relentless effort and focused execution across the globe in delivering for our customers day in and day out. Customers continue to recognize Adient plc as a reliable high-performing partner because we deliver. Our teams consistently meet and often exceed customers' expectations. That performance builds trust, which translates into new awards, expanded platforms, and increased share with both global and domestic OEMs. Our success in securing these programs is a reflection of the credibility our operations have earned over time, and it positions us exceptionally well as we look ahead to fiscal 2027 and beyond. These wins set the stage for innovations we're bringing to market that will further enhance our competitive position. For a closer look at one of these innovations, let's move to Slide nine. Adient plc is clearly focused on innovation, and within the last few weeks, we announced the introduction of ModuTech. It showcases Adient plc's forward-thinking approach to modular manufacturing. This advancement will benefit Adient plc, our customers, and the ultimate end user greatly. ModuTech is a modular seat design solution that greatly simplifies the seat build process. That opens the door for a higher level of automation across our plants. For our customers, ModuTech means enhanced seat comfort and craftsmanship, faster and more flexible launch execution, and a lower delivery cost. All while enabling long-distance JIT and a more resilient supply chain solution. These advantages directly support our OEM partners' onshoring priorities and their ability to compete and make vehicles more affordable for the end customer. ModuTech unlocks another level of modularity. The early benefits we are seeing from modularity are compelling, with upwards of 20% total value chain savings driven by significant labor and freight efficiencies. And nearly a 15% reduction in JIT floor space requirements. No other seat supplier is delivering a modular architecture at this scale. With this level of manufacturability improvement, Modularity strengthens our position as a supplier of choice and enhances our ability to win new business, especially as our customers look to optimize their footprint. Ultimately, both ModuTech and Modularity drive sustained margin expansion, capital efficiency, and enhanced free cash flow conversion. This is the prime example of how innovation in our product and process drives durable value. Not only by lowering our cost structure but by expanding our competitive advantage and our ability to drive sustainable shareholder value. Turning to Slide 10. Adient plc remains focused on driving sustainable growth into our business and reducing our impact on climate change. We strive for responsible use of natural resources by improving energy efficiency in our operation, reducing the carbon footprint of our finished products, and developing processes that protect our planet's natural resources. Adient plc is pursuing the use of sustainable materials and products by identifying materials and manufacturing methods that minimize our environmental impact and promote a circular approach to product development. Some of the highlights for fiscal year 2025 include: we have had a 42% reduction in Scope one and Scope two emissions since 2019. We are proud to share that 30% of our electricity is now attributable to renewable resources. Our total water withdrawal was reduced by 6% year over year, and 80% of our suppliers have been assessed with a sustainability rating. These accomplishments aren't just environmental milestones. They demonstrate the discipline and execution that underpin Adient plc's operating model. They show that our teams are embedding sustainability into the way we run our business, strengthening our cost structure through efficiency, reducing long-term risk, and increasing resilience across our global footprint. Just as importantly, they reinforce our position as a trusted supplier to the world's leading OEMs who are increasingly prioritizing responsible sourcing and measurable climate action. We view this as progress and as a competitive advantage, a value driver, and a key component of our long-term strategy. Let me leave you with a few takeaways before I hand it over to Mark. The company consistently delivers positive business performance through our focus on operational excellence, which allows us to meet or exceed our stakeholders' expectations and drive margin expansion. Our commitment to innovation and automation is reflected in our products, our processes, and our people. Cross-functionally and across regions, to deliver value-added solutions to our customers. While the company remains focused on operational excellence, we're also focused on delivering growth by being a supplier of choice with our customers. Adient plc is committed to being good stewards of capital on behalf of our shareholders through a disciplined approach to balanced capital allocation. Adient plc is well-positioned for growth and committed to delivering long-term shareholder value. And with that, I'll turn it over to Mark to take you through the financials and their outlook. Thanks, Jerome. Mark Oswald: Let's move to the financials on Slide 13. Adhering to our typical format, the page shows our reported results on the left side and our adjusted results on the right side. I will focus my commentary on the adjusted results, which exclude special items that we view as either one-time in nature or otherwise skew important trends in underlying performance. While the details of all adjustments for the quarter are listed in the appendix of the presentation for reference, I would like to specifically highlight one adjustment related to our tax expense. You may recall on our fourth quarter call when we gave our outlook for fiscal year 2026, we mentioned a one-time non-recurring tax settlement in a non-U.S. jurisdiction. That settlement was recorded this quarter and is the key driver of the GAAP net loss of $22 million. Moving to the right side, high level for the quarter. Sales of $3.6 billion were 4% better than the first quarter of fiscal year 2025, with adjusted EBITDA of $207 million. As Jerome mentioned earlier, there were some temporary customer production disruptions during the quarter, and despite these challenges, the team improved adjusted EBITDA by 10 basis points year over year to 5.7%. This improvement continues to demonstrate the resilience of the Adient plc operating model and the team's ability to efficiently and effectively manage external disruptions. Moving on, equity income was favorable year on year, primarily due to increased sales at our joint ventures. Adient plc reported adjusted net income of $28 million or $0.35 per share during the quarter. Let's move to the revenue and regional performance versus the market on Slide 14. I'll go through the next few slides relatively quickly as detail for the results are included on the slides, allowing adequate time for Q&A. Adient plc reported consolidated sales of approximately $3.6 billion in Q1, which was a $149 million increase compared to the same period last year, primarily driven by FX tailwinds and favorable volume and pricing in the quarter. Shifting focus to the regional performance on the right-hand side of the slide, In The Americas, Adient plc consolidated sales were generally in line with the broader market. In EMEA, sales trailed the market, reflecting customer mix and deliberate portfolio actions. Asia outperformed, driven by expected significant growth in China, as new programs with domestic OEMs ramped throughout the quarter. The remainder of Asia lagged the industry trends, particularly in Japan and India, where our customer presence is more limited. In Adient plc's unconsolidated revenue, year-over-year results declined approximately 3% adjusted for FX. Results were primarily affected by the joint venture portfolio rationalization action in The Americas that was finalized in late first quarter 2025. While both our EMEA and China unconsolidated businesses experienced growth year over year. Turning to Slide 15. Provided a bridge of adjusted EBITDA to show the performance of our segments between the periods. Adjusted EBITDA was up 6% at $207 million versus the same period last year. The primary drivers of the year-on-year comparison are detailed on the page. Business performance improved by $8 million year over year, despite the temporary inefficiencies experienced this quarter due to customer disruptions. As we've highlighted in the past, commercial recoveries tend to be a bit lumpy throughout the year, the favorable timing of some recoveries partially offset these inefficiencies as well as the planned increases in launch costs during the quarter. Equity income was favorable $8 million year over year, mainly due to higher sales and favorable business performance in our joint ventures. FX was a $6 million tailwind stemming from a combination of translational and transactional benefits. And finally, volume mix was an $11 million headwind during the quarter, driven by anticipated margin compression in China as well as unfavorable customer mix due to disruptions with key customers in The Americas. Overall, it was a solid start to the year, and the Adient plc team did well from an operational perspective, continuing to execute and manage what is within our control. As in past quarters, we've provided our detailed segment performance slides in the appendix of the presentation for your review. High level, both The Americas and EMEA continue to drive positive business performance. In Asia, business performance was impacted by the timing of certain growth investments, namely increased engineering spend and launch costs. Before we move to the cash and liquidity section, I'd like to point out that we have provided additional context in how our customer base is distributed across regions. In the appendix, the AdientEtic landslide provides a helpful view of our customer mix and revenue contribution based on our fiscal year 2025 consolidated revenue. As well as some of our top programs by region. Moving on, let me flip to our cash liquidity and capital structure on Slides sixteen and seventeen. Starting on Slide 16, For the first quarter, the company generated $15 million of free cash flow defined as operating cash less CapEx. This was higher than our internal expectations leading into the quarter. The team did a lot of good work to drive this number higher. We also benefited from an approximately $20 million timing impact from the previously mentioned non-U.S. jurisdictional tax settlement, which is now expected to be paid out in Q2. On the right side of the slide, we have highlighted the key drivers impacting the free cash flow during the quarter. These include timing and amount of net customer tooling payments, reduced restructuring spend year over year in Europe, and higher adjusted earnings compared to the same period last year. These benefits were offset by timing and level of VAT tax payments, timing and level of commercial settlement payments, as well as your typical period-to-period working capital movements. As we've mentioned in the past, our cash flow is typically more second-half weighted due to the seasonality of our business. We continue to expect solid cash generation for the full year. In fact, our expectations have increased to $125 million. I'll have more on our outlook in just a minute. As a reminder, as mentioned on our last earnings call, there are a few timing and non-recurring items placing temporary downward pressure on our free cash flow this year. Such as the one-time non-recurring tax settlement previously discussed. Beyond fiscal year 2026, we expect free cash flow to return to normalized levels and benefit from our increased sales earnings and a lower level of cash restructuring. Moving now to Slide 17 for our liquidity and capital structure. Total liquidity for the company was $1.7 billion at 12/31/2025, comprised of $855 million of cash on hand and $823 million of undrawn capacity under our revolving line of credit. During the quarter, the company returned a total of $25 million to its shareholders, repurchasing approximately 2.1 million shares, leaving approved authorization of $110 million. In addition, Adient plc continues to proactively manage our debt maturity and costs. In January, subsequent to the quarter end, we successfully replaced our term loan B and achieved a 25 basis point reduction, resulting in an annual savings of approximately $1.5 million. Focusing on our balance sheet, Adient plc's debt net debt position totaled approximately $2.4 billion and $1.5 billion respectively, at 12/31/2025. The company's net leverage at December 31 was 1.7x, comfortably within our target range of 1.5x to two times. Moving now to Slide 18, let's review our updated expectations for the remainder of the fiscal year. As we highlighted in our Q4 call, when we provided our full-year fiscal year 2026 guidance, we anticipated an improvement in the production volume environment would be a meaningful impact on our results. That said, with North America vehicle production now expected to be in the 15 million unit ballpark for fiscal year 2026, up from the 14.6 million at the time we gave the original guidance, we are raising our outlook for revenue, adjusted EBITDA, and free cash flow. For the full year, we now expect sales to be approximately $14.6 billion, up from our previous guidance of $14.4 billion. Adjusted EBITDA is now expected to land around $880 million, up from our previous guidance of $845 million, and free cash flow, as I indicated earlier, is now expected to be $125 million, up from $90 million in our previous guide. Keep in mind, this revised guidance reflects our current production schedules, FX rates, and assumes no significant changes to the current tariff policies. We continue to expect our overall earnings will be weighted towards the second half of the year. While we don't provide quarterly guidance, it's important to note that our second-quarter results are expected to be impacted by the seasonality of the Chinese New Year, as in past quarters. The lower level of production forecast for Q2 versus Q1 will translate into lower consolidated sales earnings and equity income for the region. Obviously, regaining momentum in Adient plc's Q3 and Q4 as production picks up. Given the puts and takes in production across the regions, we'd expect Q2 EBITDA to look very similar to the quarter just completed. For purposes of our analysis, we don't expect any meaningful changes to equity income, interest expense, or cash taxes from our previous guidance. And CapEx is expected to remain elevated this year due to customer launch schedules and increased investment in innovation and automation. To summarize, production schedules are normalizing, and that improved backdrop is showing up in our execution. We're carrying momentum into the balance of the year through disciplined cost and commercial management, and we expect solid free cash flow as the operating performance is expected to continue to flow through our bottom line. With that, we can now move to the question and answer portion of the call. Operator, can we please have our first question? Operator: The first question today comes from Colin Langan with Wells Fargo. Your line is open. Colin Langan: Great. Thanks for taking my questions. There's been some media headlines that there's possible disruption around the maybe it's a little worse for the F1, F Series recovery. Have you seen any impact in your schedule so far? Is there any way to kind of help frame maybe the risk to guidance if there is some hiccups in the recovery? Jerome Dorlack: So first of all, Colin, thanks very much for the question. I think as we handled in what would have been our Q4 call. We're not going to kind of front-run Ford. I think what we have guided to currently represents what we have on releases in our best information that we have today. You know when Ford says kind of F Series, we always have to remember there's going to be a split between F-150, which is the platform we have, and then Super Duty production that they have in Kentucky. And so we don't know if there is going to be a disruption, how that disruption will unfold. And then in terms of framing what the disruption will be, I think that's why we put into the appendix material kind of what the split is, what our key platforms are, and how those key platforms break out. I think if they're you know, once Ford comes on, I think they've said on the tenth, they'll give kind of their guidance and kind of updated figures. You know, if there is something meaningful, we can always circle back with you guys. But as of now, it's kind of best-known information. I think as we said, in my commentary in the prepared remarks, we kind of anticipate making up any of that production that we lost in Q1 kind of now throughout the back half of the year. What we've tried to reflect in the guide as best we can. Colin Langan: Got it. No, that's helpful. And maybe if you could just talk a bit on the onshoring opportunity that you flagged. I think it was a couple of quarters ago, you said it was $175 million, so we're to $500 million. And then also in your commentary today, I'm not sure if I heard it right, that there's a significant near-term win that you're hoping to update us on. So any color on maybe how quickly some of these wins could come? Because I feel like some might start trailing out into '29 and beyond, or are these gonna still be things that hit in '27 and '28? Jerome Dorlack: Yeah. So what I would say is, you know, so the 175 has grown to 500. That includes the conquest win that's in there as well. We picked up a conquest win, call that know, it's about a 100 to a 150 million. So between onshore and conquest now it's up to $500 million. And the big thing that's still left to get that I think we feel confident in is a domestic OE who is moving production from Mexico into the U.S. You know, we're in the quote process, kind of the final stages of that right now. I think we're hopeful that we'll hear something in the next couple of weeks on kind of the final decision. And that now makes up kind of the gap between know, we're at what I'd call 250 million of booked 250 to 300. That'll make up the gap between the 300 to the 500. So kind of if you wanna think of the bridge, last time we gave you an update we were at a 175. We're now kind of on the books for 300 and we've got another 200 of wood to chop. And we hope to know about that in the next I'd say, two weeks or so. Yep. And then, Colin, with regard to your question in terms of what rolls on, right, assuming that all comes in, we've indicated that about 300 million of that $500 million comes in 2027. And the other rest of it, the run rate full run rate comes in, in 2028. Yeah. Think that's a good point. I mean, we really don't see that some of it's already launching any of that really pushing out into '29. I mean, in this year with a lot of it now coming on in '28. So it is known booked revenue. We're spending capital now and launching up now to be able to roll it on in '27. Colin Langan: Just to quickly clarify the win that you're hoping to get from the domestic going from Mexico to the U.S. Is that in the 500 already? Or is that that would be incremental? Jerome Dorlack: Yes. So that would be in the 500. That would be the bridge from kind of 300 on the books going to 500. Colin Langan: Okay. Got it. Alright. Thanks for taking my questions. Thank you. Operator: Thank you. The next question is from Nathan Jones with Stifel. Your line is open. Andres (for Nathan Jones): Good morning, everyone. This is Andres on for Nathan Jones. Thanks for taking my question. Regarding Europe restructuring spend, can you please provide an update as to the progress you're making in restructuring the European business? Mark Oswald: Yes. So what we've indicated in the past and what we've guided to looking forward, right, if you look at the elevated spend last year call it, you know, around that 130 million-ish, most of that was in Europe. This year, '26, another, call it, $120-130 million in restructuring primarily Europe. We didn't indicate that that goes down in fiscal year 2027. Beyond that, we said it's very hard for us to give you a good line of sight because a lot of any type of restriction that goes out beyond '27 is really dependent on what our customers do with their programs. Right? So we're in active discussions with them just looking to see you know, end of production for certain programs, what new programs might be rolling into plants. So really, we'd love to be able to tell you what's happening in 2028 and 2029. There's gonna be restructuring. It's just a question of the magnitude of that. And, it's really relative to what our customer production plans are. Andres (for Nathan Jones): Awesome. Thank you. And then just one more, that's helpful. Asia adjusted EBITDA declined 7 million driven by increased engineering spending for new programs. Should this be expected to continue, sustain? Just trying to get a better idea as to the timing there. Mark Oswald: Yeah. I'd say that overall, APAC, right, if I look at business performance, that's gonna be positive. For full year '26. Clearly, there's gonna be quarters where you have increased launch and engineering costs. Again, those are gonna be offset as I go through the quarter with, you know, other ops other efficiencies that roll on. But we did indicate that net engineering and launch were going to be higher this year as we continue to grow out and spend for the growth. Andres (for Nathan Jones): Got you. Thank you. Appreciate it. Thanks for taking the questions. Thank you. Operator: The next question is from Emmanuel Rosner with Wolfe Research. Your line is open. Emmanuel Rosner: Great. Thank you very much. I was hoping to ask you about the commercial settlement. I think it's you mentioned it in a few slides as a factor in terms of at least timing and sometime magnitudes. Can you just help us understand if you know, the magnitude of it is beyond what's usual sort of like this year, if that's know, like, helping the Outlook or if you're just flagging it as essentially a cadence or calendarization impact. Mark Oswald: Yeah. Emmanuel, it's a good question, and thanks for the call and I'd say it's more of timing and cadence know, as you know, our business you know, is a transactional business. There's always certain commercial negotiations that are planned for the year. So we did have what I'd say a bucket of what I'd say planned commercial actions that the team had to go out there and get. Obviously, first quarter was benefited from, I'd say, the timing pull forward or certain of those commercial actions. Nothing that I would say is extraordinary versus what we were planning within the original '26 plan. Emmanuel Rosner: Okay. And then if we were trying to think about you know, fiscal twenty-six as sort of like a bridge sort of like in future years. Are there any sort of extra recoveries expected this year that we shouldn't be capitalizing, or is that sort of no more course of business? Mark Oswald: Say normal course of business. Emmanuel Rosner: Okay. Understood. Help me out with this because I don't wanna do anything more. I also wanted to ask you about the Asia business. Obviously, joint venture income, trending in the right direction. Can you just remind us when does Adient plc get, the cash from the, the joint venture? Mark Oswald: Yes. So it depends on the joint venture, right? So we have them cadenced throughout the course of the year. So in the first quarter, we'll get certain dividends in. If you look at our largest joint venture over Kuiper, right, that's typically back half weighted. Terms of when the dividends come in. Emmanuel Rosner: Understood. Thank you. Jerome Dorlack: Thank you for the questions, Emmanuel. Operator: Thank you. The next question comes from Joe Spak with UBS. Your line is open. Joe Spak: Hey, good morning, everyone. Wanted to just go back to the growth opportunities know, and I know you gave a lot of good color here, but it does seem like maybe the pie is also growing, right, versus sort of what you indicated prior? And, like, I just wanna get your sense of sort of you know, whether you think most of these reshoring decisions, least, on production, maybe not sort of the sourcing for that production is done more. Or if there if you're continuing to see customers look to or to move more here so that could maybe grow over time even if it doesn't come in necessarily in a 27 time frame. And then on the EMEA portion, you mentioned, you know, accretive balance in balance out and, you know, that that's long been part of the plan, but it's been delayed. And are you implying that you now see better line of sight to that really start to kick in in '27 where margins can start to move higher? Jerome Dorlack: So first, for the questions in both are really good questions. On the near shoring or maybe on shoring, I think, we see an acceleration in the discussion with our customers on onshoring opportunities. And what we've highlighted today are ones that we are actively in the quote process or awarded on. And that's what kind of totals to that 400 to $500 million including the conquest wins. That said to your point, we are seeing more activity with the particularly with the Japanese OEMs where we are very well positioned given our long-term partnerships with those customers for additional potential volume growth in the twenty-eight 'twenty-nine timeframe. Whether that be you know, some of their vehicles kind of two and three-row SUV type things. That they're looking to move back here. I do think there is that potential. A lot of it will come down to their capital allocation decisions and long-term where does USMCA set up next generation. So I think as they make their footprint decisions over the next possibly six to eight months that will then influence their loading of their vehicle assembly plants. What's key for us is given those relationships, given where our JIT facilities are, and given how well we service them, we are ideally suited to be able to capitalize on that growth. And so I do think we see a potential tailwind even beyond what we've talked to today. And there'll be more to come as they make their slotting decisions. So yes, I do think there is potential there. On your second question on EMEA, we are getting a greater line of sight on some of the roll-on roll-off. I think as we look into fiscal year twenty-seven and 'twenty-eight, we do see recovery. Mark and I have been talking to you about the recovery, you know, in the balance in balance out. So it's not anything that's going to be above and beyond, you know, what we've been speaking know, seeing in other call it, you know, 25, 50 basis points as we move out of 26 into 27 and just continue to slug through that region there. I just think it's getting the credibility in our customers' ability to launch the programs there. Certainly, the new business that we're bidding, new business that we're rolling on is coming on at accretive margins. It's just the timing associated with it. And what's really driving the timing is our customers launching programs over there is the different legislation around emissions you know when are they going to phase out the current products and are their current products competitive or not? And then what's happening, especially in the A and B segment, with respect to Chinese onshoring, are they competitive or aren't they? And they're really evaluating things that I have in the pipeline are they competitive? And if they're not they're going back to the drawing board, scrapping them, which is leading to delays in their product cycle which is leading to our delays and our ability to then launch some of these new projects. Hopefully, that answers your question. Joe Spak: Yeah. No. That it it it does. I I appreciate that. Maybe just as a second question, and sort of a quick follow-up to your recoveries comment. I just like, it it does seem like it helped the the results in the quarter from an earnings perspective. You just help me understand minus $37 million outflow you're showing in the cash from commercial negotiations. Like, is that just timing of when like, you're booking that versus the cash? Like, I I just any color on that be helpful. Mark Oswald: It really is, Joe. So, again, as I indicated, yes, it did benefit the quarter helped offset some of the operational inefficiencies. But again, it was pulled ahead either from a Q3 or a Q4 or Q2 timing right into Q1. So again, over the course of the year, it's no more than what we are expecting from a commercial. And again, whenever we have commercial recoveries, there's always a timing mismatch between what we're trying to recover versus when that expense or when that cost actually had. Tariffs is a perfect example, right? We'll have a tariff impact in our financial but yet we don't get the recovery for that for several quarters after that right. So it's normal course, but I'd say timing. Joe Spak: So that also helps the free cash flow cadence in the back half. What because that that's when you expect to get that. Okay. Thank you. Operator: Thank you. And as a reminder, if you would like to ask The next question comes from Andrew Percoco with Morgan Stanley. Your line is open. Andrew Percoco: Great. Thanks so much for taking the question this morning. I do just want to come back one more time to the Europe dynamics. It sounds like you're expecting some improvement in that market in 2027. But your prepared remarks, you talked about how one of the headwinds is essentially the China import volumes into that market, that doesn't seem like something that is maybe going to slow anytime soon. So I guess my question would be, you know, what are you doing to essentially either buffer yourself or manage margins if that continues? And I guess maybe a second part to that question would be, is there an opportunity to those customers? Obviously, you've seen some success with the domestic, China OEMs in China. But as they export more volumes to other markets, I'm just wondering if there's an opportunity to be a supplier of choice there, and that might help, you know, in terms of the margin improvement in that market. Thank you. Jerome Dorlack: Yeah. So I think there's two ways that we think about addressing that. So the first one is understanding where the Chinese exports are coming into Europe, what segments they're attacking there, and trying to insulate ourselves from the segment. So primarily as they're coming into Europe, they're heavy on the A and B segment. And so we've been very focused on going up segment. If you look at a lot of our conquest wins in the region, you know, they've been with say, 10, call it, you know, C segment luxury segment Porsche vehicles, the higher-end segment Volvo high segment type of platforms. And so business that's rolling on we talked with didn't give the platform name. We're in the middle of a complex launch. With the German OE at the moment that's on a very high-end segment type of vehicle. So it's going up segment on vehicles that are insulated at the moment from the Chinese where the Chinese are succeeding. Within Europe. So that's one way that we're going about it. Another way that we're going about it is as the Chinese are localizing within Europe we're able to win components business there. We're also able to bid on some of the JIP products and win some of the JIP content where possible. That's another avenue that we're able to actually attack and benefit from some of that. And then the last way that we see is where possible what vehicles are the Chinese exporting into China? From you know exporting into Europe from China and can we win share there. In some cases, because the large exporters would be with SAIC, And SAIC is historically one of our competitors' territory, Yingfeng. So that's not that's not territory that Adient plc plays in. But when it's a Neil, or when it is a you know I'll point to say Geely as you know as an example. And we've just recently signed a joint venture with one of Geely's largest seating suppliers that we're able to capitalize on. And that will give us access into that export market. And that's why we were very strategic in signing that joint venture to be able to gain access into the export market for vehicles that are exported into Europe. And so it really is kind of a three-layered approach into looking at it. You know? Insulate ourselves from the segments that are being attacked, Where we can't do that, can we gain components on vehicles that are being produced in there? And then looking at what vehicles are being exported can we gain content directly on the export vehicles? Andrew Percoco: Got it. Okay. That's super helpful context. And maybe just continuing on the onshoring debate and opportunity, I guess, I'm curious, and this may be a few years out, but I'm curious to what extent you're hearing or having conversations with the China domestic OEMs in terms of their aspirations to come to the U.S. or Canada market. Obviously, recently Canada making a deal with China on reducing tariffs on EVs. I'm just wondering if that's going to become a bigger opportunity for you guys going forward and if starting to have those preliminary conversations. Jerome Dorlack: Yeah. So maybe so the first thing I would say, and it's know, because you had said, you know, on the onshoring debate that mean, I just wanna be very very clear. I mean, there is no debate. Adient plc will be a net beneficiary from onshoring. I mean of all the seating suppliers we will be a net winner from onshoring. It's already being shown today we will be a net beneficiary, net winner from onshoring. I mean that's already shown and that trend will continue. Secondly to your question then, as it pertains to you know, the Chinese kind of coming to whether it be Canada or Mexico, I think Mexico is another potential depending on how USMCA plays out. And if the U.S. leverages Mexico into putting tariffs on. I mean we are working through our China because there's such strong ties in China. With some of those OEs that may explore a relationship with Canada or with So absolutely we're having those discussions you know with the BYDs of the world with the GLEs of the world on you know if they want to go to Canada or if they want to go to Mexico we could be there to service them. The question is what is their real appetite for doing so? But if they want to explore that we would absolutely be able to service them. The question is do they want to? And what are those long-term trade and industrialization ties look like? But absolutely, because of our strong strong relationships in China we are able and we do have those discussions. Andrew Percoco: Okay, great. Thank you so much. Jerome Dorlack: Yes. Thank you for the questions. Operator: Thank you. The next question comes from Dan Levy with Barclays. Your line is open. Dan Levy: Hi, great. Good morning. Thank you for taking the question. Wanted to first start with a question on your equity income and specifically the margin dynamics. This quarter was especially strong higher equity income despite lower revenue. And I think this is interesting in context of our understanding that some of the increased China business was supposed to roll on at lower margins. So maybe you could just talk through what occurred in the first quarter on the China equity income and how we might expect some of the margin dynamics to play out as you get some of this new China business? How margin dilutive is it? What's your confidence that the net profit will, in fact, be better? Mark Oswald: Yes. So maybe a couple of points there. Dan, and thanks for the question. We talk about the new business rolling on in China which would result in what I'd call manageable compression in our margins over there. That's really the consolidated business, right? So think of that, whether it's business with the Chinese locals that we're funneling through our consolidated sales, consolidated EBITDA, etcetera. In China. The equity income piece, that's really derived from our joint ventures right, like with Piper, certain of the other joint ventures that we have over in EMEA. Those sales, as I mentioned in my prepared comments, were actually higher this quarter. And so again, it drove my performance and my better operating performance at those joint ventures. Right? Piper being one of those joint ventures. So I think it's important to differentiate between each of those buckets, the consolidated piece as well as the unconsolidated piece. Dan Levy: Great. Understood. Thank you. And then second, wondering if you could just comment on one of your competitors who reported this morning pointed to a large conquest win for, complete seats on a US automaker's truck program. I know you gave some positive updates here on shoring, but maybe you could just talk about maybe some of the dynamics within sourcing or large trucks, which we know are a key program for you and also for you know, this competitor as well on some of the other platforms out there? Just if you could comment, on that development from them. Jerome Dorlack: Yeah. I mean, I think what you're getting at do we lose any large truck programs? And so there's we haven't lost any large truck programs. I think their win isn't reflective of any Adient plc losses. So I would anticipate that it is something that one of our competitors has lost. Which you guys know the market pretty well so you can where that loss would have come from. But I think stepping back more strategically and saying what does this mean for the market? First of all congratulations to Ray and Frank and Jason up there in Southfield. And I mean that. I think more strategically though what it means for the market is, and this is what I think both they've been saying and we've been saying is, this is a market that needs consolidation. You know, the competitor who had that business we have been actively conquesting their business. Know, we've conquested a large portion of their other business that sits in other portions of The U.S. So we've taken quite a few of their dots off the map. We've taken dots off of their map elsewhere. And I just think it's representative of a larger symptom of what needs to happen in seating which is consolidation. And so I think you know, for them I think it's I'll assume it's a good thing. And I think for seating, the more of this that can be forced through consolidation is generally what needs to occur in the space. But for Adient plc it's a it's no impact. It isn't anything that we had. It's none of our business. In terms of anything that we were an incumbent on. Dan Levy: Great. Thank you. That's helpful insight. Operator: And there are no further questions. Perfect. Thanks, Denise. Linda Conrad: And so, in closing, I want to thank everyone once again for your interest in Adient plc. If you do have any follow-up questions, please feel free to reach out to me. Also, would like to acknowledge that we will be in New York City next week. Participating at the Wolf Conference and hope to see many of you then. With that, operator, we can close out the call. Operator: Thank you. This does conclude today's call. We thank you for your participation. At this time, you may disconnect your lines.
Operator: Hello, and thank you for standing by. Welcome to Enact's Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions] I would now like to turn the call over to Daniel Kohl. You may begin. Daniel Kohl: Thank you, and good morning. Welcome to our fourth quarter earnings call. Joining me today are Rohit Gupta, President and Chief Executive Officer; and Dean Mitchell, Chief Financial Officer and Treasurer. Rohit will provide an overview of our business performance and progress against our strategy. Dean will then discuss the details of our quarterly results before turning the call back to Rohit for closing remarks. We will then take your questions. The earnings materials we issued after market closed yesterday contain our financial results for the quarter, along with a comprehensive set of financial and operational metrics. These are available on the Investor Relations section of our website. Today's call is being recorded and will include the use of forward-looking statements. These statements are based on current assumptions, estimates, expectations and projections as of today's date. Additionally, they are subject to risks and uncertainties, which may cause actual results to be materially different, and we undertake no obligation to update or revise such statements as a result of new information. For a discussion of these risks and uncertainties, please review the cautionary language regarding the forward-looking statements in today's press release as well as in our filings with the SEC, which will be available on our website. Please keep in mind the earnings materials and management's prepared remarks today include certain non-GAAP measures. Reconciliations of these measures to the most relevant GAAP metrics can be found in the press release, our earnings presentation and our upcoming SEC filing on our website. With that, I'll turn the call over to Rohit. Rohit Gupta: Thank you, Daniel. Good morning, everyone. Enact delivered a very strong finish to 2025 that reflected the disciplined execution of our strategy, robust credit performance and our commitment to shareholder value creation. For the full year, we reported adjusted operating income of $688 million or $4.61 per diluted share. We returned over $500 million of capital to shareholders and the year-end adjusted book value per share increased 11% to $37.87. Before discussing the quarter, I want to take a moment to highlight some of our accomplishments in 2025. In a complex housing environment, we helped over 134,000 borrowers buy a home and over 16,000 borrowers keep their home. We continue to innovate our risk selection and pricing capabilities, leveraging advanced modeling and machine learning to deploy the latest version of our pricing engine, Rate360. We generated $52 billion of new insurance written and ended the year with record insurance in-force of $273 billion. We maintained our commitment to expense discipline with full year operating expenses at $217 million, excluding restructuring charges. We delivered record levels of capital returns to our shareholders, and we enhanced our financial flexibility by entering a new $435 million revolving credit facility and protected our forward books at attractive cost of capital through new CRT deals. Our execution continued to be recognized by the market, evidenced by receiving multiple credit ratings upgrades. Finally, Enact received multiple industry and local awards, a testament to our commitment to excellence and providing an exceptional employee experience. Taken together, these accomplishments underscore the progress we made in 2025 and reinforce our confidence in Enact's long-term strategy. Turning to our fourth quarter results. We reported adjusted operating income of $179 million or $1.23 per diluted share, while adjusted return on equity was 13.5%, and we generated robust new insurance written of over $14 billion, driven by an increase in refinance originations as mortgage rates declined. However, 59% of loans in our book have rates below 6%, providing support for continued elevated persistency. The long-term drivers of housing demand remain strong, and we are confident that mortgage insurance will continue to play an essential role for both buyers and lenders. Pricing remained constructive in the quarter, and our dynamic risk-adjusted pricing engine, Rate360 is enabling us to prudently price risk with discipline as market conditions continue to evolve. Our insurance in-force portfolio remains resilient with risk-weighted average FICO score of 746. The risk-weighted average loan-to-value ratio was 93% and layered risk was 1.2% of risk in-force. Cure performance continues to outperform our expectations, driven by favorable credit performance and effective loss mitigation efforts. This resulted in a net reserve release of $60 million in the quarter, partially driven by a claim rate reduction from 9% to 8%. Dean will touch more on this shortly. We also continue to advance our capital allocation priorities of supporting existing policyholders by maintaining a strong balance sheet, investing in our business to drive organic growth and efficiencies, funding attractive new business opportunities and returning excess capital to shareholders. At the end of the quarter, our PMIERs sufficiency ratio was 162%, providing significant financial flexibility and our credit and investment portfolios are in excellent shape. Our strong capital position is further reinforced by the effective implementation of our CRT program and the backing of our credit facility. We continue to make steady progress against our strategic initiatives, advancing innovation in the MI business and continuing to expand into attractive adjacencies. Enact Re continued to perform well and participated in attractive GSE single and multifamily deals in the quarter while maintaining strong underwriting standards and generating attractive risk-adjusted returns. Enact Re remains a long-term growth opportunity that is both capital and expense efficient. Finally, as it relates to capital returns, during the fourth quarter, we returned $157 million to shareholders through share repurchases and dividends. We remain committed to our capital allocation priorities, and we are pleased to announce our 2026 capital return expectations of approximately $500 million. Additionally, we issued a press release last night announcing that our Board of Directors authorized a new share repurchase program that is the largest in Enact's history. In closing, we believe we are well positioned to continue navigating the uncertain macro environment, supporting our customers and delivering sustainable value for shareholders, none of which would be possible without the hard work and talent of our employees, and I would like to take a moment to thank them for their continued efforts and contributions. With that, I will now hand the call over to Dean. Hardin Mitchell: Thanks, Rohit, and good morning, everyone. We are pleased with the very strong results we delivered in the fourth quarter of 2025, which concluded an excellent year for Enact. Adjusted operating income was $179 million or $1.23 per diluted share compared to $1.09 per diluted share in the same period last year and $1.12 per diluted share in the third quarter of 2025. Adjusted operating return on equity was 13.5%. For the full year, adjusted operating income totaled $688 million or $4.61 per diluted share compared to $718 million or $4.56 per diluted share in 2024. A detailed reconciliation of GAAP net income to adjusted operating income can be found in our earnings release. Turning to the fourth quarter. New insurance written was $14 billion for the fourth quarter, up 2% sequentially and up 8% year-over-year. This new business is well priced, has a strong credit risk profile and is comprised of loans that are well underwritten to prudent market standards. Persistency was 80% in the fourth quarter, down 3 points sequentially and down 2 points year-over-year on lower prevailing mortgage rates. While mortgage rates have fallen recently, only 22% of our mortgages in our portfolio have rates at least 50 basis points above December's average of 6.2%, providing support for continued elevated persistency. The combination of solid new insurance written and lower but still elevated persistency drove primary insurance in-force of $273 billion in the fourth quarter, up $1 billion from the third quarter of 2025 and $4 billion or approximately 1% year-over-year. Total net premiums earned were $246 million, up $1 million sequentially and flat year-over-year. Our base premium rate of 39.6 basis points was down 0.1 basis point sequentially, in line with our expectations. As a reminder, our base premium rate is impacted by several factors and tends to modestly fluctuate from quarter-to-quarter. Given our current expectations for the MI market size and mortgage rates, we anticipate our base premium rate in 2026 to be relatively flat versus 2025. Our net earned premium rate was 34.8 basis points, down slightly sequentially, driven by higher ceded premiums. Investment income in the fourth quarter was $69 million, flat sequentially and up $6 million or 10% year-over-year. Our new money investment yield of approximately 5% contributed to an increase in the weighted average portfolio book yield of 4.4% for the quarter. While we typically hold investments to maturity, we may selectively pursue income enhancement opportunities. During the quarter, we sold certain assets that will allow us to recoup realized losses through future higher net investment income. Turning to credit. We continue to see strong loss performance across our overall portfolio. New delinquencies increased sequentially to 13,700 in the quarter from 13,000 in the third quarter of 2025, in line with expected seasonal trends. Our new delinquency rate for the quarter remained consistent with pre-pandemic levels at 1.5%, an increase of 10 basis points from the third quarter of 2025 and flat versus the fourth quarter of 2024. Total delinquencies in the fourth quarter increased sequentially to 24,900 from 23,400 as news outpaced cures and the delinquency rate increased 10 basis points sequentially to 2.6%. Losses in the fourth quarter of 2025 were $18 million, and the loss ratio was 7% compared to $36 million and 15%, respectively, in the third quarter of 2025 and $24 million and 10%, respectively, in the fourth quarter of 2024. We reduced our claim rate in the quarter for new and recent delinquencies from 9% to 8% after factoring in the continued strong cure performance sustained throughout 2025. We believe the 8% claim rate is well aligned with the current macroeconomic uncertainties and remains consistent with our measured and prudent reserve philosophy. The net reserve release of $60 million in the fourth quarter was driven by favorable cure performance, our loss mitigation activities and the reduction in our claim rate assumption. This compares to reserve releases of $45 million and $56 million in the third quarter of 2025 and fourth quarter of 2024, respectively. We maintain our focus on disciplined cost management in 2025. Operating expenses for the fourth quarter of 2025 were $59 million, and the expense ratio was 24% compared to $53 million and 22%, respectively, in the third quarter of 2025 and $57 million and 24%, respectively, in the fourth quarter of 2024. For the full year, our operating expenses of $218 million or $217 million, excluding reorganization costs, were favorable to our updated guidance of approximately $219 million. For 2026, we anticipate an operating expense range of $215 million to $220 million, excluding any reorganization costs as we continue to prudently manage our expense base, balancing our continued focus to drive further efficiencies in our business while also investing in our growth initiatives. We continue to operate from a strong capital and liquidity position reinforced by our robust PMIERs sufficiency and the successful execution of our diversified CRT program. Our PMIERs sufficiency was 162% or $1.9 billion above PMIERs requirements at the end of the fourth quarter. And as of December 31, 2025, our third-party CRT program provides $1.9 billion of PMIERs capital credit. Turning now to capital allocation. During the quarter, we paid out $30 million or $0.21 per share through our quarterly dividend, and we bought back 3.4 million shares at an average price of $37.66 for $127 million. For the full year 2025, we returned $503 million to shareholders. $121 million through our quarterly dividends, and we repurchased 10.5 million shares at an average price of $36.25 for a total of $382 million. Through January 30, we have repurchased an additional 0.8 million shares for $31 million. For 2026, we expect capital returns of approximately $500 million. As in the past, the ultimate amount and form of capital return to shareholders will be dependent on business performance, market conditions and regulatory approvals. As we announced yesterday, the Board has authorized a new $500 million share repurchase program and declared a quarterly dividend of $0.21 per common share payable March 19. Overall, we are pleased with our performance in 2025, and we believe we are well positioned for another strong year in 2026. We remain focused on prudently managing risk, maintaining a strong balance sheet and delivering solid returns for our shareholders. With that, let me turn the call back to Rohit. Rohit Gupta: Thanks, Dean. Looking ahead to 2026, our strong balance sheet, the portfolio's significant embedded equity and our disciplined operating approach position us to effectively navigate uncertainty and capitalize on long-term opportunities. Additionally, demographic tailwinds, particularly among first-time homebuyers, support long-term demand for housing and for private mortgage insurance. Finally, as housing affordability and supply constraints shape policy discussions, we continue to actively engage with our lending partners, the GSEs, the FHFA and the administration and believe we remain well positioned to navigate and adapt to an evolving policy environment. We remain committed to helping people responsibly achieve the dream of homeownership and deliver long-term value for all our stakeholders. Operator, we are now ready for Q&A. Operator: [Operator Instructions] Our first question comes from the line of Doug Harter with UBS. Douglas Harter: Appreciate the guidance on the capital return. In the past couple of years, you were able to exceed your initial capital return goal. Like how do you think about the sensitivities to that capital return goal for 2026? And what could cause that to come in better? Or what would be the factors that might cause you to need to slow it down? Hardin Mitchell: Yes, Doug, it's Dean. Thanks for the question. Yes, we're -- much like we said in our prepared remarks, we set a capital return guidance for the beginning of the -- at the beginning of the year. We're very confident in delivering $500 million back to shareholders. But we'll continue to evaluate dynamics in the marketplace, namely our business performance, how the business continues to perform, how we continue to grow the business and certainly loss performance during 2026. We're also going to be looking at the macroeconomic environment. Obviously, we're looking at the prevailing macroeconomic environment, the uncertainties that exist today and still feel confident in our ability to return $500 million, but we're going to look and see how that evolves over the course of the remainder of the year, and that can have an effect. And then lastly, and maybe a little bit less in this market right now is the regulatory environment. Is there anything going on either in the context of PMIERs or with the state regulatory environments or otherwise that would cause us to rethink and adjust our planned $500 million capital return in 2026? But we're confident that right now, given those dynamics, we're confident in the ability to return $500 million to shareholders in 2026. Operator: Our next question comes from the line of Mihir Bhatia with Bank of America. Mihir Bhatia: I wanted to start actually where you ended that last answer, Dean, just about regulatory environment. Obviously, I think everyone has been hearing about a potential for an FHA rate cut, affordability agenda and other such things. Are there a few things that you guys are particularly paying attention to from a regulatory or government action standpoint that maybe are worth highlighting for investors that we should just keep an eye out for? Rohit Gupta: Mihir, thank you for the question. This is Rohit. I would say we remain actively engaged with the new administration, and that includes treasury, FHFA, the GSEs as well as policymakers. And our focus continues to be on the topics that are in discussions. So on the most macro basis, we are talking about limited inventory challenges as well as affordability challenges. So as ideas come up, we actually provide our input on the pros and cons of those ideas, but also equally important in our market, we provide input on implementation of those ideas and what that entails. So the ideas like credit scores come up, what are the pros and cons of different credit score ideas, all the way to some of the recent ideas that are being discussed on the announcement of GSEs buying mortgage-backed securities, and on institutional investors buying single-family homes. So I would say those ideas are more in the water table as already announced. Any future ideas that come up, and there's a list of ideas that you mentioned that are in discussion, we are actively engaged on all those places. I wouldn't call out any specific idea which is high up on the list from an execution perspective. I think it's just a list of ideas right now. So that's how I would frame it. Mihir Bhatia: Okay. And then maybe just like a little bit more just from 2026 thoughts. What type of mortgage market are you planning for in 2026? What does that mean for NIW or insurance in-force? I think you talked about premium rate and OpEx, but just like what are you assuming for the mortgage market and NIW in that scenario? Rohit Gupta: Yes. Yes, Mihir, thank you for the question. So I would say in this environment, when there is a good amount of rate volatility and mortgage rate volatility, specifically, it's tough to forecast originations. So I'll just give you that caveat upfront. But with that being said, we look at external originations forecast to figure out what the market originations are, overall mortgage originations are and just to kind of index the market on the purchase origination side. So our take is that 90-plus percent of the market in 2025 was -- for MI market size was purchase origination. And if you look at 2026 purchase originations forecast in the market between Fannie Mae, MBA, Moody's, you see a range of an 8% increase all the way to a 24% increase between those 3 external parties. So as we think about those external forecasts and convert that to a mortgage insurance market, we can see an increase of approximately 10% to 15% from 2025 to 2026. Again, with the caveat being that that's based on our current forecast of mortgage rate expectations, affordability expectations, but that environment continues [ to be ] dynamic. So as the environment evolves, we will come back and update that forecast. But at this point of time, that feels like the most updated view for us. Mihir Bhatia: Right. No, that's quite helpful. And just one last one for me, and then I'll get back in queue. Just on default rates, where do you think they trend from here? Is it just like you read stability and seasonality from here? Anything we should be keeping in mind, whether from a vintage seasoning, vintage size type of view? Hardin Mitchell: Yes, Mihir, it's Dean again. From a delq rate perspective, I think we're seeing what we would expect to see. So just in terms of vintage contribution to delq rates, you continue to see book years age up their loss development pattern. And so as newer books season or age towards higher parts of the loss development patterns, they're contributing more delinquencies as you would expect to the overall delq rate. I think the portfolio now stands at about 4 years, about 4.1 years on a weighted average basis. That's kind of towards that plateauing of the loss development pattern, the normal loss development pattern. So I think what we'd expect heading into -- before we get to '26, what we saw in '25 is kind of in line with what we expected. We expected year-over-year change in new delinquencies to slow. From '23 to '24, it was in the mid-teens. When you went from '24 to '25, it was in the mid-single digits. So very much in line with expectations. I think as we think about going from '25 to '26, we could still see it continue to moderate. So might still increase in terms of new delinquencies year-over-year, but moderating from its current level, recognizing that year-over-year, there were only 2,000 incremental new delinquencies. So we're dealing with pretty small numbers. Operator: Our next question comes from the line of Rick Shane with JPMorgan. Richard Shane: Look, in some ways, you guys have 2 books. You have the sort of pre-'22 legacy book with credit that's going to be sort of best in a generation. You have a subsequent book that I think is evolving to be in line to better with your sort of underwritten expectations. As you look at the second part of that book, the front book, I am curious if you can sort of put credit performance in some terms versus your expectations, how are things tracking? But specifically, are there things that you are seeing within certain cohorts, whether it's DTI, LTV, geography that are stand out in terms of elevated risks? Hardin Mitchell: Yes, Rick, it's Dean. Thanks for the question. If we think about vintage performance, I'd probably start off by saying it's kind of redundant to your question a little bit. But let me start off by saying all of our recent book years have been performing in line with or better than our pricing expectations. Obviously, to your -- a little bit underpinning your question, our newer books, so I think 2022 through 2024 have been originated in primarily a purchase market, which tend to have higher risk attributes like a little bit higher LTV, a little bit higher DTI than refi market. And in addition to that, they have had much more modest home price appreciation and in certain instances, depreciation depending on the geography compared to prior book years. We price for those attributes. So we price for our view of risk. We price for our future view of home prices, all in an objective to achieve an attractive return on equity. So on new vintages, we haven't seen performance differ from our pricing expectations that we established at policy inception. And we still believe we're onboarding the right risk at the right price, if you will, across vintages, across book years based on vintage performance to date. Yes, are there differences across attributes? Of course, risk attributes matter, geographies matter. Again, we factor that in our price, and we haven't seen anything that worked against our expectations and created negative variation. Richard Shane: Got it. And anything going forward that you're going to be -- and I realize you have to be sensitive about this from a competitive perspective. But any areas that you would highlight where you're being a little bit more circumspect about risk? Hardin Mitchell: Yes. I mean we don't want to go into our pricing schema, if you will. But let me just -- I mean, I think it's the things that you would expect, Rick. So there are certainly areas of the country where housing supply has increased and home prices have either moderated or declined. I think parts of the Sunbelt, particularly kind of Florida, Texas, California, Arizona, I don't think those are states that would surprise you as having pulled back a little bit in terms of home prices. That's in contrast to the Northeast, where you still have low housing supply and home prices continue to appreciate pretty meaningfully. So we're monitoring housing markets as an example of something that we're keeping our eye on for affordability, supply-demand dynamics, and we'll continue to consider that as we think about how to, again, crystallize our philosophy of the right risk at the right price. Rohit Gupta: And Rick, just to add to Dean's point, we have talked about this in the past and also mentioned it in our prepared remarks on the call. We have very deep analytics and a lot of capabilities even from a forecasting perspective to incorporate those views in our pricing, and we have the ability to make those pricing changes on a very frequent basis when we think those are appropriate. So to Dean's point, not only historically speaking, but also looking forward, we continue to incorporate that view of risk, performance, geographic differences or risk attributes at a loan level into our pricing. And now we have the mechanism to charge that price at a very granular level. Operator: Our next question comes from the line of Bose George with KBW. Bose George: Actually, on expenses, you guys continue to do a good job there, kept it flat now for a few years and it seems to be the case again in '26. Is technology the main driver? And then longer term, could we see the expense ratio continue to decline as expenses stay flattish or at least increase by less than revenues? Rohit Gupta: Yes. Thank you, Bose. I appreciate your question. So I would say from an expense perspective, you are correct. We have actually not only kept our expenses flat in the last year -- 2 years, but since our IPO, our expenses are -- on a dollar basis are probably down $30-plus million on an annualized run rate basis. So we continue to invest in technology, invest in different amounts of innovation to drive that improvement. And that is meant to drive all aspects of our business, drive productivity, drive better customer experience and drive smarter decisions. So when you think about our expenses in 2025 coming in below our original guidance, that is driven by us actually harvesting those benefits, harvesting those gains from our investments, and we see the same thing happening in 2026. Now in terms of long-term expectations on expense ratio, I think it's tougher to give that guidance. Our aspiration is to always be prudent managers of expenses. So yes, we will always try to actually improve our expense ratio, both through growing our premiums by actually getting to a larger, more profitable book and at the same time, getting the right efficiencies from the business. But how those premiums play out and how those expense dollars play out are difficult to forecast beyond 2026. So yes, directionally, you're absolutely correct. And then as we navigate through '26 and get to '27, we'll provide updated guidance. Bose George: Okay. Great. And then just on the reinsurance transactions that you guys did, can you just talk about the attachment and detachment points? And then how is the pricing on that market, just the trend in pricing? Hardin Mitchell: Yes, Bose, we -- so let me start with the pricing, and then I'll go to the nature of the agreement. From a pricing perspective, we're seeing a tremendous amount of demand in the traditional reinsurance market for mortgage credit default risk. That has benefited the terms of our -- some of our most recent reinsurance transactions going all the way back to the coverage we've secured on both the 2026 book as well as now the 2-year forward 2027 book. So we've typically talked about that in low to mid-single digits cost of capital. If you go prior to those transactions, we were probably on the higher end of that cost range. In these most recent transactions, we're on the lower end of that continuum from a cost range perspective. From an attachment and detachment perspective, our objective with our CRT program and certainly our CRT transactions is twofold. It's to provide cost-efficient capital relief and also obviously to protect the balance sheet from a volatility perspective. If we think about that first objective, what that means for our XOLs is we secure coverage inside the PMIERs tier. And so we typically attach around the 3%. It's not always 3% of our risk in-force, but it's generally in that ballpark and then detach within PMIERs, and that's typically, again, PMIERs requirements on new business are generally around that 7%. So you can see our transactions evolve through time. But generally, in broad strokes, attachment and detachment around those points that I just gave you, Bose. Operator: Ladies and gentlemen, I'm showing no further questions in the queue. I would now like to turn the call back over to Rohit for closing remarks. Rohit Gupta: Thank you, Towanda, and thank you, everyone. We appreciate your interest in Enact, and I look forward to seeing many of you this quarter in Florida at UBS' Financial Services Conference on February 9 and at Bank of America's Financial Conference on February 10. We also plan to attend the RBC Capital Markets Global Financial Institutions Conference in New York on March 11. With that, we will wrap up the call. Thank you. Operator: Ladies and gentlemen, that concludes today's conference call. Thank you for your participation. You may now disconnect.
Jutta Mikkola: Hello, everyone, and welcome to Stora Enso's Q4 and Full Year Results Presentation. I'm Jutta Mikkola, Head of Investor Relations, and I'm delighted to be joined here today with our President and CEO, Hans Sohlstrom; and our CFO, Niclas Rosenlew. We're kicking off the webcast with our clear theme, sharpened strategic focus. It reflects the work we've done throughout 2025 and the momentum we are carrying into 2026. Today, we'll start with Hans, who will walk you through the key highlights and our strategic priorities. After that, Niclas will take you through our financial performance and we'll close with the main takeaways and what's ahead of us in 2026. Once we've covered everything, as usual, we'll open the floor for your questions. Thank you for joining us. Great to have you with us. Over to you, Hans. Hans Sohlstrom: Thank you, Jutta, and hello, everyone. Great to have you with us. 2025 was a pivotal year for Stora Enso, marked by decisive actions to sharpen our strategic focus and unlock long-term value for our shareholders. In Q4, we completed the strategic review of our Swedish forest assets, a major milestone and begun the separation to form 2 strong companies, a leading renewable materials company with a sharpened focus on packaging and Europe's largest listed pure-play forest company. We also launched a strategic review of our Central European sawmills and building solutions operations to further focus our portfolio. Despite a challenging environment during 2025, we delivered resilient results with a sales of EUR 9.3 billion and EBIT of EUR 528 million. We continued ramping up the Oulu consumer board line, a key part of our renewable packaging strategy throughout 2025. This weighted on our earnings by EUR 140 million in total during the year, but strengthens our long-term position and competitiveness. Excluding Oulu, the underlying profitability improved across all business areas with Biomaterials the exception due to lower pulp prices. Our net debt to adjusted EBITDA improved to 2.8x, supported by the divestment of approximately 175,000 hectares of Swedish forest land at a value of EUR 900 million and by our ongoing focus on cash flow and cost competitiveness. The Board of Directors will propose a dividend of EUR 0.25 per share at the Annual General Meeting on the 24th of March, 2026. Finally, we hosted a successful Capital Markets Day, where we introduced our new financial targets, strategic priorities and a clear road map for the coming years topics I'll return to shortly. But before that, let's review how we did with our sustainability progress. During 2025, we had strong progress on our sustainability targets. By the end of 2025, we have reduced Scope 1 and 2 emissions by 61% from 2019 base year, well surpassing our 2030 targets to reduce emissions by 50%. I'm also proud to say that Stora Enso once again has been included on CDP's Climate Change A list, highlighting our strong transparency and performance in climate actions. This recognition affirms our dedication to sustainable growth through emission reduction, renewable material innovation and advancing the circular bioeconomy. Additionally, in partnership with IUCN, the International Union for Conservation of Nature, we completed a pioneering project that offers the forest sector a science-based framework for achieving net-positive biodiversity impact. This collaboration helps forestry operations focus on the most effective actions to reduce species extinction risks while maintaining long-term economic value. But now let's look at the new financial targets and strategic priorities that we have set for the next years. Our strategic priorities as set forth in our Capital Market Day are clear. We want to lead in customer value creation, grow our business, expand our margins and generate strong cash flow over the cycle. We will achieve this through our continued actions in sourcing, operational efficiency, commercial excellence, working capital and fixed cost, all underpinned by a disciplined approach to capital allocation. Customer centricity is now at the forefront of our strategy. It drives us to push innovation, quality and sustainability across everything we do. With superior customer offering and the use of advanced technologies, we are raising the bar and setting new industry standards. So how will this show in our performance over the cycle? First, annual revenue growth of about 4% per annum. We have a strong track record of over 5% during the last decade for our renewable packaging business. We are well invested for the next wave and we will continue to lead in innovation, quality, sustainability and operational efficiency. Second, we are implementing our plan with speed and determination to reach about 10% EBIT margin. And importantly, this is fully in our own hands. We are putting profit and loss responsibility in place across 6 business areas and 23 P&L responsible business units, enabling determined execution of value creation actions and a strengthened focus on the core business. Third, we will distribute 50% of our net profit as dividends. Fourth, we will take our net debt per EBITDA to below 1x through disciplined capital allocation and a continued focus on cash flow. Finally, we introduced a new reporting structure. Our packaging businesses will be regrouped into Consumer Packaging and Integrated Packaging alongside Biomaterials and other as reporting segments. These new segments will be applied starting in Q1 2026. As just mentioned, one of our key strategic priorities is to expand margins through business focus, a strong performance culture and systematic value creation. The last 2 years show this is working. Despite headwinds from low consumer confidence and significantly higher wood costs, about EUR 900 million annual headwind compared to the year 2021, our sales have grown and our underlying profitability has improved. This progress comes from our own actions that have more than offset the market headwinds during these years and the work continues. In addition to the completed value creation programs, achieving about EUR 900 million profit impact during the years 2024 and 2025, we have identified additional EUR 500 million to EUR 700 million of profit improvement initiatives, all with clear owners and being worked on as we speak. At the same time, the Oulu ramp up continues and weighs profitability short-term. Once at full capacity, it will add around EUR 800 million in sales and support higher margins. With these levers, we are on a clear path towards reaching about 10% EBIT margin, excluding Swedish forests within 2 to 4 years regardless of market conditions. The message is clear. Margin expansion will come from our own focus, our performance culture and disciplined execution. We are taking determined actions to build a better company and our own future. Let's talk about our recent innovation highlights. We grew our portfolio of premium Packaging Materials with the launch of Ensovelvet, a new uncoated solid bleached sulfide board with velvet-like smoothness on both sides. It is developed for luxury applications such as cosmetics, perfumes and other premium consumer goods where touch and appearance are important. It also ensures excellent printability. Ensovelvet is, of course, recyclable, supporting the shift towards circular packaging solutions. The absence of coating also means fewer materials are needed in production, resulting in a reduced carbon footprint while maintaining the premium performance expected from premium Packaging Materials. Stora Enso's CLT solutions enabled the construction of the world's first large-scale timber data center in Falun, Sweden, and the site is now expanding with 2 new data centers. Using mass timber drastically cuts embedded carbon and accelerates construction time. The developer, Eco Data Center is aiming to be one of the world's most sustainable data centers. By using mass timber supplied by Stora Enso, the company has created a scalable blueprint for a new type of sustainable infrastructure. World Packaging Organization awarded Stora Enso in 3 categories: e-commerce, food and other for sustainable and innovative design. Niclas, let's take a look at the financials. Niclas Rosenlew: Thank you, Hans. So let's begin with group sales development and EBIT for 2025 as well as then for the fourth quarter. Group sales increased to EUR 9.3 billion in 2025. This was partially supported by structural changes, most notably the Junnikkala acquisition and the Oulu ramp-up. In Q4, sales declined and this was due to slightly lower board prices and significantly lower pulp prices. Adjusted EBIT for the full year decreased. However, if we exclude the old ramp-up, actually, the profitability improved across nearly all business areas. The exception was Biomaterials, where significantly lower pulp prices weighted on performance. And in Q4, the reasons for the EBIT decline are pretty much the same. Underlying businesses were developing quite nicely, considering the tough market and the old ramp-up was the main reason for the lower EBIT. In general, market headwinds such as lower pulp prices were offset by value creation actions. Looking at the EBIT development for the full year. The impact of our value creation actions is clearly visible. Even with the significant decline in pulp prices, our price and mix improved by more than EUR 100 million, while volumes remained stable. As Hans mentioned earlier, we continue to face a sizable headwind from fiber costs close to EUR 300 million this year. Despite these headwinds, our ongoing cost and value creation actions had a good positive effect. Other variable costs and fixed costs declined by more than EUR 200 million, supported by a leaner and more business-focused organizational structure. These actions have strengthened our ability to navigate market volatility and deliver a more resilient performance. The main drag on earnings for the year came from Oulu or the ramp-up of Oulu, which had a negative impact on EBIT of roughly EUR 140 million, again for the full year. While Oulu weighs on short-term profitability, we do remain confident in the long-term value and industry-leading quality this investment will bring once the line reaches its full potential in 2027. If we then move on to cash flow, despite the challenging market environment, we managed to safeguard profitability and improve cash generation. Cash flow after investing activities continued to be positive as expected following the gradual completion of the investment phase in Oulu. As we now become more disciplined with our capital allocation, combined with ending the heavy investment phase, we expect cash flow after investments continue to improve. So on that note, let's take a look at the net debt. Net debt decreased by almost EUR 800 million in the third quarter, driven by the Swedish forest asset divestment and remained stable in the fourth quarter. Our net debt to adjusted EBITDA ratio is now 2.8x. Operating working capital remained -- also remained stable at 7% of sales and we intend to maintain it at these lower levels and reduce it further whenever possible. So let's take a look at our segment performance. Starting with Packaging Materials. During the quarter, we conducted maintenance in some of our main sites. In addition, we continue to ramp up the new Oulu board machine. Despite this, profitability was preserved, thanks to good value creation activities and strong customer offers. Sales decreased driven by slightly lower consumer board prices and adverse currency effect from a weaker U.S. dollar. Adjusted EBIT improved slightly year-on-year despite a EUR 31 million negative from the ramp-up in Oulu. In Packaging Solutions, we delivered a positive result despite ongoing market challenges. Sales increased slightly, driven by higher sales prices from improved product mix and an increase in sales volumes. Adjusted EBIT increased year-on-year, supported by higher sales and the good momentum with value creation actions. So in summary, despite persistent overcapacity, actions to enhance product and customer mix, combined with continued cost efficiency improvements helped protect margins. Moving from Packaging to Biomaterials. In Biomaterials, the challenging market conditions continued. Demand for softwood and hardwood pulp was weaker in both Europe and China. Sales and adjusted EBIT decreased due to lower sales prices and volumes and adverse currency movements. However, intensified value creation actions such as cost reduction measures partly mitigated the negative effect. In Wood Products, market continued to be subdued with high raw material costs and low construction market activity. Sales increased mainly due to Junnikkala volumes and higher sales prices, both in classic sawn and building solutions products. Adjusted EBIT improved as the increase in raw material costs was more than offset by higher sales prices and value creation actions. Product curtailments were implemented to align with challenging market conditions. Finally, in Forest, sales were stable with no material differences in wood prices or volumes. EBIT decreased primarily due to the divestment of the 12% of Swedish Forest Holdings at the end of the third quarter. The fair value of the group's forest assets increased slightly to EUR 8.5 billion or EUR 10.75 per share. The results demonstrate strong operational performance within our forest assets and wood supply operations. So with that, I hand back to you, Hans, for concluding remarks. Hans Sohlstrom: Thank you, Niclas. As we enter 2026, we expect market conditions to remain subdued and volatile, shaped by ongoing macroeconomic and geopolitical uncertainty. Our priorities are clear. We will continue to execute our strategy, drive proactive, systematic and determined work across the whole group. We continue to improve profitability, cash flow and cost competitiveness through activities related to sourcing, operational efficiency, commercial excellence, working capital and fixed costs and maintain a disciplined approach to capital allocation. The demerger and listing of our Swedish forest assets will be a key focus as will the ongoing strategic review of our Central European sawmills and ramping up of our Oulu site. I want to thank all our employees, customers and partners for their dedication and resilience during this transformative year. Together, we are building a stronger, more focused and more sustainable Stora Enso. Thank you for listening and we are now ready to take your questions. Operator: [Operator Instructions] Our first question will come from Charlie Muir-Sands with BNP Paribas. Charlie Muir-Sands: I just had a couple of questions on the Packaging Materials segment on both pricing and on costs. Firstly, on the pricing side, I wonder if you could talk about the environment generally. We've seen obviously indexation reports suggesting that FBB prices are coming down a bit. One of your peers the other day also flagged pricing pressures in the liquid packaging board space, which is a grade that's obviously not price reported. So yes, firstly, on the pricing side. And then on the cost side, can you talk about what scale of tailwind you might envisage seeing from the fall in wood costs that we're starting to see in Finland and perhaps trickling over into Sweden? And when you would expect Oulu to no longer be a drag? Hans Sohlstrom: Yes. So first of all, when it comes to liquid packaging board, we have multiyear agreements, which basically meant that our prices have somewhat improved for this year compared to last year. When it comes to cartonboard, you are right that following statistics, there has been some slight decline in prices there. And then as you also know from public sources, there has been price increase announcements in containerboard, in testliner, also in Europe happening lately. Then on the cost side, I mean, yes, following also here public statistics, wood costs in Finland and Sweden, especially pulpwood, have come down throughout the latter part of last year. And -- but I don't want to take any stance on any predictions or forecasts here how the things will play out. Regarding Oulu, we have guided now for the first quarter still a negative EBIT impact between EUR 15 million and EUR 30 million on an EBIT level. And we remain confident there that we are continuing and progressing the ramp-up in order to be then fully ramped up for year 2027. Charlie Muir-Sands: But for Q2, do you anticipate Oulu still being a drag? Or should this be the last quarter? Hans Sohlstrom: Well, we don't give any further guidance there. I would say that the ramp-up is progressing. Quality is excellent. The feedback from customers is really good and quality properties, even if we had high expectations, having even exceeded our expectations in some cases. Charlie Muir-Sands: And finally, sorry, just I saw that you're guiding to much lower income from sale of emission certificates in the year ahead. Which segments would those headwinds year-on-year apply to? Hans Sohlstrom: It concerns mainly 3 of our business units. So it's Skutskar, which is pulp in Sweden, then it's Fors in Sweden, which is cartonboard and then it's also Enocell Uimaharju in Finland, which is pulp. So it's mainly the Biomaterials segment. Operator: Our next question comes from Lars Kjellberg with Stifel. Lars Kjellberg: I appreciate you don't want to forecast wood cost. But if you kind of -- where we are today in Finland in particular and the pressures we see in Sweden, if they were to stay where they are, when would you start to see a positive impact from that? I'm also hearing that wood costs in Poland has gone up. Can you provide any color on that, if that is indeed the case? I also want to question a bit about currency because, of course, both the Swedish krona and the euro are very strong. You had hedges, of course, right, but what sort of potential headwind would that be? And the final one, I'll just stick with consumer board, you have for a long time spoken to the pressures and imbalance in the market and soft demand. So the question is, as a big producer of consumer board, what sort of actions are you taking to rebalance the market and to get away from that pricing pressure? I appreciate closing assets is not your priority, but are you thinking about meaningful curtailment of capacity until demand resurfaces? Niclas Rosenlew: I'll take -- I'll take the first one. So the wood cost up or down, I mean, I guess the rule of thumb is 3 to 6 months. So first, it goes into the wood yard and then it goes into production. So 3 to 6 months depends, but that's kind of the kind of rule of thumb, which you could use. Hans Sohlstrom: And then your question on consumer board. So yes, we have also taken some curtail -- or curtailed our capacity to some extent. I would say the primary actions here in a situation of low operating rates and is to be the most cost-efficient, to work on your cost and efficiencies and be closer to your customers than ever before and produce the best possible quality of product and service. That's the way to manage in this kind of circumstances. You also had a question about the currency exchange rate, you want to comment... Niclas Rosenlew: Yes. Yes. I would say no -- nothing particular there. I mean, dollar has, as you know, been a headwind for us, the weaker dollar, given that quite a significant chunk of products, not least pulp is kind of dollar priced. And then on the Swedish krona, of course, we have quite significant operations in Sweden. So a kind of stronger Swedish krona means more costs also. But I would say just in general that the dollar is the kind of main swing factor here. Lars Kjellberg: Just a follow-up, I also asked you about Polish wood costs, if you have any color on that? And if you can share with us what sort of operating rates you're running at in consumer board in those? Niclas Rosenlew: Yes. So first of all, the Polish wood costs, we actually consume very little pulpwood in Poland because we are primarily using recycled fibers there to produce testliner. So it's not that relevant for us when it comes to log costs in Central Europe. They have been increasing, but so have also the price of timber and sawn goods. And what -- and you had some other question there, a follow-up question. Yes, operating rates. Well, we are not commenting further on the operating rates. Operator: Our next question comes from Pallav Mittal with Barclays. Pallav Mittal: So 3 questions. I'll take it one by one. So just following up on the first question around liquid packaging board. So your peer -- one of your peers has highlighted a difficult demand dynamic as well. And based on what we can see, one of your largest customers over the last few quarters has also highlighted a difficult volume backdrop. So just wanted to understand the demand dynamics. Clearly, your comments on pricing, we agree that it is a multiyear agreement and it is going up. But what are you seeing on the demand side of things? Hans Sohlstrom: Thanks to the multiyear agreements we have in liquid packaging board with our key customers, we see positive development both in terms of volumes and price. Pallav Mittal: Okay. And as you have now highlighted for the last few quarters that the market-related movements have been offset by your own actions. So if you could just help us understand, I mean, as we think about 2026, lower wood cost, et cetera. So if you were just to like give us some guidance in terms of those 2 buckets, do you still expect the market-related movements to be a significant headwind and then offset by some of your own actions, which you have said EUR 500 million to EUR 700 million for the next 3 years? Niclas Rosenlew: Yes. I think on the own actions, the teams are continuing the good work and certainly we'll continue during 2026 as well. What comes to wood cost, as Hans said, we just don't want to predict or comment on that. But on the own actions, we'll certainly continue to work on that and there's a good momentum. Pallav Mittal: And then lastly, just on the EU testliner pricing that the industry is trying to pass through. Any comments on how customers are reacting to it because now we are in the first week of Feb and it was expected to go live on the 1st of Feb? And do you think any of it will actually pass through given the cost environment and the demand backdrop? Hans Sohlstrom: Yes, I don't want to speculate here, but I think there has been broadly price increase announcements and there is a broad price increase attempt now in the industry and it's, of course, badly needed by the industry. Operator: Our next question comes from Linus Larsson from SEB. Linus Larsson: First off, a follow-up question on Packaging Materials. The price realization quarter-on-quarter in the fourth quarter was quite negative, minus 7% or so, from what we can see. Could you please just explain that mix effects, real price changes, FX, how that all adds up? And then also, please, if you could just clarify what you said previously on your multiyear liquid packaging board contract, what does that setup entail for 2026? Can you please just clarify, have you had renegotiations going into 2026 for a portion of that? And what's the nature of the agreements in place? Do they imply price hikes or price declines at the start of 2026? So just directionally, if you could just please clarify that? Niclas Rosenlew: So first, your latter question about liquid packaging board. So with most of our key customers, we have long-term multiyear agreements in place, implying improved pricing and volume for this year, but not for all. I mean, there are also customers where we have annual negotiations. But generally speaking, for the majority, there are multiyear agreements in place. And then when it comes to the Packaging Material quarter-on-quarter price development, so Q3 into Q4, so there was especially in the area of containerboard, some price reductions as we can see from public sources, [ resi ] and other sources as well as also in cartonboard. So that weighted on our average prices for Packaging Materials in Q4 compared to Q3. Linus Larsson: Got it. And then maybe a second question on forestry and the increase that we saw in forest book values in the fourth quarter. And you did write about it in the report, but if you could just expand a bit on that, what drove the increase? And also any updates, if there are any on the planned spinoff, please? Niclas Rosenlew: Yes. So the increase was primarily driven by the stronger Swedish krona. So FX was the prime driver. Also kind of the underlying asset, there was some increase, but the EUR 200 million or so increase we saw was mainly driven by FX. And then what comes to the spin, progress being made every day. Separation, a lot of activities there. So I would say on track and making good headwinds or good progress there. Operator: Your next question comes from Ioannis Masvoulas with Morgan Stanley. Ioannis Masvoulas: Excellent. Excellent. So a few follow-ups from my side. Just the first one, going back to liquid paperboard. Across your entire order book, if we think about '26 versus '25, is it fair to assume a low single-digit improvement in pricing? And related to this, do you think you're gaining market share in either Europe or Asia, as that will explain some of your comments on volume trends versus some of your peers? Hans Sohlstrom: Yes. So in liquid packaging board, we have some slightly increased pricing for the majority of our customers. And when it comes to market shares, I don't want to comment on those. Ioannis Masvoulas: Okay. And maybe one more on Oulu. So I appreciate you wouldn't like to provide full year guidance on potential ramp-up costs. But if we look at Q4, you account for about EUR 31 million impact. And for Q1, you're talking somewhere between EUR 15 million to EUR 30 million impact. So at the high end feels like there is no much improvement or a reduction in the ramp-up costs. Could you talk about some of the challenges there? And could you also clarify whether Oulu was EBITDA breakeven because that's something you mentioned in the past, but I didn't see that in today's release in terms of the Q4 run rate? Niclas Rosenlew: Yes. So first, Oulu was EBITDA breakeven in when running full during month of October. Then towards the end of Q4, we had some planned shutdowns and also some curtailments. But as we had guided before, we reached EBITDA breakeven in the month of October during, let's say, normal full run month. And when it comes to the first quarter, I mean, we are continuing the ramp-up as planned with excellent customer feedback and quality achievements. And of course, I mean, we need also to take into consideration that the cartonboard prices, as we know from public sources, are somewhat down. So with a certain impact also here. Plus then, of course, we have to consider also other things affecting then the weighting on the Oulu profitability during the first quarter. Operator: Our next question comes from Detlef Winckelmann at JPMorgan. Detlef Winckelmann: Just a quick one from me just on your pulp wood costs. Obviously, we've seen them come down quite drastically in the last, call it, couple of quarters. I'm hearing some conflicting views. I just want to hear your thoughts on whether this is a supply chain change or a demand-only driven price decrease. We're hearing from a handful of people, independent experts that maybe supply and wood being harvested is actually up. And at the same time, I'm hearing the exact opposite from someone else. So just would love some clarity there, if you can. Hans Sohlstrom: Well, yes, do you want to take it, Niclas? Niclas Rosenlew: Yes. I mean, sure, there's multiple factors, but to put it simply, the view is more demand. So demand has been lower. Some of the industry players, for instance, in Finland have been -- Finland have been curtailing production during the second -- latter part of the year. Operator: Our next question comes from Cole Hathorn with Jefferies. Cole Hathorn: Just like a follow-up on the wood cost side of things. You provide some helpful guidance for a 10% move in wood cost for the whole of Stora, which includes your sawn timber business as well as obviously your Latin American operations. Is there a guidance just so that we can think about the sensitivities for a 10% move just in the Nordic wood prices, just to understand the quantum? That's the first question. The second is thinking about the liquid packaging board of Beihai and given there's a number of capacity that's ramped up in China, just like any commentary that you can provide about profitability of your Beihai and China operations? Hans Sohlstrom: Yes. So first of all, our Beihai operation is doing very well. Also from a profitability perspective, it is one of the world's, if not even the world's most efficient board -- consumer board production line according to board machinery manufacturers statistics. So doing very well indeed. Excellent quality. I mean, we are competing in the high-end, highest quality liquid packaging board segment and consumer board segments in China, where we have a opportunity also to differentiate. And then when it comes to the wood costs, as you can see in our report, a 10% wood cost decrease would have a EUR 238 million impact on annual -- positive impact on annual EBIT. We haven't broken down that specifically for the Nordics, but the clear majority of this is the Nordics. So not all of it, but the clear majority. Cole Hathorn: And then maybe just as a follow-up, Niclas, your CapEx numbers come in nicely at EUR 550 million. It is lower year-on-year. It's the first time you're getting towards depreciation or below. I'd just like to think about how you're thinking about CapEx? And then, Hans, one for you on the EUR 500 million to EUR 700 million savings. Is there any color that you can give on what might be contributed in 2026? Because there are a number of moving parts this year. We do have lower prices. You've got potential positives from the Oulu drag being less negative. You've got the positives from potential wood costs, but the bucket that's missing is your own internal actions and efficiencies. Any quantum of that EUR 500 million to EUR 700 million that might be achieved in 2026 would be helpful. Niclas Rosenlew: Yes. So on the CapEx, we've done a fair amount of work on CapEx in latter part of last year and we discussed some of it in the CMD as well. And of course, one part of it is the, as we call it, the end of the heavy investment phase, which is primarily Oulu, but we've actually gone beyond that. I mean, we've looked a lot at where do we get returns, what type of investments are better, which ones are worse and so on and so on. A lot of categorization of our different assets, where do we invest, where do we not invest. So what you see now in the EUR 550 million guidance is kind of a summary, the outcome of this work. And it's -- in the end, it's all about discipline and returns. And I'm sure we'll learn more during this year and then we see how it moves beyond this year also. But the theme is clearly now let's be disciplined and let's ensure good returns on those investments we make. Hans Sohlstrom: And when it comes to the -- our own profit improvement actions, in the CMD, we explained that during 2024, we -- and then the 3 first quarters of 2025, we have achieved EUR 850 million of annual P&L impact and we are now at roughly EUR 900 million after the fourth quarter. And we also said that there is more to come. Currently, we have in the pipeline, EUR 500 million to EUR 700 million of projects and initiatives from a P&L impact standpoint. And as we said in the CMD, 2 to 4 years, 2 years if we also get some market tailwind. So in order to achieve about 10% EBIT margin level, so 2 years, if we get some market tailwind and 4 years if we have a continuous market headwind. So that's about the guidance I can give. Of course, the more you do these cost savings and streamlining, the harder it also gets. That's also good to remember. Niclas Rosenlew: Yes. And just to give you some additional color because it's a good team, nice team. So for instance, what we are looking at for the moment is fixed cost, how do we work efficiently within Stora Enso. And then also procurement is another area we are looking into as we speak. And there is potential. So it's quite positive and good. Operator: Our next question comes from Andres Castanos-Mollor with Berenberg. Andres Castanos-Mollor: It would be a follow-up on CapEx, please. How much of that EUR 550 million is allocated to forest? And how would our run rate of an ex-forest company look like for maintenance CapEx? Niclas Rosenlew: Now I'm actually looking at Jutta here across the table. How much of that is forest? I can't remember by heart actually. Jutta Mikkola: Right. It's not that much biological assets to some extent, but there also maturity would be actually Latin American CapEx. So it's not that much that goes into the forest. Hans Sohlstrom: So very, very little into the forest company as such. Operator: There are no further questions. I shall now hand back to Hans Sohlstrom; and CFO, Niclas Rosenlew, for closing remarks. Hans Sohlstrom: Thank you very much, all, for your -- for taking time and for your interest. As you can see, we are moving forward with speed and determination to improve our financial performance and to strengthen and build a better, more sustainable and more valuable Stora Enso. During last year, we have sharpened our strategic focus. We have defined our strategic priorities of leading in customer value, putting the customers in the center through innovation, sustainability and service and quality. We are looking to -- also to grow faster than the market, over 4% per annum. And we have a track record within renewable packaging of growing above 5% during the last 10 years and we are well invested to materialize this growth. We are expanding our margins to the well above 10% EBIT margins through our own actions regardless of market circumstances. And then last but not least, we are generating cash through disciplined capital allocation. Thank you very much for your interest. We are moving forward with speed and determination. Thank you. Bye-bye.
Jutta Mikkola: Hello, everyone, and welcome to Stora Enso's Q4 and Full Year Results Presentation. I'm Jutta Mikkola, Head of Investor Relations, and I'm delighted to be joined here today with our President and CEO, Hans Sohlstrom; and our CFO, Niclas Rosenlew. We're kicking off the webcast with our clear theme, sharpened strategic focus. It reflects the work we've done throughout 2025 and the momentum we are carrying into 2026. Today, we'll start with Hans, who will walk you through the key highlights and our strategic priorities. After that, Niclas will take you through our financial performance and we'll close with the main takeaways and what's ahead of us in 2026. Once we've covered everything, as usual, we'll open the floor for your questions. Thank you for joining us. Great to have you with us. Over to you, Hans. Hans Sohlstrom: Thank you, Jutta, and hello, everyone. Great to have you with us. 2025 was a pivotal year for Stora Enso, marked by decisive actions to sharpen our strategic focus and unlock long-term value for our shareholders. In Q4, we completed the strategic review of our Swedish forest assets, a major milestone and begun the separation to form 2 strong companies, a leading renewable materials company with a sharpened focus on packaging and Europe's largest listed pure-play forest company. We also launched a strategic review of our Central European sawmills and building solutions operations to further focus our portfolio. Despite a challenging environment during 2025, we delivered resilient results with a sales of EUR 9.3 billion and EBIT of EUR 528 million. We continued ramping up the Oulu consumer board line, a key part of our renewable packaging strategy throughout 2025. This weighted on our earnings by EUR 140 million in total during the year, but strengthens our long-term position and competitiveness. Excluding Oulu, the underlying profitability improved across all business areas with Biomaterials the exception due to lower pulp prices. Our net debt to adjusted EBITDA improved to 2.8x, supported by the divestment of approximately 175,000 hectares of Swedish forest land at a value of EUR 900 million and by our ongoing focus on cash flow and cost competitiveness. The Board of Directors will propose a dividend of EUR 0.25 per share at the Annual General Meeting on the 24th of March, 2026. Finally, we hosted a successful Capital Markets Day, where we introduced our new financial targets, strategic priorities and a clear road map for the coming years topics I'll return to shortly. But before that, let's review how we did with our sustainability progress. During 2025, we had strong progress on our sustainability targets. By the end of 2025, we have reduced Scope 1 and 2 emissions by 61% from 2019 base year, well surpassing our 2030 targets to reduce emissions by 50%. I'm also proud to say that Stora Enso once again has been included on CDP's Climate Change A list, highlighting our strong transparency and performance in climate actions. This recognition affirms our dedication to sustainable growth through emission reduction, renewable material innovation and advancing the circular bioeconomy. Additionally, in partnership with IUCN, the International Union for Conservation of Nature, we completed a pioneering project that offers the forest sector a science-based framework for achieving net-positive biodiversity impact. This collaboration helps forestry operations focus on the most effective actions to reduce species extinction risks while maintaining long-term economic value. But now let's look at the new financial targets and strategic priorities that we have set for the next years. Our strategic priorities as set forth in our Capital Market Day are clear. We want to lead in customer value creation, grow our business, expand our margins and generate strong cash flow over the cycle. We will achieve this through our continued actions in sourcing, operational efficiency, commercial excellence, working capital and fixed cost, all underpinned by a disciplined approach to capital allocation. Customer centricity is now at the forefront of our strategy. It drives us to push innovation, quality and sustainability across everything we do. With superior customer offering and the use of advanced technologies, we are raising the bar and setting new industry standards. So how will this show in our performance over the cycle? First, annual revenue growth of about 4% per annum. We have a strong track record of over 5% during the last decade for our renewable packaging business. We are well invested for the next wave and we will continue to lead in innovation, quality, sustainability and operational efficiency. Second, we are implementing our plan with speed and determination to reach about 10% EBIT margin. And importantly, this is fully in our own hands. We are putting profit and loss responsibility in place across 6 business areas and 23 P&L responsible business units, enabling determined execution of value creation actions and a strengthened focus on the core business. Third, we will distribute 50% of our net profit as dividends. Fourth, we will take our net debt per EBITDA to below 1x through disciplined capital allocation and a continued focus on cash flow. Finally, we introduced a new reporting structure. Our packaging businesses will be regrouped into Consumer Packaging and Integrated Packaging alongside Biomaterials and other as reporting segments. These new segments will be applied starting in Q1 2026. As just mentioned, one of our key strategic priorities is to expand margins through business focus, a strong performance culture and systematic value creation. The last 2 years show this is working. Despite headwinds from low consumer confidence and significantly higher wood costs, about EUR 900 million annual headwind compared to the year 2021, our sales have grown and our underlying profitability has improved. This progress comes from our own actions that have more than offset the market headwinds during these years and the work continues. In addition to the completed value creation programs, achieving about EUR 900 million profit impact during the years 2024 and 2025, we have identified additional EUR 500 million to EUR 700 million of profit improvement initiatives, all with clear owners and being worked on as we speak. At the same time, the Oulu ramp up continues and weighs profitability short-term. Once at full capacity, it will add around EUR 800 million in sales and support higher margins. With these levers, we are on a clear path towards reaching about 10% EBIT margin, excluding Swedish forests within 2 to 4 years regardless of market conditions. The message is clear. Margin expansion will come from our own focus, our performance culture and disciplined execution. We are taking determined actions to build a better company and our own future. Let's talk about our recent innovation highlights. We grew our portfolio of premium Packaging Materials with the launch of Ensovelvet, a new uncoated solid bleached sulfide board with velvet-like smoothness on both sides. It is developed for luxury applications such as cosmetics, perfumes and other premium consumer goods where touch and appearance are important. It also ensures excellent printability. Ensovelvet is, of course, recyclable, supporting the shift towards circular packaging solutions. The absence of coating also means fewer materials are needed in production, resulting in a reduced carbon footprint while maintaining the premium performance expected from premium Packaging Materials. Stora Enso's CLT solutions enabled the construction of the world's first large-scale timber data center in Falun, Sweden, and the site is now expanding with 2 new data centers. Using mass timber drastically cuts embedded carbon and accelerates construction time. The developer, Eco Data Center is aiming to be one of the world's most sustainable data centers. By using mass timber supplied by Stora Enso, the company has created a scalable blueprint for a new type of sustainable infrastructure. World Packaging Organization awarded Stora Enso in 3 categories: e-commerce, food and other for sustainable and innovative design. Niclas, let's take a look at the financials. Niclas Rosenlew: Thank you, Hans. So let's begin with group sales development and EBIT for 2025 as well as then for the fourth quarter. Group sales increased to EUR 9.3 billion in 2025. This was partially supported by structural changes, most notably the Junnikkala acquisition and the Oulu ramp-up. In Q4, sales declined and this was due to slightly lower board prices and significantly lower pulp prices. Adjusted EBIT for the full year decreased. However, if we exclude the old ramp-up, actually, the profitability improved across nearly all business areas. The exception was Biomaterials, where significantly lower pulp prices weighted on performance. And in Q4, the reasons for the EBIT decline are pretty much the same. Underlying businesses were developing quite nicely, considering the tough market and the old ramp-up was the main reason for the lower EBIT. In general, market headwinds such as lower pulp prices were offset by value creation actions. Looking at the EBIT development for the full year. The impact of our value creation actions is clearly visible. Even with the significant decline in pulp prices, our price and mix improved by more than EUR 100 million, while volumes remained stable. As Hans mentioned earlier, we continue to face a sizable headwind from fiber costs close to EUR 300 million this year. Despite these headwinds, our ongoing cost and value creation actions had a good positive effect. Other variable costs and fixed costs declined by more than EUR 200 million, supported by a leaner and more business-focused organizational structure. These actions have strengthened our ability to navigate market volatility and deliver a more resilient performance. The main drag on earnings for the year came from Oulu or the ramp-up of Oulu, which had a negative impact on EBIT of roughly EUR 140 million, again for the full year. While Oulu weighs on short-term profitability, we do remain confident in the long-term value and industry-leading quality this investment will bring once the line reaches its full potential in 2027. If we then move on to cash flow, despite the challenging market environment, we managed to safeguard profitability and improve cash generation. Cash flow after investing activities continued to be positive as expected following the gradual completion of the investment phase in Oulu. As we now become more disciplined with our capital allocation, combined with ending the heavy investment phase, we expect cash flow after investments continue to improve. So on that note, let's take a look at the net debt. Net debt decreased by almost EUR 800 million in the third quarter, driven by the Swedish forest asset divestment and remained stable in the fourth quarter. Our net debt to adjusted EBITDA ratio is now 2.8x. Operating working capital remained -- also remained stable at 7% of sales and we intend to maintain it at these lower levels and reduce it further whenever possible. So let's take a look at our segment performance. Starting with Packaging Materials. During the quarter, we conducted maintenance in some of our main sites. In addition, we continue to ramp up the new Oulu board machine. Despite this, profitability was preserved, thanks to good value creation activities and strong customer offers. Sales decreased driven by slightly lower consumer board prices and adverse currency effect from a weaker U.S. dollar. Adjusted EBIT improved slightly year-on-year despite a EUR 31 million negative from the ramp-up in Oulu. In Packaging Solutions, we delivered a positive result despite ongoing market challenges. Sales increased slightly, driven by higher sales prices from improved product mix and an increase in sales volumes. Adjusted EBIT increased year-on-year, supported by higher sales and the good momentum with value creation actions. So in summary, despite persistent overcapacity, actions to enhance product and customer mix, combined with continued cost efficiency improvements helped protect margins. Moving from Packaging to Biomaterials. In Biomaterials, the challenging market conditions continued. Demand for softwood and hardwood pulp was weaker in both Europe and China. Sales and adjusted EBIT decreased due to lower sales prices and volumes and adverse currency movements. However, intensified value creation actions such as cost reduction measures partly mitigated the negative effect. In Wood Products, market continued to be subdued with high raw material costs and low construction market activity. Sales increased mainly due to Junnikkala volumes and higher sales prices, both in classic sawn and building solutions products. Adjusted EBIT improved as the increase in raw material costs was more than offset by higher sales prices and value creation actions. Product curtailments were implemented to align with challenging market conditions. Finally, in Forest, sales were stable with no material differences in wood prices or volumes. EBIT decreased primarily due to the divestment of the 12% of Swedish Forest Holdings at the end of the third quarter. The fair value of the group's forest assets increased slightly to EUR 8.5 billion or EUR 10.75 per share. The results demonstrate strong operational performance within our forest assets and wood supply operations. So with that, I hand back to you, Hans, for concluding remarks. Hans Sohlstrom: Thank you, Niclas. As we enter 2026, we expect market conditions to remain subdued and volatile, shaped by ongoing macroeconomic and geopolitical uncertainty. Our priorities are clear. We will continue to execute our strategy, drive proactive, systematic and determined work across the whole group. We continue to improve profitability, cash flow and cost competitiveness through activities related to sourcing, operational efficiency, commercial excellence, working capital and fixed costs and maintain a disciplined approach to capital allocation. The demerger and listing of our Swedish forest assets will be a key focus as will the ongoing strategic review of our Central European sawmills and ramping up of our Oulu site. I want to thank all our employees, customers and partners for their dedication and resilience during this transformative year. Together, we are building a stronger, more focused and more sustainable Stora Enso. Thank you for listening and we are now ready to take your questions. Operator: [Operator Instructions] Our first question will come from Charlie Muir-Sands with BNP Paribas. Charlie Muir-Sands: I just had a couple of questions on the Packaging Materials segment on both pricing and on costs. Firstly, on the pricing side, I wonder if you could talk about the environment generally. We've seen obviously indexation reports suggesting that FBB prices are coming down a bit. One of your peers the other day also flagged pricing pressures in the liquid packaging board space, which is a grade that's obviously not price reported. So yes, firstly, on the pricing side. And then on the cost side, can you talk about what scale of tailwind you might envisage seeing from the fall in wood costs that we're starting to see in Finland and perhaps trickling over into Sweden? And when you would expect Oulu to no longer be a drag? Hans Sohlstrom: Yes. So first of all, when it comes to liquid packaging board, we have multiyear agreements, which basically meant that our prices have somewhat improved for this year compared to last year. When it comes to cartonboard, you are right that following statistics, there has been some slight decline in prices there. And then as you also know from public sources, there has been price increase announcements in containerboard, in testliner, also in Europe happening lately. Then on the cost side, I mean, yes, following also here public statistics, wood costs in Finland and Sweden, especially pulpwood, have come down throughout the latter part of last year. And -- but I don't want to take any stance on any predictions or forecasts here how the things will play out. Regarding Oulu, we have guided now for the first quarter still a negative EBIT impact between EUR 15 million and EUR 30 million on an EBIT level. And we remain confident there that we are continuing and progressing the ramp-up in order to be then fully ramped up for year 2027. Charlie Muir-Sands: But for Q2, do you anticipate Oulu still being a drag? Or should this be the last quarter? Hans Sohlstrom: Well, we don't give any further guidance there. I would say that the ramp-up is progressing. Quality is excellent. The feedback from customers is really good and quality properties, even if we had high expectations, having even exceeded our expectations in some cases. Charlie Muir-Sands: And finally, sorry, just I saw that you're guiding to much lower income from sale of emission certificates in the year ahead. Which segments would those headwinds year-on-year apply to? Hans Sohlstrom: It concerns mainly 3 of our business units. So it's Skutskar, which is pulp in Sweden, then it's Fors in Sweden, which is cartonboard and then it's also Enocell Uimaharju in Finland, which is pulp. So it's mainly the Biomaterials segment. Operator: Our next question comes from Lars Kjellberg with Stifel. Lars Kjellberg: I appreciate you don't want to forecast wood cost. But if you kind of -- where we are today in Finland in particular and the pressures we see in Sweden, if they were to stay where they are, when would you start to see a positive impact from that? I'm also hearing that wood costs in Poland has gone up. Can you provide any color on that, if that is indeed the case? I also want to question a bit about currency because, of course, both the Swedish krona and the euro are very strong. You had hedges, of course, right, but what sort of potential headwind would that be? And the final one, I'll just stick with consumer board, you have for a long time spoken to the pressures and imbalance in the market and soft demand. So the question is, as a big producer of consumer board, what sort of actions are you taking to rebalance the market and to get away from that pricing pressure? I appreciate closing assets is not your priority, but are you thinking about meaningful curtailment of capacity until demand resurfaces? Niclas Rosenlew: I'll take -- I'll take the first one. So the wood cost up or down, I mean, I guess the rule of thumb is 3 to 6 months. So first, it goes into the wood yard and then it goes into production. So 3 to 6 months depends, but that's kind of the kind of rule of thumb, which you could use. Hans Sohlstrom: And then your question on consumer board. So yes, we have also taken some curtail -- or curtailed our capacity to some extent. I would say the primary actions here in a situation of low operating rates and is to be the most cost-efficient, to work on your cost and efficiencies and be closer to your customers than ever before and produce the best possible quality of product and service. That's the way to manage in this kind of circumstances. You also had a question about the currency exchange rate, you want to comment... Niclas Rosenlew: Yes. Yes. I would say no -- nothing particular there. I mean, dollar has, as you know, been a headwind for us, the weaker dollar, given that quite a significant chunk of products, not least pulp is kind of dollar priced. And then on the Swedish krona, of course, we have quite significant operations in Sweden. So a kind of stronger Swedish krona means more costs also. But I would say just in general that the dollar is the kind of main swing factor here. Lars Kjellberg: Just a follow-up, I also asked you about Polish wood costs, if you have any color on that? And if you can share with us what sort of operating rates you're running at in consumer board in those? Niclas Rosenlew: Yes. So first of all, the Polish wood costs, we actually consume very little pulpwood in Poland because we are primarily using recycled fibers there to produce testliner. So it's not that relevant for us when it comes to log costs in Central Europe. They have been increasing, but so have also the price of timber and sawn goods. And what -- and you had some other question there, a follow-up question. Yes, operating rates. Well, we are not commenting further on the operating rates. Operator: Our next question comes from Pallav Mittal with Barclays. Pallav Mittal: So 3 questions. I'll take it one by one. So just following up on the first question around liquid packaging board. So your peer -- one of your peers has highlighted a difficult demand dynamic as well. And based on what we can see, one of your largest customers over the last few quarters has also highlighted a difficult volume backdrop. So just wanted to understand the demand dynamics. Clearly, your comments on pricing, we agree that it is a multiyear agreement and it is going up. But what are you seeing on the demand side of things? Hans Sohlstrom: Thanks to the multiyear agreements we have in liquid packaging board with our key customers, we see positive development both in terms of volumes and price. Pallav Mittal: Okay. And as you have now highlighted for the last few quarters that the market-related movements have been offset by your own actions. So if you could just help us understand, I mean, as we think about 2026, lower wood cost, et cetera. So if you were just to like give us some guidance in terms of those 2 buckets, do you still expect the market-related movements to be a significant headwind and then offset by some of your own actions, which you have said EUR 500 million to EUR 700 million for the next 3 years? Niclas Rosenlew: Yes. I think on the own actions, the teams are continuing the good work and certainly we'll continue during 2026 as well. What comes to wood cost, as Hans said, we just don't want to predict or comment on that. But on the own actions, we'll certainly continue to work on that and there's a good momentum. Pallav Mittal: And then lastly, just on the EU testliner pricing that the industry is trying to pass through. Any comments on how customers are reacting to it because now we are in the first week of Feb and it was expected to go live on the 1st of Feb? And do you think any of it will actually pass through given the cost environment and the demand backdrop? Hans Sohlstrom: Yes, I don't want to speculate here, but I think there has been broadly price increase announcements and there is a broad price increase attempt now in the industry and it's, of course, badly needed by the industry. Operator: Our next question comes from Linus Larsson from SEB. Linus Larsson: First off, a follow-up question on Packaging Materials. The price realization quarter-on-quarter in the fourth quarter was quite negative, minus 7% or so, from what we can see. Could you please just explain that mix effects, real price changes, FX, how that all adds up? And then also, please, if you could just clarify what you said previously on your multiyear liquid packaging board contract, what does that setup entail for 2026? Can you please just clarify, have you had renegotiations going into 2026 for a portion of that? And what's the nature of the agreements in place? Do they imply price hikes or price declines at the start of 2026? So just directionally, if you could just please clarify that? Niclas Rosenlew: So first, your latter question about liquid packaging board. So with most of our key customers, we have long-term multiyear agreements in place, implying improved pricing and volume for this year, but not for all. I mean, there are also customers where we have annual negotiations. But generally speaking, for the majority, there are multiyear agreements in place. And then when it comes to the Packaging Material quarter-on-quarter price development, so Q3 into Q4, so there was especially in the area of containerboard, some price reductions as we can see from public sources, [ resi ] and other sources as well as also in cartonboard. So that weighted on our average prices for Packaging Materials in Q4 compared to Q3. Linus Larsson: Got it. And then maybe a second question on forestry and the increase that we saw in forest book values in the fourth quarter. And you did write about it in the report, but if you could just expand a bit on that, what drove the increase? And also any updates, if there are any on the planned spinoff, please? Niclas Rosenlew: Yes. So the increase was primarily driven by the stronger Swedish krona. So FX was the prime driver. Also kind of the underlying asset, there was some increase, but the EUR 200 million or so increase we saw was mainly driven by FX. And then what comes to the spin, progress being made every day. Separation, a lot of activities there. So I would say on track and making good headwinds or good progress there. Operator: Your next question comes from Ioannis Masvoulas with Morgan Stanley. Ioannis Masvoulas: Excellent. Excellent. So a few follow-ups from my side. Just the first one, going back to liquid paperboard. Across your entire order book, if we think about '26 versus '25, is it fair to assume a low single-digit improvement in pricing? And related to this, do you think you're gaining market share in either Europe or Asia, as that will explain some of your comments on volume trends versus some of your peers? Hans Sohlstrom: Yes. So in liquid packaging board, we have some slightly increased pricing for the majority of our customers. And when it comes to market shares, I don't want to comment on those. Ioannis Masvoulas: Okay. And maybe one more on Oulu. So I appreciate you wouldn't like to provide full year guidance on potential ramp-up costs. But if we look at Q4, you account for about EUR 31 million impact. And for Q1, you're talking somewhere between EUR 15 million to EUR 30 million impact. So at the high end feels like there is no much improvement or a reduction in the ramp-up costs. Could you talk about some of the challenges there? And could you also clarify whether Oulu was EBITDA breakeven because that's something you mentioned in the past, but I didn't see that in today's release in terms of the Q4 run rate? Niclas Rosenlew: Yes. So first, Oulu was EBITDA breakeven in when running full during month of October. Then towards the end of Q4, we had some planned shutdowns and also some curtailments. But as we had guided before, we reached EBITDA breakeven in the month of October during, let's say, normal full run month. And when it comes to the first quarter, I mean, we are continuing the ramp-up as planned with excellent customer feedback and quality achievements. And of course, I mean, we need also to take into consideration that the cartonboard prices, as we know from public sources, are somewhat down. So with a certain impact also here. Plus then, of course, we have to consider also other things affecting then the weighting on the Oulu profitability during the first quarter. Operator: Our next question comes from Detlef Winckelmann at JPMorgan. Detlef Winckelmann: Just a quick one from me just on your pulp wood costs. Obviously, we've seen them come down quite drastically in the last, call it, couple of quarters. I'm hearing some conflicting views. I just want to hear your thoughts on whether this is a supply chain change or a demand-only driven price decrease. We're hearing from a handful of people, independent experts that maybe supply and wood being harvested is actually up. And at the same time, I'm hearing the exact opposite from someone else. So just would love some clarity there, if you can. Hans Sohlstrom: Well, yes, do you want to take it, Niclas? Niclas Rosenlew: Yes. I mean, sure, there's multiple factors, but to put it simply, the view is more demand. So demand has been lower. Some of the industry players, for instance, in Finland have been -- Finland have been curtailing production during the second -- latter part of the year. Operator: Our next question comes from Cole Hathorn with Jefferies. Cole Hathorn: Just like a follow-up on the wood cost side of things. You provide some helpful guidance for a 10% move in wood cost for the whole of Stora, which includes your sawn timber business as well as obviously your Latin American operations. Is there a guidance just so that we can think about the sensitivities for a 10% move just in the Nordic wood prices, just to understand the quantum? That's the first question. The second is thinking about the liquid packaging board of Beihai and given there's a number of capacity that's ramped up in China, just like any commentary that you can provide about profitability of your Beihai and China operations? Hans Sohlstrom: Yes. So first of all, our Beihai operation is doing very well. Also from a profitability perspective, it is one of the world's, if not even the world's most efficient board -- consumer board production line according to board machinery manufacturers statistics. So doing very well indeed. Excellent quality. I mean, we are competing in the high-end, highest quality liquid packaging board segment and consumer board segments in China, where we have a opportunity also to differentiate. And then when it comes to the wood costs, as you can see in our report, a 10% wood cost decrease would have a EUR 238 million impact on annual -- positive impact on annual EBIT. We haven't broken down that specifically for the Nordics, but the clear majority of this is the Nordics. So not all of it, but the clear majority. Cole Hathorn: And then maybe just as a follow-up, Niclas, your CapEx numbers come in nicely at EUR 550 million. It is lower year-on-year. It's the first time you're getting towards depreciation or below. I'd just like to think about how you're thinking about CapEx? And then, Hans, one for you on the EUR 500 million to EUR 700 million savings. Is there any color that you can give on what might be contributed in 2026? Because there are a number of moving parts this year. We do have lower prices. You've got potential positives from the Oulu drag being less negative. You've got the positives from potential wood costs, but the bucket that's missing is your own internal actions and efficiencies. Any quantum of that EUR 500 million to EUR 700 million that might be achieved in 2026 would be helpful. Niclas Rosenlew: Yes. So on the CapEx, we've done a fair amount of work on CapEx in latter part of last year and we discussed some of it in the CMD as well. And of course, one part of it is the, as we call it, the end of the heavy investment phase, which is primarily Oulu, but we've actually gone beyond that. I mean, we've looked a lot at where do we get returns, what type of investments are better, which ones are worse and so on and so on. A lot of categorization of our different assets, where do we invest, where do we not invest. So what you see now in the EUR 550 million guidance is kind of a summary, the outcome of this work. And it's -- in the end, it's all about discipline and returns. And I'm sure we'll learn more during this year and then we see how it moves beyond this year also. But the theme is clearly now let's be disciplined and let's ensure good returns on those investments we make. Hans Sohlstrom: And when it comes to the -- our own profit improvement actions, in the CMD, we explained that during 2024, we -- and then the 3 first quarters of 2025, we have achieved EUR 850 million of annual P&L impact and we are now at roughly EUR 900 million after the fourth quarter. And we also said that there is more to come. Currently, we have in the pipeline, EUR 500 million to EUR 700 million of projects and initiatives from a P&L impact standpoint. And as we said in the CMD, 2 to 4 years, 2 years if we also get some market tailwind. So in order to achieve about 10% EBIT margin level, so 2 years, if we get some market tailwind and 4 years if we have a continuous market headwind. So that's about the guidance I can give. Of course, the more you do these cost savings and streamlining, the harder it also gets. That's also good to remember. Niclas Rosenlew: Yes. And just to give you some additional color because it's a good team, nice team. So for instance, what we are looking at for the moment is fixed cost, how do we work efficiently within Stora Enso. And then also procurement is another area we are looking into as we speak. And there is potential. So it's quite positive and good. Operator: Our next question comes from Andres Castanos-Mollor with Berenberg. Andres Castanos-Mollor: It would be a follow-up on CapEx, please. How much of that EUR 550 million is allocated to forest? And how would our run rate of an ex-forest company look like for maintenance CapEx? Niclas Rosenlew: Now I'm actually looking at Jutta here across the table. How much of that is forest? I can't remember by heart actually. Jutta Mikkola: Right. It's not that much biological assets to some extent, but there also maturity would be actually Latin American CapEx. So it's not that much that goes into the forest. Hans Sohlstrom: So very, very little into the forest company as such. Operator: There are no further questions. I shall now hand back to Hans Sohlstrom; and CFO, Niclas Rosenlew, for closing remarks. Hans Sohlstrom: Thank you very much, all, for your -- for taking time and for your interest. As you can see, we are moving forward with speed and determination to improve our financial performance and to strengthen and build a better, more sustainable and more valuable Stora Enso. During last year, we have sharpened our strategic focus. We have defined our strategic priorities of leading in customer value, putting the customers in the center through innovation, sustainability and service and quality. We are looking to -- also to grow faster than the market, over 4% per annum. And we have a track record within renewable packaging of growing above 5% during the last 10 years and we are well invested to materialize this growth. We are expanding our margins to the well above 10% EBIT margins through our own actions regardless of market circumstances. And then last but not least, we are generating cash through disciplined capital allocation. Thank you very much for your interest. We are moving forward with speed and determination. Thank you. Bye-bye.
Operator: Greetings, and welcome to the Aurora Cannabis Inc. Third Quarter 2026 Results Conference Call. [Operator Instructions] This conference call is being recorded today, Wednesday, February 4, 2026. I would now like to turn the conference over to your host, Kevin Niland, Director of Strategic Finance and Investor Relations. Please go ahead, sir. Kevin Niland: Hello, and thank you for joining us. With me is Miguel Martin, Executive Chairman and CEO; and Simona King, CFO. Earlier this morning, we filed our financials for the fiscal third quarter 2026 period ending December 31, 2025, and issued a news release containing these results. This news release, along with our financial statements and MD&A available on our IR website as well as via SEDAR+ and EDGAR. We have also posted our investor presentation to our IR website for reference purposes. Our discussion today serves as a reminder that certain matters could constitute forward-looking statements that are subject to risks and uncertainties relating to our future financial or business performance. Actual results could differ materially from those anticipated in those forward-looking statements. Risk factors that may affect actual results are detailed in our annual information form and other periodic filings and registration statements. These documents may similarly be accessed via SEDAR+ and EDGAR. Following our prepared remarks, we'll conduct a question-and-answer session with our covering analysts. With that, I'll turn the call over to Miguel. Please go ahead. Miguel Martin: Thanks, Kevin. Our quarterly performance reflects our strong competitive position in the rapidly expanding global medical cannabis market and continued commitment to profitable and sustainable growth. This success is supported by our proven commercial execution and purposeful investments in science, technology and talent. Additionally, our dedicated focus on improving patient access and strengthening physician engagement has contributed significantly to these results in fiscal Q3. Let's begin with a brief review of the quarter. First, net revenue increased 7%, driven by a record 12% growth in global medical cannabis revenue, including a 17% increase internationally. Notably, more than half of our total net revenue was generated outside of Canada. Second, adjusted gross margin rose 100 basis points to 62%, where we benefited from strong medical cannabis margins of 69%, which was the result of sustained growth in our higher-margin international markets. Third, profitability held strong with adjusted EBITDA of $18.5 million and adjusted net income of $7.2 million. And finally, we generated positive free cash flow of $15.5 million and maintained our strong balance sheet with over $150 million in cash and the absence of cannabis business-related debt. Unlike most peers, we have focused on medical cannabis as the most promising industry segment for nearly a decade. We have, therefore, deployed considerable resources and investments, providing us with the following competitive advantages. We are one of Canada's largest global medical cannabis companies. We are Canada's leading exporter of medical cannabis. And finally, we are a market leader in the 3 biggest nationally legal medical cannabis markets outside of Canada. Notably, about 90% of our annual manufacturing capacity is produced within Aurora's European and TGA GMP certified facilities and is subject to very stringent international standards. These standards are only increasing, significantly limiting with the number of market participants. There is a limited number of cannabis companies like Aurora that have regulatory certifications for their manufacturing facilities that permit shipments directly to European and Australian markets. Aurora manufactures most of its own products and distributes them compliantly and profitably. This advantage helps to ensure consistency of supply around the world, critical to both prescribers and patients and achieves lower manufacturing costs through higher yields, potency improvements and other operational efficiencies. As this industry evolves, maintaining our momentum in global medical cannabis requires an even greater commitment. This entails dedicating our full attention to solidifying and growing our leadership position. Following a strategic review, we have identified the following actions. First, we will begin exiting select markets within the lower Canadian consumer cannabis segment, enabling us to further prioritize allocating products and resources to our higher-margin global medical cannabis business. Since consumer cannabis carries higher sales and marketing expenses than Medical, this will benefit adjusted SG&A and consolidated adjusted gross margins in the coming quarters. While we expect some onetime costs that will impact cash flow in fiscal Q4, once the initiative is complete, we anticipate higher adjusted EBITDA contributions thereafter. Second, in relation to our plant propagation business, we are divesting our lower-margin plant propagation operations by selling our controlling stake in Bevo to its other principal shareholders. Combined, these actions will allow us to allocate capital more effectively, deliver enhanced profitability, streamline our operations and improve execution quality. On a related note, today, we filed a prospectus supplement establishing a new at-the-market equity program. The ATM provides us the flexibility to issue and sell up to USD 100 million of common shares from time to time at our discretion. The company intends to use proceeds raised under the ATM program, if any, for strategic and accretive purposes only, including for increased cultivation capacity and potential M&A. With that, let's now dive into our individual medical cannabis markets. Germany is the largest individual medical cannabis market in Europe and remains closely watched across the region due to its outsized influence on neighboring countries. More than half of EU member countries have already integrated medical cannabis into health care, including reimbursement, which leads towards greater international alignment on regulatory approaches. This provides an obvious advantage for compliant EU GMP-certified companies like Aurora. The German market is still growing and was the primary driver of our double-digit growth in international revenue. According to German regulatory data, imports reached 72 metric tons in 2024 and are estimated to have more than doubled in 2025. Our successful commercial execution and strong reputation among wholesalers, distributors and pharmacists have enabled us to continue to gain share in this rapidly growing market. We have consistently maintained a broad selection of core and premium products for the German market. However, more recently, we enhanced our offerings by introducing a new medical cannabis brand that prioritizes affordability and expands patient options without compromising quality standards. While increased competition in Germany has led to some price pressure, namely affecting the value segment as new players enter and grow, our core and premium products, which represent most of our sales volume have remained largely unaffected in terms of baseline pricing. The German government is considering modifications to the current telehealth framework related to cannabis descheduling, but it is still unclear how developments will unfold. We want to ensure that reasonable access to high-quality medical cannabis for the general public is maintained. But should changes be implemented within telehealth, we will adapt just as we did in Poland. We are currently doubling production at our manufacturing site in Germany, increasing scale will facilitate yield improvements and operational efficiencies, allowing this facility to mirror the performance of our Canadian sites based upon the same industry-leading genetics and product consistency. In addition to the planned operational improvements, our German site joins our Canadian facilities that were recently GMP certified for another 3 years. This consistent supply of GMP manufactured product is vital as we prepare for further growth in Germany and adjacent regulated markets. Australia remains our largest international medical cannabis market, where we currently hold the #2 share in what could become a $1 billion opportunity according to the Penington Institute. Notably, most sales in Australia, both for MedReleaf Australia, which we fully acquired 2 years ago and for the market overall are concentrated in value-priced products. This differs significantly from our other national medical cannabis markets where our portfolio is anchored in core and premium offerings with stronger margins. We are actively working to shift our Australian sales mix towards the same world-class core and premium products we offer globally and expand patient access, including through additional distribution agreements. The Australian market is particularly attractive and positively impacting patient outcomes as it offers one of the broadest product format ranges outside of North America, enabling us to fully leverage our diverse portfolio beyond flower and oils. While we are confident in our ability to successfully elevate the product mix, we are working through some anticipated near-term pressure on both sales and gross profit during the transition. In Poland, through continued collaboration and effective commercial execution, we gained market share and held the #1 position in calendar year 2025. We are widely regarded as a key partner in advancing medical cannabis in the country and are benefiting from increased annual import limits, including in fiscal Q3, which further supports our continued growth potential. The market has certainly evolved, but we have successfully navigated the shift in prescriptions from telehealth platforms to clinics while maintaining solid relationships with the regulatory authorities. In our view, we are well positioned to maintain this leadership position in Poland, thanks to our very skilled team engaging with all the key stakeholders and our broadening product portfolio of high-quality medical cannabis products. We recently expanded our product portfolio with the launch of a third proprietary cultivar in Poland, following market success in Canada, Germany and Australia. These new cultivars are grown and manufactured in our GMP-certified facilities using premium hang drying and curing techniques to ensure consistently high-quality standards. In the U.K., we primarily operate in the premium and super premium segments where there is less competition, but an influx of value products in the market resulted in lower year-over-year sales during fiscal Q3. Our strategy is focused on expanding our distribution and clinic relationships through new partnerships, a critical step to onboarding and connecting with patients. Turning to Canada. We remain a strong leader in medical cannabis. Net revenue grew year-over-year during fiscal Q3 to a new record, and we gained market share, a key point of differentiation for us in the competitive market. Our priorities are enhancing our online marketplace, product innovation and assortment and ensuring a high-quality patient experience, especially for our valued veteran patients. In summary, we are reallocating and directing our resources to focus primarily on the global medical cannabis market, where we excel and see runway for growth. This involves gradually scaling back our Canadian consumer cannabis operations and are selling our controlling interest in our Plant Propagation business. We believe this approach will improve our operational efficiency, unlock greater opportunities in both our existing markets and new countries and drive sustainable revenue growth and profitability. Let me now turn the call over to Simona for a detailed financial review of fiscal Q3, followed by an outlook discussion. Simona King: Thank you, Miguel. We are encouraged by our fiscal Q3 results as reflected in our revenue growth, strong adjusted EBITDA, positive adjusted net income and free cash flow. Time and again, we have demonstrated the soundness of a medical cannabis first strategy and our consistent ability to deliver results aligned with our long-term objectives. Let's review fiscal Q3 2026 compared to the prior year quarter and then discuss our outlook for the full year. First, net revenue of $94.2 million represented 7% growth, supported by record contributions from our global Medical Cannabis and Plant Propagation segments. Second, consolidated adjusted gross margin rose 100 basis points to 62%, while adjusted gross profit reached $55.6 million, a 6% increase. Global medical cannabis held its robust 69% adjusted gross margin. Third, adjusted EBITDA was strong at $18.5 million, combined with adjusted net income of $7.2 million. Fourth, we generated positive free cash flow of $15.5 million. And finally, we ended the quarter with $154 million in cash, cash equivalents and short-term investments and no cannabis business debt. In medical cannabis, net revenue rose 12% to $76.2 million, inclusive of 17% growth internationally. We benefited from increased distribution in Germany and new product offerings in Poland, which combined with continued strong contributions from Canadian Medical. Medical cannabis comprised 81% of net revenue compared to 77% in the prior year and approximately 95% of adjusted gross profit. Adjusted gross margin for medical cannabis held strong at 69%, driven by high-margin international markets that benefited from sustainable cost reductions, high selling prices and operational efficiencies, including sourcing for Europe from Canada. Consumer cannabis net revenue was $5.2 million, down 48% from $9.9 million. The year-over-year change was the expected result of the company's strategic shift to focus on portfolio optimization and the allocation of cannabis flower to the highest margin business segments. Adjusted gross margins for consumer cannabis was 28% compared to 26% due to sales of higher-margin products. VIVO's plant propagation net revenue increased to $11.3 million, up 27% from $8.9 million in the prior year. Adjusted gross margin for plant propagation revenue fell to 16% compared to 40%. The decrease was due to increased contract labor and utilities costs as well as inventory write-offs of $1.1 million in the current quarter related to surplus plants. Consolidated adjusted SG&A increased 14.5% to $35.8 million. The year-over-year change relates to higher professional fees as well as additional headcount and contract labor costs in Europe and Australia that are supporting these growing higher-margin markets. Adjusted EBITDA was $18.5 million compared to $19.4 million in the prior year, with the decrease primarily related to lower adjusted gross profit in the Plant Propagation segment and an increase in adjusted SG&A. Adjusted net income held relatively consistent at $7.2 million compared to $7.4 million in the prior year. Our balance sheet remains one of the strongest in the global cannabis industry, and our cannabis operations are completely debt-free. Free cash flow was $15.5 million compared to $27.4 million in the prior year quarter, reflecting a decrease in the working capital recovery of $9.2 million. Let me now provide some thoughts on what we expect for our fiscal year 2026 outlook, which ends on March 31. Annual global medical cannabis net revenue is expected to increase year-over-year to between $269 million and $281 million, driven primarily by 10% to 15% growth in the global Medical Cannabis segment. Plant propagation revenue is expected to perform in line with traditional seasonal trends as 65% to 75% of revenues are normally earned in the first half of a calendar year. Consolidated adjusted gross margins are expected to remain strong as we have benefited from favorable sales mix due to higher global medical cannabis revenue, along with operational efficiencies in our manufacturing sites. And finally, annual consolidated adjusted EBITDA is anticipated to increase year-over-year with an expected range of $52 million to $57 million, representing 5% to 10% annual growth. This expected growth is driven primarily by net revenue increases and industry-leading margins in the global Medical Cannabis business. Thank you for your time. I'll now turn the call back to Miguel. Miguel Martin: Thanks, Simona. Our primary objective is to grow our business by capitalizing on the rapidly evolving global medical cannabis opportunity, which is projected to surpass $9 billion, thereby maximizing shareholder returns. We've established a strong competitive position by first building deep regulatory and world-class genetic capabilities, supported by an extensive network of GMP manufacturing facilities and then demonstrating consistent commercial execution excellence. This approach has enabled us to be a market leader with both health care providers and patients. Through our focused commitment to global medical cannabis, we will reinforce our market-leading presence in Canada, Europe, Australia and New Zealand and expand into additional markets as opportunities arise. We look forward to providing updates on our progress and strategic direction as we advance. Operator, we are now ready to take questions. Operator: [Operator Instructions] Our first question comes from Kenric Tyghe with Canaccord Genuity. Kenric Tyghe: Congrats on the quarter. I just wanted to follow up on the select market exit in Canada. If we look at the number on the print, you're looking at roughly a $20 million in revenues business on a go forward. Could you sort of speak to what the run rate would look like on a select -- on the exit from those markets? And perhaps also whether there's a point in time whether you could or would essentially fully exit consumer cannabis in Canada. Miguel Martin: Thank you for the question. We continue to evaluate exactly what that looks like. I think what we can say though is that those decisions will be beneficial or accretive to our overall financial results. What we've seen is that the reallocation of our resources, particularly that finite high-quality flower into the international market will make a significant difference in our overall financials. And so it's a bit of an evolution for us. The other point, I guess, I'd make is this isn't anything new. You've seen us continue to prioritize global medical cannabis over the last couple of years and done it very sort of successfully as we've gone through. And so we'll continue to be a bit flexible. Now your point about would we ever get out completely? I think that's something we continue to evaluate. We've been in rec cannabis or consumer cannabis in Canada since day 1. And so we still have that touch point. But again, our focus is profitability and growth. And if that is a decision that looks like it's best suited to be exclusively on the medical cannabis side, it's something we would do. Kenric Tyghe: Great. And just a quick one with respect to Australia. This premiumization strategy or sort of moving up market in Australia. How disruptive is that shift to your presence in the market? And what are your expectations around time line when we can sort of get a better handle on how this will play out and the benefits for that Australian business and what that Australian business will look like once you've sort of high-graded your portfolio in the market. Miguel Martin: Yes. I don't think we -- well, thank you for the question. I don't think it's disruptive at all. I mean Australia really started out under a model they call a concession model and a value model for those patients. And as we talked about, it's quite a large and diverse market, and there is an expansion and an interest by both prescribing physicians and patients for a variety of products on the premium side. And as you well know, it's not just flower and oil. So we run globally a premium and core model. So it's not disruptive for us at all, and it's very accretive in terms of margins. And so we know there's a lot of value flower available in Australia, like other markets, whether it's Germany, Poland, the U.K. or Canada, our sweet spot is the genetics production and delivery of core and premium medical cannabis products. And so it sits right in the middle of all that. So I think it's consistent and not disruptive in any way. Operator: Our next question comes from Derek Lessard with TD Cowen. Derek Lessard: A couple of questions for me. Just maybe talk about the strategic decision to exit the Plant Propagation and sort of the timing around the expected close of the transaction? Miguel Martin: Sure. I mean I think, again, focus and execution on global medical cannabis is what we've proven we're best at and where the most profitability is. I think consistent with the announcement we made on the consumer business, when we look at our resources and we look at the best use of our time and energy and focus, it really is in that area. And the investment in plant propagation, while interesting for a period of time, continue to evolve in a way that wasn't that. And so we saw a great opportunity in divesting that majority share to the shareholders that already exist there. There are some economics that continue that allow us to participate in the success of that, including earn-outs and the facilities that we've ended in. But when you look at investment and ROI of our time and resources, clearly with high-growth markets such as Germany and Poland and U.K., it makes absolute sense for us to put all of our time and effort there. And I think if you look at the last quarter and you look at the last couple of years, when we focus on global medical cannabis, the results have always been positive. Derek Lessard: Absolutely. Makes sense, Miguel. And maybe just one for Simona. I appreciate the additional full guidance on the year. How should we think about the plant propagation contribution to EBITDA, I guess, for the full year and maybe for Q4? Simona King: Yes. And as we continue to finalize the closing conditions and implications to our financials, we will have a better sense of the pro forma in Q4. As a result of this divestiture, we will no longer be consolidating the financial results of the Bevo business, so -- and will be treated as discontinued operations. So that will be the treatment going forward. And so I would say, Derek, the focus really should be on thinking through the implications to the global medical cannabis business and continuing to model and think about Q4 and the future around the strength of that business. So it really is focusing on the global medical side. Derek Lessard: Okay. And maybe one last one, I'll sneak one in, switching gears back to Global Medical. Your potential -- sorry, you pointed to Poland as one of the contributors to growth, which is great to see. Just maybe talk about how you've been navigating the pressure there or if anything has changed since last quarter, I think when you guys pointed to additional pressure given the changes in the regs there related to restrictions around the online consultations. Miguel Martin: Yes. I mean I think it's a great question. So these regulatory frameworks are evolving, albeit with a pretty specific scientific underpinning. We saw the change in Poland, as you mentioned, and what it required really was to lean back on a strong system, product development, product registration, distribution and specifically having a way to be able to connect to patients through clinics. And we were very quickly able to do that, I think, really built on the background of the strength of the medications and the reputation that we had, having physicians and patients want to get those products. And so we navigated quickly. Obviously, our results reflect that. That's why we're encouraged by what's happening in Germany with what may land there that we'll be able to do a similar execution. So these regs continue to evolve. You have to be agile, but I think having tremendous relationships with them, we have a very strong GR organization, a very strong regulatory team. And so we are able to work with the regulators as things evolve, and we think that's a strength of ours. Derek Lessard: Yes. Great job, everybody. And congrats again on the quarter. Miguel Martin: Thank you so much, Derek. We appreciate it. Operator: Our next question comes from Bill Kirk with ROTH Capital Partners. William Kirk: A point of clarity first. I have year-to-date global medical cannabis at $211 million. The full year guide is $269 million to $281 million. Are those numbers comparable. Because even the high end would imply quarter-over-quarter deceleration in 4Q and the low end would imply a big deceleration. So I guess the clarity point, am I looking at those numbers comparably? Simona King: Yes. So let me jump in on that one. So the guidance that we provided is the full revenue for the company, which is inclusive of Bevo in there. And so with this announcement today around the divestiture of our stake in Bevo, that's what we will be working through is the pro forma impact of that in Q4. So again, it's continuing to focus on the -- as we think about the implications for Q4 with those results being removed and shown as discontinued operations, it's really focusing on the medical cannabis, global medical cannabis revenues and trending those out. So keeping in mind that, that full guidance was reflective of total revenue. William Kirk: Okay. Okay. Because the -- in the press release, it says annual global medical cannabis is expected to be behind $279 million to $281 million. And year to date global medical cannabis is $211 million, right? Simona King: Yes. Yes. Just to clarify, that is correct, global medical cannabis. And so yes, we expect a strong quarter in Q4. William Kirk: Wouldn't that be implied $58 million to $70 million in global medical cannabis, and I think you just did over $75 million. So I think I'm looking at something wrong because that would imply a big deceleration in 4Q global medical cannabis from 3Q, 2Q, 1Q. Simona King: Yes, we do expect the ranges that we've provided in the expectations in the press release to be in line where we're projecting the full year to come in at. William Kirk: Okay. And then the follow-up would be, why do you expect a deceleration in 4Q? Simona King: So at this point, we're really focusing on the full year guidance and the ranges that we provided, which we believe will be in line with where we're trending. Taking into account, there could be some headwinds in some of the markets. So again, highlighting that this is a record result for us on a full year basis. William Kirk: Okay. And then one last one for me. The adjusted gross margin in the wholesale business I think it was 35% in the quarter. It's been higher than the consumer cannabis segment for a while. Why would the wholesale gross margin be higher than the consumer segment gross margin? Miguel Martin: Well, for a couple of reasons. One is that, that consumer business, not only for us, but for others is tight. And when you look at fully loaded where you sort of end up in that market, you end up with those type of margins. I mean I think you've seen it in the industry, it's not just us. The wholesale business is pretty good. I mean it's obviously not as good as when you distribute and sell it yourself. And so I think it's just indicative of what it is. The other aspect on the wholesale business is those products that we sell are not readily available all over the world because of some of the regulatory requirements. So I think it's inherent to what you're seeing overall. And like I said, it's not just us on the consumer side. Operator: Our next question comes from Brenna Cunnington with ATB Capital Markets. Brenna Cunnington: Congrats on the results this quarter. Just looking at the ATM, so you mentioned the funds for this could go to M&A. And so we're just kind of wondering like are there any potential assets that you might be interested? Is it potentially like cultivation capacity expansion opportunities. Or any other top goals for the funds raised from this. Miguel Martin: Yes. And thanks for the question and the comment. The -- with over $150 million in cash and then you have this, it really allows us to be opportunistic. Clearly, as you've seen from our announcement, our focus and really what we excel at is around that global medical cannabis point, and there are many sort of aspects to it. Clearly, cultivation of GMP flower and products for the international market are always an area of interest for us. Beyond the M&A point, we've invested over $40 million internally in significant capacity and quality upgrades in our existing facilities, which has helped us receive that GMP certification for another 3 years at 3 of them. So cultivation, as you mentioned, always of interest to us. But there are other aspects to global medical cannabis that potential -- have the potential as well, whether that's on the distribution side or the clinic side or other aspects. So it's really to be opportunistic, and we intend to use that clearly not for operations, but for accretive aspects, including M&A. And so I would say it would be consistent with what we're focusing on, but the exact aspects of it and what it might be, we're not in a position to say yet, but we'll obviously update folks as that becomes more specific. Brenna Cunnington: Okay. Perfect. Fair enough. And then just looking at the exit from a lot of the consumer cannabis in Canada, what type of SG&A savings might we see from that? Miguel Martin: Yes. I mean we're continuing to value that. I mean I would say you'll see some of that reporting as you see the full year and then into Q4. We definitely think it's going to be a benefit though the other aspect beyond the SG&A savings is taking those inputs, as you heard from the previous question and put them into higher-margin markets. So the differential between the margins of, say, our consumer business and international markets is significant, and you've seen where the overall margin landed. So I think more to follow on what it is. You heard from Simona's comments about the benefits that we believe financially that will provide us, and we look forward to sharing that with you once those sort of work their way through. Brenna Cunnington: Perfect. And then if I could just sneak in one little last one. So on the international markets, just out of curiosity, are there any other international markets that you may be looking at? Miguel Martin: I mean we look at all of them as they come online. We're in 12 countries today. We've got a regulatory team and a product registration process that has allowed us to enter every market that's come online. Typically, we like to have markets that have a science sort of thorough regulatory profile, which we're starting to see in Europe. So the latest new markets that are bringing medical cannabis on places like Switzerland, Austria, France and some others, we are working to bring our products into those markets. But we're very excited about potential developments in other new countries such as, say, Ukraine and Turkey. And again, we've been very successful because of our stringent regulatory requirements and GMP products to be able to enter them as they come online. So we continue to see global growth. I know there's a lot of interest in the U.S., but we've seen the growth in medical cannabis regulations and overall systems throughout Europe and in parts of -- other parts of the world. And so we'll be there as they come online. And I think we've demonstrated that we can be successful not only launching but also sustaining our business in those markets. Operator: [Operator Instructions] Our next question comes from Pablo Zuanic with Zuanic & Associates. Pablo Zuanic: Miguel, I also want to discuss supply chain. But just first, one question on the U.S. In your opinion, if we get rescheduling as it's been announced, would that allow you to enter the U.S. market? Are we thinking we're going to have a federal legalization of medical cannabis. Will Aurora be able to participate given its expertise or the rescheduling doesn't necessarily mean federally legalizing medical cannabis. What's your opinion on that? Miguel Martin: It's early days, Pablo, first and foremost, what the Trump administration announced is very consistent with what we've said is important, medical cannabis first, a regulatory -- strong regulatory approach. And we think that lines up beautifully for a company like Aurora that operates in regulated markets all around the world. As it's been laid out, and we haven't seen any of the final details of what a Schedule I to Schedule III would look like, it does not allow a Canadian company traded on the NASDAQ to directly go into that market. It does expand research. It does start to open the door for some variety of different things, but we'll have to see what the details look like. But it is a step in the right direction. We're very encouraged by that. But again, it was a very strong medical message. That photoop in the White House with doctors and folks from the medical community really reinforces what we've always believed, which this will be a medical-first opportunity, which is why we think Aurora is so well positioned when we get there. Pablo Zuanic: Look, and regarding supply chain, it's a bit of a 2-part question in terms of understanding what you have right now and then how you're thinking about acquisitions. In terms of what you have right now, for example, you said in the call that most of the products that you sell are own products in your facilities. But does that mean 51%, 90%. If you can give some color in terms of how much you're buying from third parties, that would help. A reminder of what you have in terms of your current facilities and looking back, lessons from the Aurora Sky facility. So that part of question in terms of what you have now. In terms of buying cultivation capacity, are we talking about indoor versus greenhouse? Are we talking about small little craft growers? Are we talking about just Canadian or maybe other countries? Any color in that sense would help? Miguel Martin: Sure. So the majority -- I'm not going to give you a number, but it's closer to 100% than it is to 50% of the products that we sell internationally, we produce, distribute and sell ourselves. A really important dynamic for everybody to understand is the GMP flower dynamic. That standard is getting more challenging. It is difficult. And once you get that certification, which you need to have, say, for Germany, the fastest-growing market in Europe, you have it for 3 years. So we've got 3 of our largest facilities just received that certification, which is very exciting. And so GMP premium flower, those prices continue to be solid and in some cases, go up and is our focus. In terms of facilities and potential acquisition, we have the benefit of having one of the largest genetic facilities in the world, a facility called Aurora Coast off the West Coast of Canada. Those genetics that are created there that we use ourselves and also sell to others have been successful both in indoor, which is our primary method of current growing as well with greenhouses, which many of our customers use those genetics. So both work, and you can get GMP certification in both. We obviously have a long history in indoor, but that doesn't mean that we are bound to it. I will say Canada continues to be the best place to grow high-quality premium GMP flower in the world, and we're proud of that, and we continue to see great opportunities to ship it. So it's a big competitive advantage for us to be able to grow that much flower, be one of Canada's, or if not the largest, one of the largest exporters of GMP flower. And that's a core part of why we've been successful and will be successful going forward. Operator: We have reached the end of our question-and-answer session. There are no more further questions at this time. I would now like to turn the floor back over to Miguel Martin for closing comments. Miguel Martin: Thank you very much. We are very excited about this quarter and more importantly, very excited about the future of Aurora Cannabis, and we're thrilled to share some color with you here today. We'll continue to update you. We hope everyone is safe and well. All the best. Operator: This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
Operator: Good morning. This is the conference operator. Welcome, and thank you for joining the Cr�dit Agricole Fourth Quarter and Full Year 2025 Results Conference Call. [Operator Instructions] Today's speakers will be Ms. Clotilde L'Angevin, Deputy General Manager of Cr�dit Agricole; and Mr. Olivier Gavalda, Chief Executive Officer of Cr�dit Agricole. At this time, I would like to turn the conference over to Mr. Gavalda. Please go ahead, sir. Olivier-Eric Gavalda: Thank you. Good morning, everyone. It's a pleasure for me to share with you the strong results published this morning by Cr�dit Agricole S.A. that Clotilde will describe extensively in a few minutes. Before that, let me start with a brief introduction and highlight the key commercial and financial figures as well as give you an outlook for 2026. On this slide, once again, and despite the uncertainties and erratic events in 2025, Cr�dit Agricole S.A. is posting high results for 2025, reaching again a level above EUR 7 billion, and this performance is supported by a very dynamic commercial activity. Net income group share amounts precisely to EUR 7.1 billion. It is a stable level compared to 2024 despite the tax surcharge of EUR 147 million recorded this year. So in fact, excluding this tax surcharge, it is a slight increase. These very good results are driven by an increase in revenues by 3.3%, thanks to a dynamic commercial activity this year that I will further illustrate in a few minutes. These very good results also translate into strong profitability with a return on tangible equity of 13.5%, stable compared to last year, and the capacity to distribute a dividend of EUR 1.13 per share, increased by 3% this year. CASA CET1 ratio is above the 11% target. Its level is of 11.8% at the end of December. We confirm that very high solvency level of the group with a CET1 ratio of 17.4%, placing us among the most solid of major European banks. A few words on the fourth quarter that Clotilde will describe in much more details afterwards. Q4 is impacted by Banco BPM first consolidation for EUR 607 million. Thanks to this consolidation, there will no longer be volatility in the P&L linked to the evolution of Banco BPM share price, as this operation sets the foundation of a regular contribution of Banco BPM to our results, around EUR 100 million per quarter regarding the 2025 performance of BPM. On the next slide, in 2025, we have experienced numerous commercial successes. A few examples deserve to be highlighted. We have acquired 2.1 million new clients, best performance in the history of Cr�dit Agricole. Loan production for our retail banks increased by 15% compared to 2024, reaching EUR 140 billion. Insurance premium income set a new record at EUR 52 billion, up 20% compared to 2024. Amundi's net inflows were multiplied by 1.6 to reach EUR 88 billion. CACIB reaches record results driven by all its business lines across our different geographies. And despite the difficulties incurred by CAPFM in the automotive market in Europe and China, the level of activity remains high, particularly in Personal Finance. Furthermore, in 2025, Cr�dit Agricole S.A. continued its momentum in partnership and investments, notably with structuring partnerships and targeted acquisitions in Europe, Asia and U.S. We can, in particular, mention launch of partnership with Victory Capital in U.S., increase in our stake in Banco BPM in Italy, long-term partnership with Crelan in Belgium, acquisition of noncontrolling interests in CACEIS and major partnership with ICG in Private assets. These key transactions strengthen the group's position as a leading European player and accelerate its development in high potential markets. On the next slide, our solid results reinforce the financial ambitions set in our strategic plan. All in all, as illustrated in the chart in pro forma data, the results achieved in 2025 are fully in line with the trajectory on -- of the -- our plan and reinforce our confidence in our ability to meet objectives we have set regarding our revenue growth, net income group share, return on tangible equity and cost/income ratio. For the cost/income ratio, we have reached a peak point, and I'm very confident it should drop in the next quarters. More specifically, 2026 outlook is based on the set of favorable factors, in particular, the continuation and acceleration of the commercial momentum, amplified by the rollout of new strategic initiatives of our plan, the gradual integration of recent acquisitions and realization of synergies, the Retail Banking and Personal Finance business line in France are expected to continue to benefit from the upturn in margins, whereas mobility activities are set to see a recovery in profitability. Corporate Investment Banking should continue to perform in volatile environment. And finally, Banco BPM will now make a recurring and high contribution to profit of around, as I said, EUR 100 million per quarter. Obviously, uncertainties, and you know that, will remain high. In the last slide, as it is, many investments undertaken in 2025 have already materialized or will materialize in the coming weeks and coming months. We are truly off to a running start. Here too, a few examples, starting with our efforts for acceleration. First, concerning retail banking in France, we can mention that the regional banks have developed as part of their 2030 ambitions, the 100% digital housing loan journey. LCL has just deployed its digital offering for professionals and is preparing its easy digital offering for individuals. The transformation of LCL is on track. We have launched Indosuez corporate advisory to serve midsized companies, and we can mention also a few upcoming international developments, particularly the European savings platform will be launched in April in Germany. In Asia, CACEIS will open a branch in Singapore in 2026. And of course, our transformation and simplification efforts will continue, particularly around AI, as well as our innovation efforts with, for example, CACEIS, CACIB and Amundi joining forces to launch initiatives in the world of tokenized finance. All these projects and the value created by our recent acquisitions make me very confident about the future. Our development in France, in Italy, in Europe and in Asia is on track, and our model demonstrated its strength once again. Now, it's time to give the floor to Clotilde, who will provide you with a more detailed presentation of our quarterly and annual results. Thank you, and see you soon. Clotilde, over to you. Clotilde L'Angevin: Thank you, Olivier. Hello, everybody. So moving to the slide regarding the key figures. You see here that we have strong annual results, as Olivier was saying, that are, in particular, stable for CASA this year without any form of adjustments. Now, in the quarter specifically, the results for Group Cr�dit Agricole and for CASA were impacted in particular by Banco BPM effects. One that I'm going to detail a little bit further down on the revenue front, an impact of the fluctuations in the share price of Banco BPM for EUR 320 million. And another on the net income front, an impact of the first-time consolidation of Banco BPM for EUR 607 million. And this explains the decrease in net income by 23.9% for Group Cr�dit Agricole and by 39.3% for Cr�dit Agricole S.A. this quarter. Now, if we look at the annual results, however, the revenues are record in 2025, both for the group, it increased by 3.9%; and for CASA, it increased by 3.3%, thanks to dynamic activity in all of the business lines, and in particular, for the group, thanks to the rebound in net interest income in France. The gross operating income, as you see, was up this year despite the investments that Olivier was talking about to set the stage for future developments in our medium-term plan. We have operational efficiency that is well managed with the cost-to-income ratio at 55.7% for CASA and 59.6% for the group. The cost of risk is under control. We have a cost of risk on outstandings of 35 basis points, sorry, for CASA compared to 34 last year and 28 for the group compared to 27 last year. And so all in all, net income group share reached EUR 8.8 billion for the group and EUR 7.1 billion for CASA. This is, in particular, stable for CASA despite the impact of the additional corporate tax charge, which is EUR 280 million for the group and EUR 147 million for CASA. The increase in net income would have been 1.8% for CASA and 4.6% for Group Cr�dit Agricole, excluding this impact. Now, if I move to the next slide, activity supported this strong growth in revenues over the year. And in particular, we have activity that was sustained across all of the business lines this quarter and over the year. Now, customer capture was strong, 517,000 this quarter, which brings the total for the year to the 2,100,000 new customers that Olivier was talking about in France, Italy and Poland. And our customer base is also expanding this year. Activity was strong, in particular, in retail banking in France. I talked about it for the group. Loan production was dynamic, driven by the corporate loan production that increased by 14% quarter-on-quarter and 16% year-on-year. And the home loan production was also strong, 9% quarter-on-quarter, 21% year-on-year, in particular, in the regional banks this quarter. And over the year, we have again an increase in market share for the regional banks. International loan production was also strong, in particular in Italy, with a 5.4% growth rate quarter-on-quarter in corporates and individuals, but also, for example, in Poland, thanks to retail. And so outstanding loans increased in all of our markets. On-balance sheet savings also increased in all of our markets, and the off-balance sheet savings inflows were dynamic in France and in Italy. And so this translates into the performance of insurance. We had record net inflows over the year in life insurance, EUR 15.9 billion. And this quarter, they were strong, driven by France and both by unit-linked and the euro fund. The premium income in insurance is high. It crossed in 2025, the EUR 50 billion threshold with a 20% increase this quarter, thanks, of course, to savings and retirement. You know that there's a context of increased precautionary savings, but also thanks to the P&C activity to individual death and disability insurance and to group insurance. And so P&C activity is growing both in France and internationally with 17.9 million contracts in our portfolio, and the equipment of our customers continues to increase in all of the retail networks. In Asset Management, we have a record level of AUMs of EUR 2,380 billion, thanks mainly to strong inflows. Olivier was talking about the EUR 88 billion inflows over the year, EUR 21 billion this quarter, thanks to medium to long-term assets into the JVs, and in particular, passive management and to continued strong momentum in third-party distribution. In Wealth Management, activity was also strong this quarter with record net inflows and strong customer capture. In Wealth Management, just to parentheses, the integration of the group is well underway. We have 30% of synergies that are already achieved, and this allows us to comfortably confirm our guidance of EUR 150 million to EUR 200 million net income group share contribution by 2028. In Personal Finance and Mobility, production was also high, EUR 12.1 billion this quarter, thanks in particular to dynamic activity in Personal Finance. As you know, the automobile activity was impacted this quarter and this year by unfavorable market conditions, but we have managed loans that increased across all segments. Production and leasing was dynamic this quarter, thanks in particular to renewable energy in France and benefiting from the integration of Merca Leasing. And finally, in the large customers division, the CIB confirms its performance with a new record level of Q4 and 2025 revenues, thanks both to market activities, where we had a strong performance in rates and repo activities and to financing activities, in particular, in the telco sector in Corporate and Leverage Finance. And of course, we maintain our leading positions on syndicated loans and bond issuances. And finally, in Asset Servicing, we have assets under custody and assets under management that increased this quarter, thanks to positive effects -- market effects, sorry, but also to the arrival of new customers. And the ISB integration is now finalized. Customer and IT migrations are completed, and the synergies have been achieved at a rate of 66%. And so we're very confident on our guidance of EUR 100 million of net income for 2026 contribution of ISB integration. By the way, I was talking about the growth in ISB. If you're curious, on Slide 41, we have analyzed the majority of our 2015-2022 transactions in order to look at the return on investments of these past acquisitions, which is, of course, on average, higher than our 10% limits, 13% as of 2025. And it's too early to calculate a 3-year ROI for the 2023-'24 operations, but we already have strong ROIs to date, and the synergies are on track for the 3 main operations of the period. I was talking about ISB for CACEIS and the Group, but also ALD, which is very profitable. Now, moving to revenues. So this activity, the dynamism of activity translates, as it has been doing, as you can see on the figure on the right for the past 10 years into revenue growth. Now, this quarter, CASA revenues were impacted by a negative Banco BPM share valuation of minus EUR 57 million. And so compared to the Q4 positive effect of EUR 263 million, this valuation impacts the change in revenues by EUR 320 million. Now, recall that until the first consolidation of Banco BPM in December, we have fluctuations in the share price of Banco BPM that impacted our revenues. And so we do still have this fluctuation. And this is why, in particular, we wanted to limit the exposure of our income statement, sorry, to the volatility in Banco BPM share price. And this is why we asked and we received the authorization by the ECB to cross the 20% threshold in order to equity account our stake within the framework of significant influence, and this is consistent with our position as a long-term shareholder and partner of Banco BPM. Now, going forward, this stake will be immune to the fluctuation of the share price of Banco BPM, and it's going to generate regular net income of, as Olivier was saying, if we base this on the past income statements of Banco BPM, about EUR 400 million per year. This is strong value creation. Recall that, over the past years, we have had strong value creation also, thanks to, in particular, the dividend earnings from Banco BPM. And so all in all, the contribution was EUR 200 million in 2023, about EUR 600 million in 2024 and about EUR 200 million in 2025, including, and I'm going to come back to it just afterwards, the impact of the first consolidation. So you see we have a strong value creation in our accounts in the past and in the future, thanks to this share in Banco BPM. Now, if I come back to revenues, excluding this EUR 320 million impact, the revenues increased by 2.7% this quarter, and this is thanks to the sustained activity that I was talking about in our business lines. The revenues increased by EUR 60 million in asset gathering. We have a scope effect linked to the Amundi U.S. deconsolidation, but also a scope effect linked to the integration of our insurance activities that are in JV with Banco BPM. And these 2 scope effects more or less cancel out. Besides this, activity was strong in all of the business lines. Revenues also increased in CIB despite an unfavorable foreign exchange impact and in asset servicing, thanks to strong fees and commissions income. In SFS, the revenues were impacted by EUR 30 million base effect that we have talked to you about last year in Consumer Finance. But on the other hand, we had revenues in leasing that benefited from the integration of Merca Leasing. And besides this, revenues benefited from favorable price and volume effects in Consumer Finance, which off-setted the decline in mobility revenues. You know that we have mobility revenues in our Cr�dit Agricole Auto Bank entity. And finally, the revenues increased by EUR 91 million in retail banking in all geographies, thanks to the strength of fees and commissions income in Italy and in France. And in France, finally, thanks to the rebound in net interest income. So as you can see, we're starting to see what we talked about in the medium-term plan on net interest income, a net interest income that's going to continue to slightly decrease in 2026 in Italy, but net interest income that will increase in LCL, by the way, also in regional banks, thanks to the reduction in the cost of resources, we have a normalization of the customer deposit mix and the rate effect and thanks to the gradual repricing of loans. So all in all, we have growing revenues in the businesses, continuing the dynamics that you observed over the past 10 years. Now, if I move to costs. The cost-to-income ratio has increased this year at 55.7%, but it remains very under control. It's an increase of 1.3 percentage points after 15 percentage points drop between 2015 and 2024. And if we look at the quarter, you see that we have a growth by 4.7%. But if we break down the expenses, you'll see a certain number of elements. First, we have scope effects. We have scope effects linked to the deconsolidation of Amundi U.S., but we also -- negative, but we also have positive scope effects from the integration of insurance entities in partnership with Banco BPM, Banque Thaler and the resumption of depository activities. So these both scope effects, as you can see on the right, along with the integration and acquisition costs, they more or less cancel out, first point. The second point, we have restructuring costs. You know that we talked about in the last quarter about EUR 80 million restructuring costs for Amundi in the context of an optimization plan in France, Italy, Germany and Australia that will generate EUR 40 million of annual savings from 2026 onwards. We have in addition to that for EUR 8 million this quarter. But more importantly, we have strong restructuring charges in Italy, EUR 65 million. This is really, as Olivier was saying, to prepare for a medium-term plan, i.e., the growth in digital customer capture, productivity efforts on administrative activities, improved sales force expertise. And then, if we take off these scope effects and restructuring costs, we have a growth that is very limited in recurring expenses, 2.5%. And this growth also allows us -- this growth in recurring expenses also corresponds to investments within our medium-term plan, for example, in LCL to continue to transform our distribution model, for example, in CIB, in cash management and equity solutions. So we're really laying the ground for our medium-term plan with these expenses. Now, if I move to cost of risk, cost of risk increased by 5.9% this quarter. But if you look at the Stage 3 incurred cost of risk, you'll see that it's very stable compared to the Q3 and Q2 levels. Now, what are the exceptional items that explain the increase in cost of risk this quarter? There's mainly 2 exceptional items. The first one is a EUR 41 million provision on the U.K. car loans litigation. As you know, we have a 2% market share. So it's limited for us. Of course, all of the CAPFM U.K. entities immediately complied with regulation on -- it's the setting of rates by distribution intermediates. But we are subject, as the other players that have a larger market share, to customer claims related to the past. And so we decided to prudently increase our provisioning in the context of an ongoing consultation by FCA to bring the total stock of our provisions to EUR 88 million. And so the outcome of the consultation is expected soon, hopefully, by the end of the month. And the second exceptional effect is a EUR 30 million provision. This corresponds in Italy, again, to a market element. It corresponds to our current estimation of our 5% share of bailing out of a small digital bank in Italy, which is Banca Progetto, bailing out by the Italian deposit guarantee scheme. And so, as I was saying, besides these elements, the Stage 3 cost of risk is very close to the Q3 and Q2 levels. 44% of the Stage 3 cost of risk is explained by SFS, where the risk has been relatively stable over the past quarters. Then, we have 32% for LCL with an increase in individual risk on corporates, mainly in retail distribution sector. And then, we have a little bit in Italy in CIB. In CIB, the cost of risk remains very low with investment-grade customers mainly in a diversified and a balanced geopolitical risk. So if I conclude on this slide, there's no surge in loan loss provisions, even though, of course, we monitor closely the corporate customers in retail banking, and in particular, for example, small real estate developers, construction, distribution, automobile, textiles and more generally SMEs. But our lending policy is cautious. And as always, our provisioning is very prudent. And as you can see, our main asset quality indicators are very solid. The cost of risk as a share of outstandings is low, both at CASA and group. The loan loss reserves are very high, and we have among the best coverage ratios in Europe, both for the group and for CASA. I'm going to move very quickly on to the next slide, just to tell you that for Cr�dit Agricole Italia, in particular, you see that the cost of risk on outstandings is stable at 39 basis points, excluding the Banca Progetto provision. And you see that we have relatively stable cost of risk after very low quarters, by the way, in beginning of '25 and end of 2024. Moving on to the slide on quarterly results. So we have strong activity, managed operational efficiency, cost of risks that are under control. But, however, our results in the fourth quarter were impacted by 2 exceptional effects that I'm going to explain in a little bit more detail right now. First of all, a first effect, which is a negative impact, as you can see on equity accounting of the performance of our JV with Stellantis, which is Leasys with a minus EUR 111 million contribution. Now, what happened? In CAPFM, we have 3 growth drivers in 22 countries. And we have 2 growth drivers that performed well in 2025, the servicing to the bank entities and personal finance, which is restoring its margins. There was one growth driver, mobility that suffered in 2025 due to market conditions, in particular, because the automobile market has been suffering in 2025. And on top of that, the car manufacturers that we have close ties with have had specific difficulties. So I'm thinking of GAC in China. I'm thinking of Tesla in Europe. And of course, I'm thinking of Stellantis with which we have our JV. So the 3 entities that we have on mobility, one is Cr�dit Agricole Auto Bank, for which we have gross operating income, which is good. The second one is our JV with GAC Sofinco, where production has been impacted, but results are positive, and production is picking up in the last month of the year. And then, finally, Leasys. Now, the difficulties faced by Stellantis reduced the attractivity of the range of vehicles. And so Leasys, which is the JV we have with Stellantis, has to make commercial investments, and the performance of remarketing was impacted. And so, in the Q4, we decided to review all of the remarketing values of our used vehicles portfolios in Leasys, systematically applying a conservative discount compared to market prices. So this impacted the Q4 results, but it's going to strengthen our financial base for Leasys, and it allows Leasys to prepare for a rebound in profitability because we're well positioned to benefit from the growth, which is coming in the long-term leasing market. We're starting on a solid footing, and we also have a strong position in particular in Italy, number one. And going forward, we're going to roll out new services and insurance solutions focusing on added value. That's the first effect. The second effect is one that you know better, which is the impact of the first consolidation of Banco BPM. So you recall that we acquired Banco BPM shares in tranches, each at a different price. And so when we consolidate for the first time, we decided to take a prudent accounting position, which is to take as reference the equity value and not the share price. And so we assess at each date of the acquisition, our share of the net assets acquired. So we carve out the fair value effect in P&L and OCI for about EUR 1.9 billion. It's negative because the price is higher today than what it was when we bought the shares. And then, conversely, we recognize a badwill effect, which is the difference between the price of the shares at the moment of the acquisition and the equity value of our participation. And then, there's an adjustment to net book value and net position. And so all in all, since the difference between the price of our participation at the time of consolidation and the equity value of our participation today is positive, we have a P&L impact that's negative. But as I was saying, going forward, based upon Banco BPM's past results, we should have an increase of about EUR 100 million of net income per quarter. So this quarterly net income has these exceptional effects that made it a little bit complicated to read. But if you look at annual results without any form of restatement, we have stable results at EUR 7.1 billion. So we have a certain number of exceptional elements that more or less cancel out. We have the impact of the first consolidation that I talked about of Banco BPM. We also have in the Q2, the capital gain linked to the deconsolidation of Amundi U.S. in the Q2. And we also have an additional corporate tax charge for EUR 147 million. And so if you exclude all of these elements on the right of the figure, you see that we have a gross operating income, which increased in 2025 by 1.3%, thanks to buoyant activity in our business lines and thanks to our constant attention to operational efficiency. And cost of risk is under control. And so all in all, you remember that we had told you that we would have a stable net income over the year, excluding additional corporate tax. Now including this, it's stable. And excluding it, net income would have increased by 1.8%. Finally, as indicated by Olivier, the ROTE is high at 13.5%. Pro forma, it's at 13.9%, and this bodes well for 2028 financial trajectory. Now, if I move to capital, for CASA, recall that the target in our medium-term plan is 11%. So we still have a very high level of CET1 this quarter, 11.8%, about 300 percentage points -- basis points, sorry, above our 8.75% SREP requirement. And this is thanks to, first, retained results, 22 basis points, which are the consequence of the generation of income that I commented before, but also integrating a 50% payout, payout based upon a distributable net income, which we adjusted to exclude the capital gain related to the deconsolidation of Amundi U.S. for EUR 304 million. It's not a cash effect and to exclude this accounting effect of the EUR 607 million P&L impact of the first consolidation of Banco BPM. And so this amounts to a dividend of EUR 1.13 per share, an increase compared to last year of 3%. Now, if I come back to the waterfall, we also have the effect of the organic growth for the business lines, 6 percentage points. And we have an active management of our balance sheet. In particular, we have optimized, as planned in our medium-term plan, our RWAs through the synthetic risk transfers for about 7 basis points, and this allowed us to release EUR 1.6 billion RWAs in CACIB net and EUR 0.6 billion in Cr�dit Agricole Personal Finance and Mobility in the fourth quarter. So we're going to really have an attitude which is scarce resource monitoring, always making sure that the cost of release is accretive. But you see here that we have this active management of the balance sheet, which allows us to compensate almost the methodological impact in the M&A and others. These M&A impacts include a plus 9 basis points impact of Banco BPM. Now, we have a negative impact of the EUR 607 million P&L first consolidation effect that I talked to you about, 14 basis points. And then, there's naturally because we have this prudent view regarding our equity accounting, there's a decrease in the prudential value of Banco BPM and our CET1. So we have a positive impact corresponding to the reduction in RWAs corresponding to this decrease. And this is why the impact of the first consolidation is positive for CASA and nonsignificant for the group because for CASA, this positive impact is stronger because our exemption threshold for the significant participations above 10% had already been full. So this is why we have a different impact between CASA and the group on the next page. This box also includes a share buyback impact, which compensates the Q3 impact of the capital increase for employees in order to neutralize the dilutive impact of that Q3 capital increase. This is 9 basis points. And we have a couple of small M&A impacts of which beginning of the participation in ICG. And finally, we have a few methodological effects. For example, in Italy, we have put in place new retail RWA models. This was included -- this is about 15 basis points, and this was included in the 40 basis points methodological impact we announced on our Capital Markets Day. And so the waterfall brings us to 11.8%, which is very comfortably above 11%. And then slide CET1 Group Cr�dit Agricole, next slide. I'm going to go very quickly on this because I talked about the effect regarding Banco BPM in particular. But I just wanted to insist upon the fact that our objective is not to accumulate capital at the level of CASA. And so that's why in terms of solidity, the relevant figure is the CET1 of the group, which is very comfortable at 17.4%, a 760 basis points distance to our SREP requirements. And so we have organic growth of businesses, and we also have a slight methodological impact regarding the correction of corporate loss given defaults for the regional banks. Leverage ratio is very comfortable. TLAC and MREL ratios are very strong. So we have a very strong capital position at the level of the group. On Slide 18, we also have a very comfortable liquidity position, a high level of liquidity reserves at EUR 485 billion. The LCL and NSFR ratios are excellent. NSFR is going to be published end of March, but in the Q3, we were close to 120% for the group, 114% for CASA. And the group has mobilized various levers to diversify the sources of liquidity, thanks to its universal banking model. One, our customer deposits that are abundant, stable, diversified and granular. And so our liquidity coverage ratio is very high, above our targets, which is a range between 110% and 130%. On the next slide, we have our transition plan that continues to be organized around 3 pillars: accelerating of the development of financing to renewables and low-carbon energy sources that has increased from the first half to EUR 28.6 billion in 2025. We're also helping our customers in their own transition by providing financing consistently with the group's sustainable asset framework. This has increased this quarter to EUR 116.5 billion. And finally, we continue to decrease our financing to carbon-based energy sources. And so moving on to the next slide, let me conclude by saying that this quarter, net income is impacted by an accounting effect linked to the impact of the first consolidation of Banco BPM and by the difficulties of the automobile market. These 2 elements should, in fact, disappear in 2026 and contribute on the other hand to growth, thanks to the growth in mobility and thanks to the regular high recurring profit contribution of Banco BPM. Activity was sustained in all of the business lines with record inflows, outstandings and premiums income and asset gathering, record performance in CIB, a strong pickup in net interest income in France. The fourth quarter, as Olivier was saying, marks the beginning of the medium-term plan, and we have already started rolling out the different dimensions of our plan in retail banking in France, in Germany in terms of innovation and efficiency. And so the gross operating income increased in 2025 for CASA and the Group. Income is high at EUR 7.1 billion, and this strong performance allows us to post high profitability with an ROTE of 13.5% and to propose to the general assembly an increasing dividend. So we're very much on track to meet our 2028 financial targets. I'm going to stop here. Thank you very much for your attention. We can now open the floor to your questions. Operator: [Operator Instructions] The first question is from Jacques-Henri Gaulard, Kepler Cheuvreux. Jacques-Henri Gaulard: The question is a bit conceptual, but when I look at your results and revenues in particular versus consensus, I mean, very strong activity everywhere, you've beaten, it's very strong. But at the same time, Clotilde, I feel for you because you spent the last 45 minutes literally going through every single one-off and restructuring and everything. And at the end of the day, your stock is down 3%, which I think is a bit harsh. So -- I mean, I totally appreciate the whole non-recurring aspects of Banco BPM and everything. You've explained the legal cases. But, is it fair to say that the reason why you ended up with that accumulation of nonrecurring aspect is probably due to the fact that you have a plan coming and you need a bit of a reset for a perimeter you feel comfortable with over the next 3 years and everything? Or is it actually the problems of having a decentralized structure, which means that you end up at the end of each quarter with an accumulation of things that were not necessarily planned at the beginning? Just to try to figure out when we can actually expect something quite clean, if you see what I mean. Clotilde L'Angevin: Yes. Thank you, Jacques-Henri. I see what you mean, and thank you for feeling for me for the 45 minutes. It's true that we really want to set the stage for the medium-term plan. And so that's why we were very satisfied when we received the authorization from the ECB to equity account our stake in Banco BPM because that's going to reduce fluctuations and provide high and recurring profit going forward. We intentionally accounted for the restructuring costs in Amundi and Cr�dit Agricole Italia in 2025 because this again sets the stage for our medium-term plan and growth going forward in retail, in asset management. But we're also -- I didn't talk about it too much, but we're also investing also in CIB, in LCL. So the costs that you have this quarter really reflects this investment that we have for the future in our medium-term plan. Now there are a few one-offs that don't depend on us, in fact, regarding, in particular, the U.K. provision and the Banca Progetto restructuring. And we have this issue in terms of the automobile market, but all of this should pick up. And I think what we really want -- what I really want to insist upon is the fact that we have really an outlook that's going to be strong for 2026 because we also have the integration of the recent acquisitions. That's also something that's going to pick up. We no longer have these integration costs for CACEIS. We have very limited integration costs that are going to be coming in 2026 for the group, but it's going to be limited. And as you can see, we're on Slide 6, we really have a lot of tailwinds going forward, in particular, with margins that are going to pick up, in particular, for French retail and for consumer finance. And of course, performance continues to be very strong in CIB and Cr�dit Agricole Assurances. Operator: The next question is from Tarik El Mejjad, Bank of America. Tarik El Mejjad: A few questions on my side as well. First of all, I mean, given the restatements you've done for the BPM on your accounts, which was very helpful, would you guide for an increasing net income year-on-year from the restated EUR 7.27 billion in '25, given all the moving parts? Consensus has that flattish or slightly down, which I think is a bit too cautious. And the second question is on capital and distribution. I mean, you've been increasing your EPS, but still accumulating excess capital. So you've just presented your plan, so there's no policy increase, policy in distribution and so on. But just want to hear you in terms of your plans in terms of what areas you could do some bolt-on and where you see good use of capital. And then, talking about this bolt-on, I mean, you had a very interesting slide, Slide 41, showing the ROI for the previous M&A deals. I mean, I already picked some on this with you, Clotilde, on the CMD, when you said the 10% ROI -- above 10% ROI is satisfactory. I thought it was quite of a low number. But now, I look at what you've done so far, between 11% and 13%. I mean, is that something really you've kind of expected from the origination of those deals or you were hoping for better than that and been disappointed by integration? Clotilde L'Angevin: Thank you, Tarik, for your question. Now, regarding guidance, I think really what I want to go back to is what Olivier was saying in terms of how we're setting the stage for the plan -- for the Act 2028 plan. So indeed, if you look at pro forma, we had a EUR 7.3 billion net income group share in 2025. And so we're well on track to reach our target, which is to go beyond 8.5% in 2028. But as you know, we really like to remain on multi-annual targets. In terms of cost-to-income, what I can tell you maybe more precisely, however, is that the 57.4% pro forma cost to income is a peak. It should go down next year. So 2026 cost-to-income should be lower than what it was in 2025. On the other elements, in terms of revenues, net income and ROTE, what I can just tell you is all of this we're on track to increase, and it's true that the 13.9% pro forma ROTE of 2025, really bodes well for the future. And I think we can really say that the 14% target for 2028 is really a minimum. Now, you were talking on organic bolt-ons. You know that our track record is really based upon a mix of organic and a mix of bolt-ons. In the Capital Markets Day, we talked to you about the fact that we had revenue growth that was 70% organic and 30% external growth. And that's why we had a revenue growth that was more than 5% over the past 6 years, and we're targeting a revenue growth of 3.5% in this medium-term plan. This is supposing that there would only be organic growth. We do hope we will do external growth operations. And as you were saying, Tarik, we do have very strict financial criteria. And so thank you for spotting out to Slide 41, and so thank you for Cecile and the team, and by the way, who prepared this slide. We take into account ROI, of course, and we're happy to have these figures. The 10% figure is a minimum. But there's also other criteria that we take into account. And we talked about it in the Capital Markets Day. We have to have operations that are accretive in terms of ROTE. We have to have a demonstrated integration capacity by the benefit of this integrating. We have to have revenues and cost synergies. And of course, these operations have to be very well aligned with our strategy. And so, to answer maybe your question as to what we can see in terms of bolt-ons, it's going to be linked with our strategy. Olivier was talking about the fact that we want to develop -- in terms of -- in France, in Europe, in Germany, we want to develop in Asia. We want to support the savings development in Europe, in particular. We want to support the development of corporates, in particular with mid-caps. In Europe, more generally, we were talking about these different triangles of growth where the mid-caps and the corporates are going to support the competitiveness of Europe. All of these are areas where we want to continue to develop, and all the business lines that you see, by the way, on Slide 41, all of the business lines have critical size, are profitable and so are very well positioned to continue to seizing opportunities if they appear. But we're really in an opportunistic mode because our medium-term plan, we can reach the targets through -- solely through organic growth. Operator: The next question is from Delphine Lee, JPMorgan. Delphine Lee: Yes. So I have 2 questions. On the first one, if I can ask on sort of your comments going back to your comments on 2026 outlook, when you mentioned the headwinds on NII for Italy, CACEIS and wealth management. I'm just wondering, is that just you're trying to be conservative? Because you do have already volume growth, and NII has stabilized in Italy. Shouldn't volume be able to offset the rate headwinds, just if you could give a bit of color on that? The second thing is, do you mind just like expanding a little bit and elaborating more about sort of Leasys and GAC Sofinco in China? Because -- I mean, how quickly can we see a rebound in your associate income? Production is picking up, it seems, in China, but like how quickly can we see that already in the numbers? And how can we measure the sort of the implications of the write-downs you've done on Leasys this quarter in terms of what that means for '26 and '27? Clotilde L'Angevin: Thank you. Thank you for your questions, Delphine. Yes, we have tailwinds for net interest income in France, but we do have headwinds for net interest income, as you were saying, in Italy, in CACEIS and wealth managers. We're, of course, hoping that volumes are going to pick up, and we have dynamism in commissions, but it's true that there is a rate effect that we see in Italy. The decrease in net interest income in Italy should not be that significant. On the other hand, the increase in net interest income in France should be a little bit stronger, in particular for LCL, and of course, in the regional banks, which also are going to support which is also going to support growth in the regional banks, which is always good for the activity of the business lines of CASA. So relatively, reasonable headwinds on net interest income in Italy. Now, if I come back a little bit to Leasys and to China. So let me just maybe talk about China a little bit because I didn't go too much into detail about that because, in fact, the production had slowed down in the first quarters of the year. In particular, I talked to you about that in the Q2 and in the Q3 in China. And in fact, we have had in the Q2 2025, an event where the Chinese authorities imposed a 5% floor to the commissions, which caused the market to normalize because we had, had the entry onto the market of banks, which caused competitive conditions on the market. And so production is picking up. December was the highest month of the year for GAC Sofinco in GAC Leasing. But the effect of this normalization, it's going to take a few quarters to come into the income because the average duration of these loans is a little bit more than 30 months. So we have to be cautious. But nevertheless, GAC has also begun to diversify its activities to the used car financing, for example, to the development of new services. So I think reasonably, we could consider that China's income could stabilize in 2026 compared to 2025. And hopefully, it's going to pick up going after that. Now, for Leasys, there's going to be drivers of profitability going forward for Leasys and for mobility more generally, a diversification of the distribution channel, a revamping of the services catalog, an improvement in the remarketing process with value sharing with car constructors, IT tools. We're developing a cross-European remarketing strategy, building on synergies between the different entities. And of course, the automobile market should pick up, and we are going to have more value-driven pricing. Now, we're confident in the fact that Leasys was going to recover profitability levels in 2026 and pick up even more in 2027. So a regular increase over the years of the medium-term plan. Operator: The next question is from Pierre Chedeville, CIC. Pierre Chedeville: Two questions on my side. First question regarding the launch of the platform in Germany and more generally in Europe on the savings side and online side. Will it cost some -- do we have to anticipate some extra charges regarding this launch and this project in 2026? Because you are not very precise on that side in the P&C. So do we have, I don't know, IT investments, things like that? I'd like to come back also on the cost of risk in LCL. You mentioned some attention points regarding retail and distribution. Do you think that here we will have to have a forecast in the coming quarters in terms of cost of risk similar to what we see -- what we've seen in this Q4 for the next quarter? Or is this a peak, I would say, in Q4 and the normalization in the coming quarters? Clotilde L'Angevin: Thank you, Pierre, for your questions. So regarding the development in Germany, of which we have the development of the digital savings platform, but which includes the development, for example, with -- of everyday banking services. This development should be relatively low cost -- I would say, would be below EUR 50 million. Why? Because we already have a setup in Germany with Creditplus, 20 branches, and Creditplus is already doing EUR 15 billion in on-balance sheet savings. What we're going to do is we're going to put up a very agile and efficient platform, in particular, to internalize the margins in terms of on-balance sheet savings. And this is something that we should start in the first half of 2026. And then, we're going to incrementally build upon that, adding day-to-day banking solutions with essential banking products. This should come in the second half of 2026. And then, in 2027, we should have off-balance sheet savings offers. What am I talking about? I'm talking about all of the synergies that we can do with the entities of the group, such as Amundi, for example, or Cr�dit Agricole Assurances. But these on-balance sheet savings themselves should be relatively competitive because we're going to propose a number of on-balance sheet solutions for our customers in Germany, which should make this digital saving platform very interesting. But to answer precisely your question, Pierre, all of these developments should be at a very low cost, less than EUR 50 million. And hopefully, we're going to have revenues that are going to contribute to our growth, thanks to these initiatives. That's the first point. The second point, you're talking about cost of risk in LCL. It's true that we have had an increase in incurred Stage 3 cost of risk this quarter in LCL. And so it's true that we're going to be very cautious regarding the different sectors that I talked to you about, retail development, automobile, textiles, distribution, et cetera, et cetera. It's very difficult to say what's coming in fact, a lot of uncertainty. We have a lot of uncertainty in France, in Europe regarding the corporate market. What I can tell you is that we have had low cost of risk in the recent quarters. But we have, more importantly, accumulated over the past year very strong provisions, provisions at the level of the group, provisions also at the level of CASA. The provisions at the level of CASA include prudent provisions that represent about 1.5 years of cost of risk. At the level of the group, we're close to 3 years of cost of risk. So we have very strong provisioning. And so if the Stage 3 cost of risk continues to increase over the next quarters, we really have these buffers in terms of prudent provisioning that allows us to limit the cost of risk, and I'm still very comfortable regarding the hypothesis that we have in our medium-term plan, which is a cost of risk at 40 basis points for CASA during the medium-term plan. Operator: The next question is from Matthew Clark, Mediobanca. Jonathan Matthew Clark: I have a couple of questions. Firstly, on Leasys, and then, on Slide 41. So with Leasys, can we expect it to break even already next quarter? Or is more a full-year breakeven kind of project? Is that the right way to think about it? And then, the second question is just on the calculation of your ROI on Slide 41. Is the 13% as simple as your net profit divided by the sum of all the considerations for those entities? Or is it more like a return on invested capital calculation or some other aspects of it? Any guidance there would be appreciated. Clotilde L'Angevin: All right. Thank you, Matt. Regarding Leasys, I'm not going to give you any quarterly guidance. What I'm going to tell you is that hopefully, we're going to have a positive profitability for Leasys in 2026, picking up in 2027. But uncertainty is relatively high on the automobile market. So it would not be unreasonable for me to give you any quarterly guidance regarding Leasys, but we are comfortable in the fact that we're -- confident on the fact that we're going to resume profitability, double-digit contribution to net income in 2026. Now, for the M&A operations, it, in fact, depends because some of the M&A operations are difficult to -- the ROI is difficult to calculate because the objective of these operations usually is to really have them really feed into the business, and it's oftentimes very difficult to see what is the contribution of this integrated activity to cost or revenue synergies. So when we look at the ROI, we look at the revenue synergies. We look at the cost synergies. We compare that to the price of acquisition. And then going forward, we try to estimate the contribution of the integrated activity to the net income, but it's going to be an estimation naturally because it's difficult because we don't have separate entities. One of the cost synergies that -- one of the drivers of the cost synergies is the migration -- IT migration and the merging of legal entities. So this makes things difficult, but what we do look at to simplify is we do look at additional net income in year 3 compared to the capital that we invested. Jonathan Matthew Clark: So just to clarify, is it compared to the consideration that you -- when you say capital that you invested, is that the consideration you pay to the seller? Or is that the CET1 on capital that's--okay? Clotilde L'Angevin: It's the cash. It's the cash that we paid. It's not a CET1. We do have a return on CET1, but that is more comparable in fact to the ROTE. What I'm telling you that we have an ROI and we want to have something that is accretive in terms of ROTE, perhaps to have something that's accretive in terms of ROTE, we look at a certain number of elements, the RONE, but oftentimes, the ROCET1, which looks at the capital consideration that you're talking about. When we look at ROI, we're comparing it to the cash invested. Operator: The next question is from Alberto Artoni, Intesa Sanpaolo. Alberto Artoni: I have 2. The first one is just a quick follow-up on the cost of risk in LCL. And I just wanted to better understand if the increase of cost of risk was linked to a limited number of big tickets. Or was it more a broad-based issue with certain sectors that you called out in the slide? And the second one is on the tax. What do you expect for 2026 taxation at CASA level? Clotilde L'Angevin: All right. Thank you very much, Alberto, for your questions. Regarding LCL, it's an increase in a certain number of individual risks on corporates, but I would not say that it's 1 or 2 large deals. There are -- it's not completely a large number of small corporates. There are individual risks, but it's a little bit more diversified regarding the SMEs. So it's an increase in the SME risk in the different sectors that I was talking to you about. It's not 1 or 2 specific cases. Now, regarding the corporate tax, going forward, we do have, as you saw, the publication of the tax decisions by the government, which causes us to forecast a relatively similar corporate tax going forward. It's too early as of today to draw conclusions, but we still have a corporate tax that should be based on an average of the fiscal revenues of past year and current year. So that's why we can't estimate it as of today. The corporate tax for 2025 was based upon the average of the fiscal revenues of 2024 and 2025. So we have to calculate -- we're going to have to calculate the corporate tax going forward based upon the fiscal revenues of 2025 and 2026. Now, it's more or less the same type of corporate tax, except that the threshold in terms of turnover is a little bit higher. It goes from EUR 1 billion to EUR 1.5 billion, which could have an impact at the level of the group. But all in all, we will have a corporate tax. The amount will be in the same ballpark as what we had this year. And it's true that this is something that is taking into account -- in our medium-term plan, we know that we have to take into account a certain number of uncertainties, and this is one of the uncertainties that we have to take into account. Hopefully, it's not going to continue until 2028, i.e., the end of our medium-term plan. Operator: The next question is from Sharath Kumar, Deutsche Bank. Sharath Ramanathan: I had 2. Firstly, on Specialized Financial Services. I know that this is one area where consensus seems to be consistently underestimating your strength. Anything that you can say as to why consensus seems lower? And what do you think it is missing? And a follow-up on Leasys, can you clarify what drove the higher used car sale losses and whether there's more pain to come? And lastly, on Corporate Center, if you can give guidance, now that we will not have the Banco BPM accounting impact, do you think the 4Q underlying level of, say, call it, EUR 80 million negative net income, is a reasonable run rate to extrapolate going forward? Clotilde L'Angevin: Okay. Thank you, Sharath. So for SFS, the thing is that it's difficult to estimate the impact on mobility in the context that we have currently, which is a context of an automobile market that is under difficulty. So this is something, in fact, that has been -- had an impact on most of the car constructors, but it's true that the car constructors with which we have a relationship today with Cr�dit Agricole Bank, specifically with Tesla, GAC Sofinco with GAC and Leasys with Stellantis, we have had difficulties on these 3 car constructors, each for specific reasons that hopefully are going -- are behind us, and hopefully, activity should pick up. That's the first point. But if I extrapolate a little bit to used car, there is a market where the arrival of electric vehicles is making the residual value of used cars difficult also to estimate. That's also why we adopted a very prudent approach by applying a conservative discount to our used car residual values for Leasys. This is really to put us on a solid base for the future regarding this dimension. And if I -- because we have a certain number of growth drivers in CAPFM, not only mobility, we also have personal finance. And in terms of personal finance, we're optimistic. As to the pickup, we're going to have tailwinds linked to the margins, and we're going to have also a pickup in the insurance and services. So these are elements that should help us going forward. For Corporate Center, what we said in the medium-term plan was that we could target around EUR 900 million -- EUR 400 million in contribution, I think. I'm just verifying that with Cecile right now. She's nodding -- she's shaking her head. So maybe that's not that. I'm going to have to come back to you as to the guidance we have in the medium-term plan in terms of the corporate center. Operator: Next question is from Benoit Valleaux, ODDO BHF. Benoit Valleaux: A few questions on insurance, if I may, which was about a very strong figure. The first question is related to CSM, which has enjoyed a very strong growth of 9.1% over 12 months. So it's partly due, of course, to the activity, but also you mentioned some positive market effect. Can you just please tell us what has been the market effect or what has been the new business CSM, just to understand a little bit the quality of this strong increase? The second question is on P&C. Your combined ratio has been broadly stable at 94.6% for the full year. So what do you expect in terms of price increase this year? And what do you expect in terms of combined ratio this year and over the plan? I have in mind that maybe you expect a broadly stable combined ratio over the plan, but I don't know if you can confirm or elaborate a little bit on that. And maybe the third question is on solvency. Solvency is down a little bit compared to year-end '24, but it's still very strong. So it's fine. My question is, first, I mean, do you have a view on the dividend to be paid by Cr�dit Agricole Assurance to CASA in Q2 and the impact on CET1 ratio? Or is it maybe too early for this? And the second question is, do you have a view on what could be or what will be the impact of the Solvency II overview on the solvency margin? Clotilde L'Angevin: All right. Thank you, Benoit. Now, regarding the CSM, so we have a certain number of elements. And in particular, we have the variable fee approach dimension, which is contributing to the allocation of the CSM. So we have a very slight decrease in the allocation factor, but nevertheless, we have a CSM that is -- that we have -- which we have new business contribution that is higher than the CSM allocation. The positive market effects are effects that you can have, in particular, in the GSA in terms of -- for the life insurance. Now regarding P&C, we have a combined ratio indeed at 94.6% at the end of the year. Going forward, there's going to be pluses and minuses. There's going to be an impact on claims, for example, of climate change, for example. But on the other hand, the premiums in this context should adapt. And the idea for us is to be able to develop P&Cs in France, internationally to develop the equipment rate to diversify also to principalize our customers in the retail banking in order to increase the extent of P&C solutions that they can have. So these are areas for growth in terms of P&C going forward. But it's true that there will be this mix between claims and premiums going forward because this is linked to the evolution of the market. And in terms of solvency, it's really too early to give you any elements like that. Of course, the solvency ratio is something that we usually give you at an annual level for Cr�dit Agricole Assurances, which is very high. We had a slight decrease this year, 6 percentage points over year in the context of increased rates, but strong growth in activity and -- but it remains extremely high and very comfortable. Benoit Valleaux: Okay. Maybe just regarding the CSM, do you have the figures regarding the contribution from the new business to CSM in '25? Clotilde L'Angevin: We have the fact that the allocation factor is 7.5% and new business contribution is higher than the CSM allocation. Operator: The next question is from Ned Tidmarsh, Morgan Stanley. Edward George Tidmarsh: I just wanted to ask how is the current macro situation in France impacting CASA? And can you talk a little bit more about your outlook on French retail going forward given the recent positive developments on the deposit mix and pricing, please? Clotilde L'Angevin: All right. Thank you. So in fact, the uncertainty linked to the fiscal budget government situation has decreased a little bit. And we have seen that in the asset swaps from the OETs, which has decreased in these past weeks. In fact, the asset swap for OETs has gone below that of Italy. So we have had a market where conditions have been relatively good. Now, there is still uncertainty going forward more generally, but uncertainty linked to European growth to the aging of population, to competitiveness issues. There is an uncertainty linked to the level of public debt, for example, in Europe, and also, of course, to the geopolitical risk, which will have an impact on the supply chains -- global supply chains. This all creates uncertainty more generally. Now, 2 points. First of all, on our capacity to raise liquidity to meet our funding plans, CASA has a very strong position. There is an impact, a slight impact of the fact that we are -- we have an impact due to the government -- French government debt. But nevertheless, the spreads are very low for us. And in fact, our funding plan for last year, we went beyond our funding plan, which was EUR 20 billion. We went to EUR 23.1 billion because the conditions were very strong. And the funding plan that we have is very favorable, sorry. And the funding plan that we have this year is about EUR 18 billion -- 1-8, and we have already achieved about 31% of this funding plan as of end of January, which is very good and which shows that there's abundant liquidity for the European banks and for Cr�dit Agricole, which has a very strong capital and liquidity position, and our conditions, our funding conditions are very good. So that's the first point. The second point is what could be -- so there's no issue for us, CASA, Group Cr�dit Agricole in terms of capacity to raise funding. The second point is, will macroeconomic uncertainty have an impact on activity, activity in the countries where we operate and our activity? Now, you saw in our medium-term plan that we want to increase the share of revenues outside of France from about 55% to about 60%. So this is development that will allow us to diversify also our business mix, first point. And then the second point is that we consider that we're very well positioned to support our customers in the developments that will be necessary, i.e., for example, I was talking about aging population. We're very well positioned to support the savings, the development of savings in Europe, thanks to insurance, thanks to asset management, thanks to the deal that we just signed with ICG in private debt, et cetera, et cetera. That's the first point on savings. And in our medium-term plan, we're also committing to support the mid-caps in Europe in the way that they contribute to competitiveness of Europe in a certain number of sectors, like defense or health or agri or technology. So we're well positioned to navigate in this uncertain environment. Operator: The next question is from Cyril Toutounji, BNP Paribas. Cyril Toutounji: I've got 2. The first one will be on Germany. I know you're launching your platform this year. So I'm just wondering what's your strategy to capture market share in the market that's becoming more and more competitive with new entrants? And the second one would be on French retail revenues. So it was really strong this quarter. And the drivers of NII especially are pretty structural. So I'm just wondering what's preventing us to maybe extrapolate this growth that's quite above the strategic plan revenue targets. Clotilde L'Angevin: All right. Thank you for your question. How we want to gain market share? So we're being very reasonable in the targets that we have. We want to go from 1 million customers to 2 million customers in Germany. We have savings outstandings that are EUR 15 billion. We want to reach about EUR 30 billion in Germany. And if we expand that to other countries, it will reach -- we're going to reach the EUR 40 billion that we talked about in our medium-term plan. So it's a relatively reasonable target because we're starting on this basis of 1 million customers and EUR 15 billion in outstandings. And as I was saying this before, we think that we're going to have a competitive edge linked to the number of solutions we can provide in terms of on-balance sheet savings in this digital platform, time deposits, et cetera. So we have a certain number of solutions that should be more numerous than those of other competitors. But recall that Germany is a market where there's a very strong depth in terms of savings. We want to target affluent customers. And so we're relatively optimistic regarding this, first point. The second point, indeed, the net interest income revenue increased strongly in France this quarter, and in particular, in the regional banks. And in the medium-term plan, we have increased -- an increase -- we have included, sorry, an increase in net interest income. The 11% net interest income that we have seen in French retail this quarter is probably a little bit strong. But for going forward -- but in 2026, I think we can say that we will have a high single-digit increase in French retail in 2026. And then, maybe coming back because Cecile and the team were just checking to the Corporate Center, the minus EUR 400 million I was talking about is indeed a good order of magnitude for a guidance for the net income for the Corporate Center by 2028. Operator: [Operator Instructions] Gentlemen, Ms. L'Angevin, there are no more questions registered at this time. I turn the conference back to you for any closing remarks. Clotilde L'Angevin: Thank you. Thank you very much, everyone, for your attention. So I'm not going to come back to the results that are very strong this year. I just wanted to make one last point. We talked a lot about medium-term plan, which is very good because we're really orienting ourselves into this medium-term plan by 2028. And during the medium-term plan, we have promised that we would do a couple of workshops on a couple of businesses. And in particular, we had talked to you about a workshop for LCL in the first half of this year. And so I'm very pleased to ask you to save the date of May 26, where we will be pleased to host you for an LCL workshop in Paris. And I'm going to stop there. Thank you, everyone, for your attention, and have a very nice day. Thank you. Operator: Ladies and gentlemen, thank you for joining. The conference is now over, and you may disconnect your telephones.
Operator: Good day, ladies and gentlemen. Thank you for standing by, and welcome to the trivago Q4 Earnings Call 2025. I must advise you the call is being recorded today, Wednesday, the 4th of February 2026. We are pleased to be joined on the call today by Johannes Thomas, trivago's CEO and Managing Director; and Wolf Schmuhl, trivago's CFO and Managing Director. The following discussion, including responses to your questions, reflects management's view as of Tuesday, February 3, 2026, only, unless expressly stated otherwise, in which case, it reflects management's view as of today, Wednesday, February 4, 2026, only. Trivago does not undertake any obligation to update or revise this information. As always, some of the statements made on today's call are forward-looking, typically preceded by words such as we expect, we believe, we anticipate or similar statements. Please refer to the Q4 2025 operating and financial review and trivago's other filings with the SEC for information about factors which could cause trivago's actual results to differ materially from these forward-looking statements. You will find reconciliations of non-GAAP measures to the most comparable GAAP measures discussed today in trivago's operating and financial review, which is posted on trivago's Investor Relations website at ir.trivago.com. You are encouraged to periodically visit trivago's Investor Relations website for important content. Finally, unless otherwise stated, all comparisons on this call will be against results for the comparable period of 2024. With that, let me turn the call over to Johannes. Johannes Thomas: Good morning, and thank you for joining our Q4 2025 earnings call. We are thrilled to share the results of an exceptional year 2025, and our fourth consecutive quarter with double-digit year-over-year growth in Referral revenue and higher-than-expected profitability. For the full year 2025, we exceeded both our top and bottom line expectations despite material FX-related headwinds, delivering 19% year-over-year total revenue growth and EUR 15.8 million in adjusted EBITDA. We closed the year with an exceptionally strong fourth quarter, achieving 27% year-over-year total revenue growth. In 2025, our strategic theme for the year was turning the tide, steering our focus on making our turnaround a reality. In 2026, we are rallying behind the theme, optimizing momentum, pushing frontiers, striking the right balance between growth and marketing discipline while continuing to innovate at the leading edge of our space. Our long-term strategy is playing out. We are confident that our brand and product flywheels can continue to drive growth and profitability. For 2026, we expect double-digit total revenue growth and are targeting at least EUR 20 million of adjusted EBITDA. Despite strong comparables in the first half of the year, we anticipate our fifth consecutive quarter of double-digit total revenue growth in Q1 at higher profitability compared to previous years. Let me now highlight a few developments of the past year that demonstrate our outstanding progress the trivago team has achieved since Andrej, our CPO; Jasmine, our CMO, and I returned to the company in mid-2023. Our increased brand marketing investments since mid-'23 are paying off. Branded traffic revenue growth has outpaced top line revenue growth significantly in the recent years. We are seeing compounding effects and sustained attractive return on incremental brand marketing spend. Our core hotel search product continues to advance quickly. In 2025, we have improved our conversion reaching 37% increase versus 2023, materially enhancing our unit economics. These gains are powered by AI and hundreds of experiments each quarter. We have evolved our member proposition, driving revenue from logged-in members to more than 25% of Referral revenue, a 93% increase in Q4 2025 compared to Q4 2023. Our investments in empowering partners are translating into meaningful gains. Our partners reach more qualified leads than ever, and our transaction-based CPA model continues to exceed expectations. More than 140 partners have adopted this operating model and over 25% of Referral revenue is now processed under this model. Referral revenue flowing through our higher-converting trivago Book & Go funnel has increased by 137% in Q4 2025 compared to Q4 2023. Zooming out, we believe we are well positioned within a $1.6 trillion travel market with hotels representing about $500 billion of that opportunity. Our recent research shows that roughly half of travelers prioritize value for money and competitive prices. More than 40% of travelers compare prices between different booking sites. Our deal-oriented value proposition is tailored to this need, giving us conviction that we have a substantial room to grow. Let me now recap our key success drivers behind each of our strategic pillars and outline our priorities for 2026. For additional detail, please refer to our investor presentation on ir.trivago.com, which further demonstrates our progress and the points I'm about to cover. Our first strategic priority is to drive growth through brand marketing. Our brand engine continues to gain momentum. Our brand marketing team has run campaigns in 30 countries and have delivered success across all geographical segments in 2025. Our AI-powered summer campaign featuring global icon and soccer coach, Jurgen Klopp, has proven very effective, and our winter campaign started with promising results. In the last quarter, we followed a different approach compared to previous year. We leaned into LatAm markets, which have a different peak seasonality, and invested in other key markets where we identified exceptional opportunities that we chose to exploit. We're consistently improving brand marketing efficiency and have expanded into new brand marketing channels. We remain disciplined and invest behind what we see is working. In 2026, we will continue to increase brand marketing spend, primarily in the markets we have focused on in the recent years. However, the pace of growth and brand spend will be substantially lower than in the past years as we are now getting closer to our target brand marketing investment levels. Our priority will shift from entering new markets to further optimizing existing ones. Unlike prior years, when profitable regions subsidized newly activated markets to a greater extent, we expect a slower growth in incremental brand marketing spend, combined with compounding effects of the past investments to make us progressively more profitable in 2026 and beyond. Our second strategic priority is to enhance our hotel search and price conversion experience. In 2025, we significantly increased the number of tests run on our platform, delivering meaningful product improvements and conversion rate gains. Advanced machine learning and LLMs have enabled us to develop and scale AI-powered features that are broadly adopted by our users. Our AI highlights and AI review summaries are changing how people discover and evaluate hotels in every search on trivago today. Our AI-driven natural language search allows travelers to search hotels in entirely new ways. We launched our AI Smart Search in Q4 2024, becoming the first hotel search platform to offer this capability. It's an advanced free-text search powered by large language models that lets users find hotels using natural conversational queries. Since the launch, we have steadily increased its visibility, continuously refined both the UX as well as the underlying logic. As a result, we are seeing growing user adoption. Our member proposition continues to strengthen as well, which we expect to improve retention. The key drivers behind this success are the exclusive rates that our partners provide to our members and our enhanced ability to personalize search results. Looking ahead to 2026, we will maintain our relentless focus on improving our core product. We see clear upside in further increasing conversion through high-velocity testing. We will continue to invest in AI-powered features that are central to offering a superior hotel search experience. We aim to lead on price perception, offering great deals and making them easy for users to find. We will also stay focused on expanding our member base. In addition, we will double down on trivago Book & Go, which we aim to integrate more deeply in our user platform's journey with a goal to facilitate a more seamless booking experience that further elevates conversion rates for our partners and trivago. Our third strategic priority is to empower our partners to realize their full potential on our platform. Our transaction-based CPA model has seen broad adoption among small and midsized partners. These partners often lack resources and data scale needed to optimize bids and exposure effectively in our auction. By shifting risk and optimization complexity away from bidding, the CPA model helps smaller partners compete more effectively in our marketplace. Going forward, we will continue to deliver highly qualified users to our partners, equip them with even better tools and increase our efforts to help them optimize their rates on trivago. In particular, we will focus on working with our partners to deliver more exclusive deals to our members. Finally, let me share my enthusiasm on the evolution of AI. I see this as a huge opportunity for our business and shareholders. Our vision is to operate with 600 people as if we were 6,000. We are fast, nimble team adopting AI in every possible way, using it to amplify our marketing impact with previously unimaginable features for our users, and boost our team's productivity day by day. In short, we are doing far more without expanding our workforce. With that, I'll hand over to our CFO, Wolf, for a more detailed financial review. Wolf Schmuhl: Thank you, Johannes, and good morning, everyone. We are excited to report that the fourth quarter reflected our profitable growth trajectory with a year-over-year total revenue growth of 27%. For the full year, we achieved total revenue growth of 19% year-over-year, a net income of EUR 11.2 million and an adjusted EBITDA of EUR 15.8 million, despite FX-related headwinds. Our brand strategy as well as our continuous product improvements led to an all-time high in our conversion rate, which significantly improved our unit economics. Let's review our fourth quarter results and our 2026 outlook. Unless otherwise indicated, all comparisons for 2025 are on a year-over-year basis. In the fourth quarter, our total revenue reached EUR 120 million, representing a 27% increase compared to the same period in 2024. We are pleased to note this marks our fifth consecutive quarter of total revenue growth. This growth was driven by yet another quarter of strong year-over-year double-digit Referral revenue growth of 20% in Americas, 16% in Rest of the World and 15% in Developed Europe. We achieved this despite FX-related headwinds of approximately 5% globally. The growth was primarily driven by increased branded channel traffic in response to our ongoing brand marketing investments. Strong creatives and the diversification of our branded marketing channels create further potential to scale and reduce our dependency on search engines. During the fourth quarter, we reported a net income of EUR 14.5 million and achieved a better-than-expected adjusted EBITDA of EUR 11.3 million. Operational expenses increased by EUR 26 million, totaling EUR 113 million for the fourth quarter. This was mainly due to a EUR 19.7 million increase in selling and marketing, resulting from higher brand marketing investments made over the course of the quarter and incremental expenses resulting from our acquisition of trivago DEALS, formerly Holisto. Advertising spend increased by EUR 9.8 million or 43% in Americas, EUR 4.3 million or 31% in Rest of World, and EUR 3.8 million or 18% in Developed Europe, driven largely by increased brand marketing investments in all trivago core segments. Due to the scaling of our brand marketing investments in this quarter, global ROAS decreased from 162.9% in the prior year to 147.9% in 2025. We observed a reduction in ROAS year-over-year across all trivago core segments during the fourth quarter with Americas decreasing from 159.6% in 2024 to 137.5% in 2025, rest of World decreasing from 148.3% in 2024 to 131% in 2025 and Developed Europe from 176% in 2024 to 173.8% in 2025. As of December 31, 2025, we held EUR 130.9 million in cash and cash equivalents and no long-term debt, underscoring our exceptional financial position. Although we are facing tough comps in Q1 and Q2 2026, we are off to an encouraging start in line with our expectations. We will maintain cost discipline and keep our headcount stable by leveraging AI. We will further scale our brand marketing investments, but on a lower level compared to previous years, and make use of compounding brand effects in order to gradually increase profitability in 2026. For 2026, we expect double-digit percentage total revenue growth and an adjusted EBITDA of at least EUR 20 million. With that, let's open the line for questions. Operator, we are now ready to take the first question. Operator: [Operator Instructions] Your first question comes from the line of Naved Khan with B.Riley Securities. Please go ahead. Naved Khan: So my first question is just a little bit of clarification on the guidance. So for the double-digit growth in 2026, how should we think about the growth in Referral revenues because you do have some contribution from the Holisto acquisition? Should we expect Referral revenue to also grow in the double digits? And then maybe a related question is, pre-COVID, I think you had around over EUR 800 million in Referral revenue, and you had kind of set out an aspiration goal of getting back to those kind of levels. Do you still expect to get back to where you were pre-COVID levels? And I think the EBITDA margin around the time was around 6%. So how should we think about that over the kind of medium term? And then maybe just a clarification on the brand advertising channel. I think you talked about kind of finding a new opportunity. Can you just elaborate on that a little bit, if it's offline or online? And what's the opportunity to scale that channel? Wolf Schmuhl: Naved, here's Wolf. Thanks for your question. So let me start with your first question and clarify on how we want to give guidance from now. We decided and we also mentioned it in the last earnings call that from now on, we will only give guidance on total revenue. Why do we do this? We think it's more meaningful because when you look at Referral revenue as a proxy for the development of trivago Core, this is from our perspective not meaningful anymore because you will have a distorted picture because -- and this is also described in our 6-K, if you look only at the Referral revenue, because we presented after intercompany elimination. And therefore, the part that is related to trivago DEALS is not included. And it will be added as other revenue, and then you end up with a total revenue, which is, I guess, a meaningful picture from our perspective. And another important point, which is important in this context is that the more trivago Book & Go will gain traction in the future, the more this picture that you miss when you only look at Referral revenue will be distorted. We will only give guidance on the total revenue and so on a consolidated level. And yes, here we are with a double-digit top line growth. And what maybe one other point that I would like to mention is, or what I can say is, that we saw an encouraging start in January, in line with our expectation for Q1, which is double-digit top line growth and improved profitability. That's it on the first question. Johannes Thomas: Maybe I can talk about aspirations. And I think two things here. You mentioned 2019 numbers. It remains our aspiration to get as close as possible towards that. But it's not like a hard goal we want to achieve. It's more an outcome of executing what we do in marketing. We are more disciplined in performance marketing, and we are not after just generating volumes. We are after driving branded traffic revenue growth, which means we are increasing our ad spend. We increased our marketing efficiency. We increased the impact of our creative. And we think we do still a substantial increase in brand marketing investment this year. We will also see brand marketing investments in the next few years, but there will be a degressive curve. So the increased spend will kind of slow down, and then the revenue is more an outcome because in terms of percentage -- in terms of profitability, we want to get to around 10% adjusted EBITDA share rather in the next few years. And from there, then decide, do we expand into new markets or do we further focus on expanding profitability and margins? And that's still open. But I think in the short term, you should think about 2019 is the aspiration. Whether it's EUR 800 million or EUR 700 million, I think we will figure that out. We're not dogmatic about it. What's then important for us is to expand the bottom line, deliver a solid outcome and then decide, do we continue to lean into growth? Or do we focus more on margin? And this decision is part dependent and we will take in a few years. And then the brand marketing, I think I explained a bit the brand marketing strategy around the incremental spends being degressive and slowing down. I think this year, what you have seen in this quarter, the ROAS has been lower compared to previous year and even the previous year, the year before that. Typically, we had a higher ROAS in the fourth quarter. The major reason is that we've leaned into LatAm markets. Latin American markets have a different seasonality, that peak seasonality is around these times. So it's basically a flipped peak seasonality in Europe. And in the U.S. also, it's around July June, August and in Latin America, it's the opposite side. We have leaned into those markets. They used to be very successful. Last year, we made a big leap in becoming more successful in these markets. And we doubled down this year in those markets in Q4. That's why you will see the ROAS is lower in terms of dynamics. And then we have also other markets where we saw opportunities and how you can think about that is, we are around the world talking to media stations and marketing outlets. And when we see there's opportunity and being exposure available for an attractive price, we would take that opportunity and as we expect, a very attractive return on that. We have seen that in Q4. So we saw opportunities to lean into in other key markets, and we have done that as well. I think that's maybe how you can think about Q4, and what we did differently compared to previous years. Naved Khan: Excellent. Thank you very much, and keep up the good execution. Johannes Thomas: Thank you. Operator: Your next question comes from the line of Doug Anmuth with JPMorgan. Dae Lee: This is Dae Lee, on for Doug. First one, just talk a little bit about how you will characterize the health of global travel as we sit today? And are you expecting any impact from major sporting events, such as the Winter Olympics or the World Cup on your platform? And then secondly, where do you expect the most benefits to show up from the newer products like Book & Go and CPA model? And can these products drive further diversification in your advertiser base? Johannes Thomas: Thanks for your question. Let me begin with -- I'll give you a quick overview on the travel trends we are currently seeing. So the development we are describing here is based on our internal data for Q4. And we see ADRs were positive in Rest of World, Americas, and Developed Europe were slightly negative. Length of stay was slightly up in all 3 segments, and ABV was positive in Developed Europe and Rest of World, and stable in Americas. When we look at recent search interest based on our internal data for travel that starts in Q1 2026, the clicked ABV overall looks stable. Clicked ABV for Q1 in Developed Europe and Rest of World is positive. And for Americas, it's slightly negative. Share of search interest for 4- to 5-star categories is stable on a global level. And the average travel distance clicked during the fourth quarter remains positive year-on-year, while the mix of search requests for international travel destinations remain stable, except for trips by travelers from Americas, where we continue to see a shift more towards domestic trips by U.S. travelers combined with double-digit declines in travel to the U.S. from countries like Canada, Germany or France. So that's it on the travel trends. Maybe the mega events, we have not modeled anything into neither positive nor negative impact around World Cup or Olympics. It's more a problem with many mega events overlapping each other. We don't see that. And they rather get more people to travel than less. So I think there's nothing we would call out here. We also don't see trends. We certainly see prices up during those periods in the effective cities, but that's probably no news. And then what you asked around Book & Go and CPA, you can see in the share and the partner mix that our mix has become more healthy in the course of the last 2, 3 years after pandemic, which is more -- it's back to where it has been 2019. And we think that's a good level. And part of this development is that I think, in particular, maybe if you compare both, CPA has bigger impact in making partners more competitive. And Book & Go over the course also increased an impact. But it's still compared to CPA, I think, a smaller impact. Book & Go, I think we shared it has grown 137% Q4 '25 compared to Q4 2023. And this trajectory you see also in the investor presentation has been a trajectory that also happened into 2025 and coming -- during 2024 and 2025. We expect this trend to continue and this will further support driving up conversions for our partners and for trivago as a whole. And that will contribute to that as well. Operator: Your next question comes from the line of Stephen Ju with UBS. Vanessa Fong: This is Vanessa, calling in for Stephen. So you previously mentioned Holisto now in trivago DEALS could provide white label booking engine services, particularly for small and medium-sized OTAs and potentially hotel chains. I was just hoping if we could get an update on this opportunity. Johannes Thomas: I think I touched on it a bit in my remarks and in the previous question. So what this means is, we facilitate the booking for our partners. Our priority is not and might be an opportunity in the future is that we kind of power full tech stacks of other OTAs or so on. That's not a priority for us. What we focus on this Book & Go being a channel that completes the booking on trivago on behalf of our partners. And on behalf of trivago DEALS or the underlying product Holista has been operating in the past. And that is developing very well in our platform, and with the main goal of driving conversion. And we outlined that conversion has been up 37% compared to 2023, which means marketing is more effective, which means user satisfaction is a lot higher and that, I think, will be the payoff year and not kind of a separate business line that we are after. Operator: Your next question comes from the line of Wei Fang with Mizuho Securities. Wei Fang: Congrats on the solid growth as well. I just want to double-click on the commentary you're saying you're getting much closer to your plan like brand marketing level, right? And does that mean you will need to maybe shift a little bit of your traffic strategy to some of the other channels on the way? Just wanted to see if you can comment on that. Johannes Thomas: Thank you for your question. I'm not sure if I fully got it. But if you think about how we increase our brand investment, I think I have touched on it before, our strategy is to keep increasing this year substantially in the years ahead, but with less incremental growth than previous years. I think we generally -- what I mentioned is that we have also worked -- that we have also been successful in other brand market and new or additional brand marketing channels, if you are after that. So in the past, we had a strong focus on linear TV. And over the past 2 years, we have tried a lot of new channels from streaming to podcasts to social media, all kinds of new channels that have emerged, and really we're now able to scale because technologically, they evolve very well. And we have diversified into channels. And today, we are less dependent on linear TV. And when it comes to broader marketing channels, we have been very disciplined in performance marketing. As we know, the attractive and the profitable traffic that we get that has stickiness and then also gives us lifetime value is branded traffic, when people come to us directly and they have our brand in mind, compared to performance marketing channels where you have a touch point and then don't have so much stickiness. So we have reduced dependencies on performance marketing channels or on search channels over the course of the year, which was an important step as well, and we will continue to be disciplined on those channels. And I think on the brand channel, we have become more diversified, which was also an objective to get confidence that we have avenues to grow in brands and with a high elasticity when we incrementally invest. Operator: There are no further questions at this time. I will now turn the call back to Johannes for closing remarks. Johannes Thomas: Thank you. I'm proud to be on this journey with such a strong team, and I want to say thanks a lot to everyone at trivago for making our turnaround a reality. Our shareholders can be confident that we will remain focused on sustaining our momentum and be disciplined in executing on our strategy. Thank you to our partners and investors for your continued trust and support, and we look forward to sharing further updates in our next quarterly call. Thanks a lot. Operator: This concludes today's call. Thank you for attending. You may now disconnect.
Operator: Ladies and gentlemen, thank you for standing by, and welcome to the First Quarter Fiscal Year 2026 Cabot Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would like now to turn the conference over to Robert Rist, Vice President, Investor Relations and Corporate Planning. Please go ahead, sir. Robert Rist: Thank you, Michelle. Good morning. I would like to welcome you to the Cabot Corporation earnings teleconference. With me today are Sean Keohane, CEO and President; and Erica McLaughlin, Executive Vice President and CFO. Last night, we released results for our first quarter of fiscal 2026, copies of which are posted in the Investor Relations section of our website. The slide deck that accompanies this call is also available in the Investor Relations portion of our website and will be available in conjunction with the replay of this call. During this conference call, we will make forward-looking statements about our expected and future operational and financial performance. Each forward-looking statement is subject to the risks and uncertainties that could cause actual results to differ materially from those projected in such statements. Additional information regarding these factors appears under the heading Forward-Looking Statements in the press release we issued last night and in our annual report on Form 10-K for the fiscal year ending September 30, 2025, and in subsequent filings we make with the SEC, all of which are available on the Investor Relations section of the website. In order to provide greater transparency regarding our operating performance, we refer to certain non-GAAP financial measures that involve adjustments to GAAP results. Any non-GAAP financial measure presented should not be considered to be an alternative to financial measure required by GAAP. Any non-GAAP financial measures referenced on this call are reconciled to the most directly comparable GAAP financial measure in a table at the end of our earnings release issued last night and available in the Investor Relations section of our website. I will now turn the call over to Sean, who will discuss the first quarter highlights, followed by several company and business updates. Erica will review the corporate financial details and the business segment results for the first quarter. Following this, Sean will provide an update to our 2026 outlook, discuss market demand drivers, provide some closing comments and then open the floor to questions. Sean? Sean Keohane: Thank you, Rob. Good morning, ladies and gentlemen, and welcome to our call today. In the first quarter, we continued to execute at a high level in a challenging economic environment, delivering adjusted earnings per share of $1.53 in the quarter. EBIT in the Reinforcement Materials segment declined by 22% compared to the first quarter of fiscal 2025 in what remains a challenging demand environment. This decline was driven primarily by lower volumes in the Americas and Asia Pacific. EBIT in the Performance Chemicals segment increased by 7% compared to the first quarter of fiscal 2025 on a more favorable product mix and continued momentum in our Battery Materials product line. Later in the presentation, I'll spend more time highlighting the strong performance and momentum we see in this growth vector, including the exciting announcement of our multiyear agreement with PowerCo. Operating cash flow was strong in the quarter, which allows us to invest to sustain our high-quality asset base and gives us the flexibility to invest in high confidence growth projects while returning significant levels of cash to shareholders. As we indicated in our fourth quarter fiscal 2025 call, the global demand environment, particularly in the Reinforcement Materials segment remains challenging. Tire production levels have been depressed and are lagging growth in miles driven as inflation has likely caused a delay in the replacement cycle and a trade-down effect at the lower end of the market. In the Western geographies of the Americas and Europe, we have seen several years of tire production declines, which has impacted carbon black utilization rates. Tire imports from Asia continue to take share from domestically produced tires. And while Western countries are taking increasingly aggressive actions to address unfair trade practices, we have yet to see tariffs or other trade measures result in a meaningful decline in the flow of imported tires. In the United States, imports from Asia have declined sequentially in the last few months, but remain up approximately 4% year-over-year. In Brazil, tariffs have helped slow the flow of imported tires, particularly from China, resulting in a 4% year-over-year decline in 2025 of passenger car tire imports. In Europe, tire imports continue to be at elevated levels as few protection measures have been implemented to date. The tire industry currently has an antidumping petition under review with a determination scheduled for June of 2026. It is against this backdrop that we conducted our annual negotiations in Reinforcement Materials for our calendar year 2026 supply agreements. As we communicated in November, these negotiations were challenging and took longer to conclude. As you know, our tire agreements are heavily concentrated in the Americas and Europe as Asia Pacific is largely a spot market. The level of tire imports from Asia into the Western regions contributed to a reduction in local tire production, leading to a decline in local carbon black capacity utilization in a more intense competitive environment. In the Americas, we faced pricing pressure as carbon black industry utilization rates dipped below 80%. In Europe, the challenges were even more pronounced with both pricing and volumes coming under pressure as tire imports increased 8% year-to-date November 2025. Pricing declined across Western regions and in defending our pricing levels, we lost volume in Europe. Pricing impacts varied by region, but were generally in the range of 7% to 9% decline as compared to 2025 levels, reflecting the competitive pressures in the market. Across all regions, we continue to price our products based on our value proposition of reliable in-region supply, quality, sustainability and innovation. However, the competitive dynamics negatively impacted the outcome of the negotiations. As we look forward, the picture on regional carbon black utilizations is a dynamic one. There are some recent signals that trade protection measures may be starting to have an impact on tire imports in the Americas, and we do see the global tire majors actively investing to reinvigorate and defend their Tier 2 tire brands. Furthermore, there is an expectation embedded in global data's tire production forecast for 2026 for growth in Western geographies as demand recovers from depressed levels. While these factors would be supportive of an improving regional utilization picture for our Reinforcement Materials segment, we are taking a series of actions to reinforce our leadership and to provide a foundation for sustained strong margins and cash generation. In fiscal year 2025, we delivered $50 million of cost savings, and we expect to maintain these benefits in fiscal 2026. While we have new growth assets coming online that we anticipate will increase costs in fiscal year 2026, we expect these new assets will drive bottom line profitability. We also are focused on additional programs in fiscal 2026 that are targeted to reduce existing costs by another $30 million. These programs include procurement savings, headcount reductions in Reinforcement Materials and benefits from accelerating technology deployment for improved yield and manufacturing efficiencies that we expect will be rolled out during fiscal 2026 and into fiscal 2027. In addition to cost actions, we have reduced our capital expenditures for the full year to align with the current market environment. We are tensioning this spend while continuing to maintain our assets and invest in attractive growth opportunities to sustain strategic momentum. We expect our new CapEx range to be approximately $60 million lower at the midpoint compared to 2025 actuals, which would support robust free cash flow generation, enabling us to sustain a high level of cash return to shareholders through dividends and share repurchases. Finally, as a result of the declining carbon black utilization levels in Western geographies, we believe it is prudent to look at our network capacity and align it to current demand levels. With this in mind, we are finalizing plans to rationalize carbon black capacity in the Americas and Europe to position us to operate more efficiently, enhance profitability and maintain flexibility as we navigate this challenging demand environment. We will communicate any decisions when they are made. Before I hand it over to Erica to discuss our financial performance, I also want to highlight an area of our portfolio that continues to perform well, our battery materials product line. We are a global leader in this space with the broadest range of conductive additives, formulations and blends and strong participation with leading global customers. Battery Materials represents a significant strategic opportunity for Cabot, and we are excited about the progress we've made and the momentum we see ahead. Our Battery Materials product line delivered another strong quarter with revenue growth of 39% compared to the first quarter of fiscal 2025. This growth reflects the continued momentum in electric vehicle and energy storage applications as well as the benefits of new customer agreements and capacity expansions that we believe position us well for sustained performance. EBITDA margins in this product line remain attractive running at 22% on a trailing 12-month basis, which underscores the strength of our technology and disciplined execution of our strategy. Global demand for lithium-ion batteries is expected to accelerate meaningfully over the remainder of the decade, with the sector projected to grow at roughly a 20% compound annual growth rate through 2030. This expected growth is being driven by both the continued rise in electric vehicle adoption on a global basis and also by the rapid rollout of large-scale battery energy storage systems. We believe our LITX and ENERMAX brands are increasingly well positioned. These brands bring together our most advanced conductive additives, formulations and blends, solutions that are enabling superior battery performance in both EV applications and battery ESS installations. A critical element of our battery materials strategy is to establish incumbency in the Western geographies as gigafactories are built there. Last month, we signed a multiyear agreement with PowerCo, and I want to take a moment to highlight why we believe this is such an important milestone for our battery materials product line. PowerCo is a subsidiary of Volkswagen Group, the second largest auto producer globally with a broad and deep lineup of electric vehicles. VW has made clear its strategic intent to produce a substantial portion of its own batteries through the build-out of several gigafactories, and this agreement positions Cabot squarely at the center of that strategy. The agreement represents the first step in what we expect will be a multisite, multiyear expansion of PowerCo's battery production footprint. Securing this agreement not only reinforces our leadership position in conductive additives formulations and blends for lithium-ion battery applications, but it also creates a strong foundation for growth as PowerCo scales its operations. We are excited about the opportunity to grow alongside an industry leader and deepen our role as a trusted partner in the global EV battery value chain. Over time, we expect this agreement to be a material contributor to profit growth in our Battery Materials product line. It underscores the strength of our technology and the confidence our customers have in Cabot as a leader in this space. As I mentioned, one area that is helping to fuel the strong growth in our Battery Materials product line is the rapidly growing battery energy storage systems application. These systems play a critical role in enabling clean, reliable and flexible power for the energy grid, renewable energy sources and the fast-growing network of data centers. As demand for uninterrupted power supply accelerates, driven in part by the proliferation of AI-enabled data centers, the demand for battery ESS is expected to grow at a 26% compound annual growth rate through 2030. Cabot is well positioned to capitalize on this growth. Our advanced conductive additives, formulations and blends are designed to improve cycle life and enhance battery efficiency, delivering the performance that customers in this application require. As we look ahead, we anticipate that battery ESS will be a significant contributor to the long-term growth of our Battery Materials product line. We expect the combination of this rapidly expanding sector and the larger battery electric vehicle market to create a powerful growth engine for Cabot. With strong fundamentals, increasing demand for energy storage and Cabot's differentiated technology, we believe we are well positioned to create a high-growth business that can drive long-term shareholder value creation. I'll now turn the call over to Erica to discuss the financial and performance results of the quarter in more detail. Erica? Erica McLaughlin: Thanks, Sean. Adjusted EPS in the first quarter was $1.53. This performance was 13% below the same quarter last year, driven by lower EBIT in our Reinforcement Materials segment, partially offset by higher EBIT in our Performance Chemicals segment. Cash flow from operations was strong at $126 million in the quarter, which included a working capital decrease of $5 million. Discretionary free cash flow was $71 million in the quarter. We ended the quarter with a cash balance of $230 million, and our liquidity position remains strong at approximately $1.4 billion. Capital expenditures for the first quarter of 2026 were $69 million, and we expect capital expenditures in fiscal 2026 to be between $200 million and $230 million. Additional uses of cash during the first quarter were $24 million for dividends and $52 million for share repurchases. Our debt balance was $1.1 billion, and our net debt-to-EBITDA remained at 1.2x as of December 31, 2025. The operating tax rate for the first quarter was 28%, and we continue to anticipate our operating tax rate for fiscal 2026 to be in the range of 27% to 29%. Now moving to Reinforcement Materials. EBIT decreased by $28 million in the first fiscal quarter compared to the same period last year, primarily due to lower volumes, which were down 7% year-over-year. Regionally, volumes were down 15% in the Americas and 7% in Asia Pacific, while volumes in Europe were up 6%. Volumes were impacted by lower production levels and year-end inventory management by our tire customers in the Americas and increased competitive intensity in Asia Pacific. Looking to the second quarter of fiscal 2026, we expect a sequential decrease in EBIT of approximately $5 million to $10 million, driven by the outcomes of our calendar year 2026 customer agreements, partially offset by higher volumes from seasonal improvements. As fiscal 2026 progresses, we expect to see improving EBIT in the third and fourth quarters as compared to the second quarter, driven by the benefits from our new capacity in Indonesia and our acquisition in Mexico as well as improved costs from the countermeasures we are driving. Now turning to Performance Chemicals. During the first quarter of fiscal 2026, EBIT for the segment increased by $3 million as compared to the same period in the prior year. The increase in the first quarter was due to higher gross profit per ton from a more favorable product mix and continued optimization and cost reduction efforts. Volumes were lower by 3% year-over-year, primarily due to lower demand in Europe. Looking ahead to the second quarter of fiscal 2026, we expect EBIT to remain relatively consistent with the first quarter as sequential volume improvement in the Western regions is expected to be offset by the timing of costs. As fiscal 2026 progresses, we expect to see improving EBIT in the third and fourth quarters as compared to the second quarter, driven by stronger volumes in the back half of the year. I will now turn it back to Sean to discuss our 2026 outlook. Sean? Sean Keohane: Thanks, Erica. As we look to the balance of fiscal year 2026, we are narrowing our adjusted earnings per share guidance range to between $6 and $6.50. This guidance incorporates the final outcomes of our calendar year 2026 annual Reinforcement Materials customer agreements that I discussed earlier. In terms of assumptions that underpin this outlook, in Reinforcement Materials, we anticipate volumes to be relatively flat year-over-year, which includes the impact of the first quarter volumes and some volume loss in Europe in our calendar year '26 customer agreements, which are offset by volumes from new assets, including our new line in Indonesia and our plant acquisition in Mexico. We closed this acquisition at the end of January and results will be consolidated starting in February. Our outlook also reflects lower pricing year-over-year driven by the annual agreements that I discussed earlier. In Performance Chemicals, we anticipate low single-digit volume growth year-over-year, driven by our Battery Materials product line and tailwinds in certain end markets such as infrastructure and consumer. We expect to maintain our gross profit per ton as compared to the prior year. Our balance sheet continues to be very strong with net debt-to-EBITDA of 1.2x as of December 31, 2025. We anticipate continued strong free cash flow generation driven by robust operating cash flow and moderating CapEx spending. The combination of balance sheet strength and cash flow generating capacity allows for significant flexibility in our usage of cash, which we plan to invest to maintain our global asset base, drive strategic growth opportunities and return cash to shareholders through dividends and share repurchases. While the current environment remains challenging, there are a number of factors that would provide support for an improved demand profile over the medium and longer term. As I've discussed, for Reinforcement Materials, demand in the Western geographies has been impacted by elevated tire imports and depressed tire sales. Looking forward, industry forecasts project domestic tire production in the Western regions to return to growth in 2026 and 2027. The rate and pace of this recovery will likely be influenced in part by trade measures on tire imports, such as tariffs and antidumping duties, which are currently playing out across the various regions. In addition, pent-up demand for a delayed tire replacement cycle is expected to support volume growth as consumers return to more normal buying patterns as inflation abates and interest rates move down. At the same time, the global tire manufacturers are reinvigorating and leveraging their Tier 2 brands to defend share from Asian tire imports into Western geographies, which should help stabilize regional demand and support volume growth moving forward. In Performance Chemicals, we expect our diverse portfolio of applications to deliver GDP plus growth over time. While some end markets such as housing and construction and consumer durable applications remain subdued, we see strong growth prospects in certain applications that are driven by macro tailwinds. As I discussed previously, our Battery Materials product line is expected to continue benefiting from the rapid build-out of battery energy storage systems and continued penetration of electric vehicles, particularly in Asia and Europe. Beyond batteries, our product sales into infrastructure-related applications continue to experience strong demand as our consumer and semiconductor-related applications. As we look ahead, we would expect a continued easing of inflation and a further rate cut cycle to be supportive of demand levels overall. Given our broad global footprint and recognized technology leadership, we believe we are well positioned to capture value as demand recovers. While the environment remains dynamic, we are focused on leveraging Cabot's strengths to position the company for long-term success. It starts with our leadership position. Cabot is a proven technology leader with the widest global scale in our industry, and this positions us well to win and outcompete others. Our large global network of competitive assets and leading technologies enable us to optimize globally, serve customers effectively and maximize returns. In the current environment, our focus will be on global asset optimization, process technology deployment, efficiency programs and cost reductions to extend our leadership position and maintain our strong margins. The cash flow characteristics of Cabot and our investment-grade balance sheet are enduring strengths of the company. The financial capacity allows us to fund strategic growth opportunities while maintaining a high level of cash return through dividends and share repurchases. We expect cash flow and liquidity to remain strong, and our investment-grade balance sheet provides great flexibility to execute our Creating for Tomorrow strategy. Finally, we see clear growth opportunities ahead and are investing to win. We are building momentum in our Battery Materials product line, which is a proven high-growth platform supported by strong macro tailwinds fueling the data center build-out and electrification of mobility. In the infrastructure sector, wire and cable applications and investments in alternative energy generation are experiencing robust growth, and Cabot's products and global footprint are well recognized by leading customers in these key applications. Cabot is well positioned to navigate the current uncertainty, and this management team brings a track record of experience, disciplined execution and a commitment to shareholder value creation. I am confident in our ability to execute our strategy and to return to a path for growth beyond 2026. I will now turn the call back over for our Q&A session. Operator: [Operator Instructions] And our first question will come from John Roberts with Mizuho. John Ezekiel Roberts: I think the Asia country tire export data leads the U.S. import data by a couple of months. What are you seeing on those tires that are leaving the ports in Asia? Sean Keohane: John, I would say the picture kind of remains pretty consistent. I think in the Americas, we're definitely seeing in more recent months that the tire imports have been coming down a bit sequentially, certainly in North America. And I think the current data would be consistent with that. So we'll have to see how that plays out, but that would be the current view. And certainly, in South America, the import levels have -- as a result of tariff measures down there, particularly in Brazil, have resulted in a modest year-over-year decline. And again, I think current data would be consistent with that. So there can be turbulence here, of course, as regional -- as various regions implement various protective policies, you can have a bit of channel stuffing that can happen ahead of changes in those policies. But I would see that those directional trends, I think, seem to be continuing. So we'll be watching that closely. In Europe, I think there haven't been significant measures put in place yet. There is an antidumping duty petition that's under review right now. So we'll have to see what happens there. So I would say the tire imports continue into Europe. John Ezekiel Roberts: And is the volume weakness in Europe silicas just the construction silicones market? Or is it being exacerbated by Dow's silanes closure? Sean Keohane: Yes. I would say, overall, our demand has not been materially impacted by Dow's silanes closure. We reached an agreement there to be compensated for any nonperformance or underperformance that contract calls for. I think Europe, just in general, is weaker in terms of housing and construction, which is a big end market for silicones. And so I would say it's more of a general market weakness than anything specific. Operator: And the next question will come from Kevin Estok with Jefferies. Kevin Estok: So just real quick, on your multiyear supply agreement with PowerCo, I guess, have you quantified what the, I guess, expected earnings contribution is from this agreement? Sean Keohane: Kevin, we have not for obvious confidentiality reasons. But obviously, the agreement is an important one strategically because of how significant PowerCo, we expect will be given VW's very broad lineup of EVs and their intent to make a substantial portion of their own batteries, number one. Number two, as part of our strategy, we not only compete and do very well as a leader in China, but our strategy calls for establishing incumbency outside of China as battery gigafactories get developed. And this contract is an important one in that -- in pursuit of that strategy. Kevin Estok: Okay. Understood. And I guess my second question would be just -- so obviously, you're largely a make-in region, sell-in region model. But I guess I was wondering what the magnitude of your cross-border specialty product sales where that were basically exposed to tariffs. And I guess, whether you had any pricing mechanisms that would recover some of those costs? Sean Keohane: Sorry, Kevin, could you just repeat, you're talking about in the Reinforcement segment? Or are you talking about in Performance Chemicals? Kevin Estok: Actually -- well, either of you, if you have any, I guess, any points there, yes. Sean Keohane: Yes. No, the company is largely a make-in region, sell-in region. We do have some relatively small volumes of products in Performance Chemicals that move across regions, given the unique and specialty nature of certain technologies, they're not necessarily replicated in every region. And so there are some small cross-regional volumes that do move there, but they would be quite small in the overall -- as an overall proportion of Cabot sales. And so we've not really had any material impacts in those product lines as a result of the trade tensions that are underway globally. Operator: And our next question will come from David Begleiter with Deutsche Bank. David Begleiter: Sean, can you talk to how your new Mexico plant fits into Americas manufacturing footprint now that you look to close capacity in the Americas? Sean Keohane: Yes, sure, David. So the Mexico plant is an important one strategically. As you know, we already have a plant in Mexico in Altamira, very close by to where this plant is. So there will certainly be operational synergies as we integrate this site into our existing management structure there in Mexico. And Mexico continues to be an important market where there is tire expansion. And so we see this as an important strategic asset. I think the other thing to remember here is I think it's an important and strong signal of our long-term partnership with Bridgestone. This agreement has a long-term supply agreement, providing materials back to Bridgestone for use in their tire production in Mexico and in the Americas. So it's underpinned by a long-term agreement. So I think our view here is that it fits in strategically given our existing footprint and the integration with our assets there as well as the close partnership with customers that are investing in that region for growth in tire production. David Begleiter: Very clear. That's helpful. And one more question, Sean. Can you talk to on your annual contracts, how the volumes were realized by region, North America, South America and Europe for the upcoming -- for the current year? Sean Keohane: Sure. So in terms of the contract agreements from a volume standpoint, I would say, overall, as was commented earlier, we're expecting volumes across Reinforcement to be relatively flat globally. And -- but if we look at the contract specifically, I would say in the Americas, there's basically no real change in share position here. So we would expect those volumes to sort of grow with market, which will be kind of flattish is the outlook, a little bit up perhaps, but in that range. And then in Europe, we did lose some volume in the contract negotiations there. And so we would expect European volumes to be down in 2026. Operator: And our next question will come from Josh Spector with UBS. Joshua Spector: I had 2 questions just on the Battery Materials piece. I mean I think if we go back a couple of years ago, you sized that business as something like $25 million in EBITDA, and we expected it to grow, then there was pricing pressure and it came down. So can you help us re-level set to the earnings in that business in fiscal '25? And then second, I think a lot of the growth in conductive additives were more about energy density. We talked about EV batteries and extended range. Does conductive carbons have the same value add in battery energy storage systems where maybe the space requirement isn't as much of a constraint. Just curious if you can comment on those 2 pieces. Sean Keohane: Sure. Thank you, Josh. So in terms of the ESS application and the EV application, there are similarities in terms of expectations for battery performance, but there are also some differences. You highlighted one of the biggest ones, which is, obviously, in an EV, there's a space constraint. And so trying to pack more energy density into smaller space is important, and that leads to slightly different requirements in terms of the conductive additives and the blends or formulations of those additives to meet that requirement, whereas energy storage systems generally are less space constrained. And so I would say that's the most significant difference. In both cases, they require high-value conductive additives and blends and formulations of those to optimize the performance. So the profitability of both of these applications is quite good. So we're excited about the build-out there. Certainly, the momentum behind the build-out of energy storage is accelerating. And then outside of -- when you look at China and Europe for EVs, there's continued penetration there. With respect to the overall profitability of the business, we have not disclosed a more recent number. You are correct back in that period of time where we were. And then the industry went through a sort of prolonged destocking cycle. So I would say it took a while to kind of level out. I think people realize that there was excess inventory of battery cells in '23 and into 2024. So there was kind of a normalizing that's been quite difficult to figure out what the current run rate is. That being said, we have been growing very nicely here in this business, and I commented earlier on our overall profit EBITDA margin level in this business. So you can see that it's a material contributor to the Performance Chemicals segment and one that we believe will grow as the build-out outside of China happens to be a material contributor to Cabot. That's certainly our aspiration here, and we're making investments to make that happen. And we sit here today in a really strong position. We've got the broadest range of conductive additives and an ability to formulate blends of both conductive carbons and carbon nanotubes and carbon nanostructures. And I think that portfolio is a distinguishing one and then the global footprint that we offer as customers build out outside of China is an important feature of Cabot's position here, and we're very well positioned with the top global producers around the world as they're building out. So we feel like we're hitting the milestones here. And in any new business, there's always some choppiness as things evolve, but we're focused on the long term here and very pleased with the momentum we're seeing. Operator: [Operator Instructions] The next question comes from Lydia Huang with JPMorgan. Wenyi Huang: How does it affect your margins when you sell to a higher mix of lower-tier tires versus when you sell to more higher-tier tires? And have there been changes to your customer mix? Sean Keohane: Lydia, so I would say in terms of the major customer mix, I would say, not major changes to that mix or profile as we look out into 2026. I think your question about profitability by tire, I think it's important to think about this in a couple of different ways. First of all, every tire has several grades of carbon black in it, depending on which part of the tire you're talking about. So each is specifically designed to impart performance in that part of the tire architecture. So segmentation is important for us, not only in terms of customers, which types of tires and then which grades of carbon black we try to tailor for different parts of each tire. And so the market choices and the segmentation are important. Traditionally, what you find is that reinforcing grades impart more performance on the tire. Those are the ones that are on the tread or part of the tread architecture. And so that's very important in terms of delivering not only the wear but the fuel economy requirements of the tire. So you'd traditionally see higher performance related to those types of grades. But the segmentation is a very important part of how we run this business, both customer types of tires, whether they're for domestic or export as well as which products we try to tailor for different parts of the tire. Wenyi Huang: And how is reinforcement materials volume trending quarter-to-date in the Americas compared to the December quarter? And are the performances different in South America and in North America? Sean Keohane: So in terms of volumes so far in January, we are seeing that volumes are up a little bit year-over-year in the Americas. And so I think that's -- in Europe, that's positive. And then if you look at sequentially, it's up some 15-ish percent or something in that range, I think, sequentially. But that's not a surprise. You normally have a seasonally weaker December quarter. And I think that was even more pronounced as you saw in our volume results for December because of significant inventory management by customers at the end of the year. So seeing a sequential step-up like that was expected. So on a year-over-year basis through January, it seems like it's developing fine and as expected. Operator: Thank you. I am showing no further questions in the queue at this time. I would now like to turn the call back over to Sean for closing remarks. Sean Keohane: Great. Thank you, Michelle, and thank you all for joining today our Q1 call, and we look forward to talking with you again in the upcoming quarters, and thank you for your continued support of Cabot Corporation. Have a great day. Operator: This concludes today's conference call. Thank you for participating, and you may now disconnect.
Operator: Good morning. This is the conference operator. Welcome, and thank you for joining the Cr�dit Agricole Fourth Quarter and Full Year 2025 Results Conference Call. [Operator Instructions] Today's speakers will be Ms. Clotilde L'Angevin, Deputy General Manager of Cr�dit Agricole; and Mr. Olivier Gavalda, Chief Executive Officer of Cr�dit Agricole. At this time, I would like to turn the conference over to Mr. Gavalda. Please go ahead, sir. Olivier-Eric Gavalda: Thank you. Good morning, everyone. It's a pleasure for me to share with you the strong results published this morning by Cr�dit Agricole S.A. that Clotilde will describe extensively in a few minutes. Before that, let me start with a brief introduction and highlight the key commercial and financial figures as well as give you an outlook for 2026. On this slide, once again, and despite the uncertainties and erratic events in 2025, Cr�dit Agricole S.A. is posting high results for 2025, reaching again a level above EUR 7 billion, and this performance is supported by a very dynamic commercial activity. Net income group share amounts precisely to EUR 7.1 billion. It is a stable level compared to 2024 despite the tax surcharge of EUR 147 million recorded this year. So in fact, excluding this tax surcharge, it is a slight increase. These very good results are driven by an increase in revenues by 3.3%, thanks to a dynamic commercial activity this year that I will further illustrate in a few minutes. These very good results also translate into strong profitability with a return on tangible equity of 13.5%, stable compared to last year, and the capacity to distribute a dividend of EUR 1.13 per share, increased by 3% this year. CASA CET1 ratio is above the 11% target. Its level is of 11.8% at the end of December. We confirm that very high solvency level of the group with a CET1 ratio of 17.4%, placing us among the most solid of major European banks. A few words on the fourth quarter that Clotilde will describe in much more details afterwards. Q4 is impacted by Banco BPM first consolidation for EUR 607 million. Thanks to this consolidation, there will no longer be volatility in the P&L linked to the evolution of Banco BPM share price, as this operation sets the foundation of a regular contribution of Banco BPM to our results, around EUR 100 million per quarter regarding the 2025 performance of BPM. On the next slide, in 2025, we have experienced numerous commercial successes. A few examples deserve to be highlighted. We have acquired 2.1 million new clients, best performance in the history of Cr�dit Agricole. Loan production for our retail banks increased by 15% compared to 2024, reaching EUR 140 billion. Insurance premium income set a new record at EUR 52 billion, up 20% compared to 2024. Amundi's net inflows were multiplied by 1.6 to reach EUR 88 billion. CACIB reaches record results driven by all its business lines across our different geographies. And despite the difficulties incurred by CAPFM in the automotive market in Europe and China, the level of activity remains high, particularly in Personal Finance. Furthermore, in 2025, Cr�dit Agricole S.A. continued its momentum in partnership and investments, notably with structuring partnerships and targeted acquisitions in Europe, Asia and U.S. We can, in particular, mention launch of partnership with Victory Capital in U.S., increase in our stake in Banco BPM in Italy, long-term partnership with Crelan in Belgium, acquisition of noncontrolling interests in CACEIS and major partnership with ICG in Private assets. These key transactions strengthen the group's position as a leading European player and accelerate its development in high potential markets. On the next slide, our solid results reinforce the financial ambitions set in our strategic plan. All in all, as illustrated in the chart in pro forma data, the results achieved in 2025 are fully in line with the trajectory on -- of the -- our plan and reinforce our confidence in our ability to meet objectives we have set regarding our revenue growth, net income group share, return on tangible equity and cost/income ratio. For the cost/income ratio, we have reached a peak point, and I'm very confident it should drop in the next quarters. More specifically, 2026 outlook is based on the set of favorable factors, in particular, the continuation and acceleration of the commercial momentum, amplified by the rollout of new strategic initiatives of our plan, the gradual integration of recent acquisitions and realization of synergies, the Retail Banking and Personal Finance business line in France are expected to continue to benefit from the upturn in margins, whereas mobility activities are set to see a recovery in profitability. Corporate Investment Banking should continue to perform in volatile environment. And finally, Banco BPM will now make a recurring and high contribution to profit of around, as I said, EUR 100 million per quarter. Obviously, uncertainties, and you know that, will remain high. In the last slide, as it is, many investments undertaken in 2025 have already materialized or will materialize in the coming weeks and coming months. We are truly off to a running start. Here too, a few examples, starting with our efforts for acceleration. First, concerning retail banking in France, we can mention that the regional banks have developed as part of their 2030 ambitions, the 100% digital housing loan journey. LCL has just deployed its digital offering for professionals and is preparing its easy digital offering for individuals. The transformation of LCL is on track. We have launched Indosuez corporate advisory to serve midsized companies, and we can mention also a few upcoming international developments, particularly the European savings platform will be launched in April in Germany. In Asia, CACEIS will open a branch in Singapore in 2026. And of course, our transformation and simplification efforts will continue, particularly around AI, as well as our innovation efforts with, for example, CACEIS, CACIB and Amundi joining forces to launch initiatives in the world of tokenized finance. All these projects and the value created by our recent acquisitions make me very confident about the future. Our development in France, in Italy, in Europe and in Asia is on track, and our model demonstrated its strength once again. Now, it's time to give the floor to Clotilde, who will provide you with a more detailed presentation of our quarterly and annual results. Thank you, and see you soon. Clotilde, over to you. Clotilde L'Angevin: Thank you, Olivier. Hello, everybody. So moving to the slide regarding the key figures. You see here that we have strong annual results, as Olivier was saying, that are, in particular, stable for CASA this year without any form of adjustments. Now, in the quarter specifically, the results for Group Cr�dit Agricole and for CASA were impacted in particular by Banco BPM effects. One that I'm going to detail a little bit further down on the revenue front, an impact of the fluctuations in the share price of Banco BPM for EUR 320 million. And another on the net income front, an impact of the first-time consolidation of Banco BPM for EUR 607 million. And this explains the decrease in net income by 23.9% for Group Cr�dit Agricole and by 39.3% for Cr�dit Agricole S.A. this quarter. Now, if we look at the annual results, however, the revenues are record in 2025, both for the group, it increased by 3.9%; and for CASA, it increased by 3.3%, thanks to dynamic activity in all of the business lines, and in particular, for the group, thanks to the rebound in net interest income in France. The gross operating income, as you see, was up this year despite the investments that Olivier was talking about to set the stage for future developments in our medium-term plan. We have operational efficiency that is well managed with the cost-to-income ratio at 55.7% for CASA and 59.6% for the group. The cost of risk is under control. We have a cost of risk on outstandings of 35 basis points, sorry, for CASA compared to 34 last year and 28 for the group compared to 27 last year. And so all in all, net income group share reached EUR 8.8 billion for the group and EUR 7.1 billion for CASA. This is, in particular, stable for CASA despite the impact of the additional corporate tax charge, which is EUR 280 million for the group and EUR 147 million for CASA. The increase in net income would have been 1.8% for CASA and 4.6% for Group Cr�dit Agricole, excluding this impact. Now, if I move to the next slide, activity supported this strong growth in revenues over the year. And in particular, we have activity that was sustained across all of the business lines this quarter and over the year. Now, customer capture was strong, 517,000 this quarter, which brings the total for the year to the 2,100,000 new customers that Olivier was talking about in France, Italy and Poland. And our customer base is also expanding this year. Activity was strong, in particular, in retail banking in France. I talked about it for the group. Loan production was dynamic, driven by the corporate loan production that increased by 14% quarter-on-quarter and 16% year-on-year. And the home loan production was also strong, 9% quarter-on-quarter, 21% year-on-year, in particular, in the regional banks this quarter. And over the year, we have again an increase in market share for the regional banks. International loan production was also strong, in particular in Italy, with a 5.4% growth rate quarter-on-quarter in corporates and individuals, but also, for example, in Poland, thanks to retail. And so outstanding loans increased in all of our markets. On-balance sheet savings also increased in all of our markets, and the off-balance sheet savings inflows were dynamic in France and in Italy. And so this translates into the performance of insurance. We had record net inflows over the year in life insurance, EUR 15.9 billion. And this quarter, they were strong, driven by France and both by unit-linked and the euro fund. The premium income in insurance is high. It crossed in 2025, the EUR 50 billion threshold with a 20% increase this quarter, thanks, of course, to savings and retirement. You know that there's a context of increased precautionary savings, but also thanks to the P&C activity to individual death and disability insurance and to group insurance. And so P&C activity is growing both in France and internationally with 17.9 million contracts in our portfolio, and the equipment of our customers continues to increase in all of the retail networks. In Asset Management, we have a record level of AUMs of EUR 2,380 billion, thanks mainly to strong inflows. Olivier was talking about the EUR 88 billion inflows over the year, EUR 21 billion this quarter, thanks to medium to long-term assets into the JVs, and in particular, passive management and to continued strong momentum in third-party distribution. In Wealth Management, activity was also strong this quarter with record net inflows and strong customer capture. In Wealth Management, just to parentheses, the integration of the group is well underway. We have 30% of synergies that are already achieved, and this allows us to comfortably confirm our guidance of EUR 150 million to EUR 200 million net income group share contribution by 2028. In Personal Finance and Mobility, production was also high, EUR 12.1 billion this quarter, thanks in particular to dynamic activity in Personal Finance. As you know, the automobile activity was impacted this quarter and this year by unfavorable market conditions, but we have managed loans that increased across all segments. Production and leasing was dynamic this quarter, thanks in particular to renewable energy in France and benefiting from the integration of Merca Leasing. And finally, in the large customers division, the CIB confirms its performance with a new record level of Q4 and 2025 revenues, thanks both to market activities, where we had a strong performance in rates and repo activities and to financing activities, in particular, in the telco sector in Corporate and Leverage Finance. And of course, we maintain our leading positions on syndicated loans and bond issuances. And finally, in Asset Servicing, we have assets under custody and assets under management that increased this quarter, thanks to positive effects -- market effects, sorry, but also to the arrival of new customers. And the ISB integration is now finalized. Customer and IT migrations are completed, and the synergies have been achieved at a rate of 66%. And so we're very confident on our guidance of EUR 100 million of net income for 2026 contribution of ISB integration. By the way, I was talking about the growth in ISB. If you're curious, on Slide 41, we have analyzed the majority of our 2015-2022 transactions in order to look at the return on investments of these past acquisitions, which is, of course, on average, higher than our 10% limits, 13% as of 2025. And it's too early to calculate a 3-year ROI for the 2023-'24 operations, but we already have strong ROIs to date, and the synergies are on track for the 3 main operations of the period. I was talking about ISB for CACEIS and the Group, but also ALD, which is very profitable. Now, moving to revenues. So this activity, the dynamism of activity translates, as it has been doing, as you can see on the figure on the right for the past 10 years into revenue growth. Now, this quarter, CASA revenues were impacted by a negative Banco BPM share valuation of minus EUR 57 million. And so compared to the Q4 positive effect of EUR 263 million, this valuation impacts the change in revenues by EUR 320 million. Now, recall that until the first consolidation of Banco BPM in December, we have fluctuations in the share price of Banco BPM that impacted our revenues. And so we do still have this fluctuation. And this is why, in particular, we wanted to limit the exposure of our income statement, sorry, to the volatility in Banco BPM share price. And this is why we asked and we received the authorization by the ECB to cross the 20% threshold in order to equity account our stake within the framework of significant influence, and this is consistent with our position as a long-term shareholder and partner of Banco BPM. Now, going forward, this stake will be immune to the fluctuation of the share price of Banco BPM, and it's going to generate regular net income of, as Olivier was saying, if we base this on the past income statements of Banco BPM, about EUR 400 million per year. This is strong value creation. Recall that, over the past years, we have had strong value creation also, thanks to, in particular, the dividend earnings from Banco BPM. And so all in all, the contribution was EUR 200 million in 2023, about EUR 600 million in 2024 and about EUR 200 million in 2025, including, and I'm going to come back to it just afterwards, the impact of the first consolidation. So you see we have a strong value creation in our accounts in the past and in the future, thanks to this share in Banco BPM. Now, if I come back to revenues, excluding this EUR 320 million impact, the revenues increased by 2.7% this quarter, and this is thanks to the sustained activity that I was talking about in our business lines. The revenues increased by EUR 60 million in asset gathering. We have a scope effect linked to the Amundi U.S. deconsolidation, but also a scope effect linked to the integration of our insurance activities that are in JV with Banco BPM. And these 2 scope effects more or less cancel out. Besides this, activity was strong in all of the business lines. Revenues also increased in CIB despite an unfavorable foreign exchange impact and in asset servicing, thanks to strong fees and commissions income. In SFS, the revenues were impacted by EUR 30 million base effect that we have talked to you about last year in Consumer Finance. But on the other hand, we had revenues in leasing that benefited from the integration of Merca Leasing. And besides this, revenues benefited from favorable price and volume effects in Consumer Finance, which off-setted the decline in mobility revenues. You know that we have mobility revenues in our Cr�dit Agricole Auto Bank entity. And finally, the revenues increased by EUR 91 million in retail banking in all geographies, thanks to the strength of fees and commissions income in Italy and in France. And in France, finally, thanks to the rebound in net interest income. So as you can see, we're starting to see what we talked about in the medium-term plan on net interest income, a net interest income that's going to continue to slightly decrease in 2026 in Italy, but net interest income that will increase in LCL, by the way, also in regional banks, thanks to the reduction in the cost of resources, we have a normalization of the customer deposit mix and the rate effect and thanks to the gradual repricing of loans. So all in all, we have growing revenues in the businesses, continuing the dynamics that you observed over the past 10 years. Now, if I move to costs. The cost-to-income ratio has increased this year at 55.7%, but it remains very under control. It's an increase of 1.3 percentage points after 15 percentage points drop between 2015 and 2024. And if we look at the quarter, you see that we have a growth by 4.7%. But if we break down the expenses, you'll see a certain number of elements. First, we have scope effects. We have scope effects linked to the deconsolidation of Amundi U.S., but we also -- negative, but we also have positive scope effects from the integration of insurance entities in partnership with Banco BPM, Banque Thaler and the resumption of depository activities. So these both scope effects, as you can see on the right, along with the integration and acquisition costs, they more or less cancel out, first point. The second point, we have restructuring costs. You know that we talked about in the last quarter about EUR 80 million restructuring costs for Amundi in the context of an optimization plan in France, Italy, Germany and Australia that will generate EUR 40 million of annual savings from 2026 onwards. We have in addition to that for EUR 8 million this quarter. But more importantly, we have strong restructuring charges in Italy, EUR 65 million. This is really, as Olivier was saying, to prepare for a medium-term plan, i.e., the growth in digital customer capture, productivity efforts on administrative activities, improved sales force expertise. And then, if we take off these scope effects and restructuring costs, we have a growth that is very limited in recurring expenses, 2.5%. And this growth also allows us -- this growth in recurring expenses also corresponds to investments within our medium-term plan, for example, in LCL to continue to transform our distribution model, for example, in CIB, in cash management and equity solutions. So we're really laying the ground for our medium-term plan with these expenses. Now, if I move to cost of risk, cost of risk increased by 5.9% this quarter. But if you look at the Stage 3 incurred cost of risk, you'll see that it's very stable compared to the Q3 and Q2 levels. Now, what are the exceptional items that explain the increase in cost of risk this quarter? There's mainly 2 exceptional items. The first one is a EUR 41 million provision on the U.K. car loans litigation. As you know, we have a 2% market share. So it's limited for us. Of course, all of the CAPFM U.K. entities immediately complied with regulation on -- it's the setting of rates by distribution intermediates. But we are subject, as the other players that have a larger market share, to customer claims related to the past. And so we decided to prudently increase our provisioning in the context of an ongoing consultation by FCA to bring the total stock of our provisions to EUR 88 million. And so the outcome of the consultation is expected soon, hopefully, by the end of the month. And the second exceptional effect is a EUR 30 million provision. This corresponds in Italy, again, to a market element. It corresponds to our current estimation of our 5% share of bailing out of a small digital bank in Italy, which is Banca Progetto, bailing out by the Italian deposit guarantee scheme. And so, as I was saying, besides these elements, the Stage 3 cost of risk is very close to the Q3 and Q2 levels. 44% of the Stage 3 cost of risk is explained by SFS, where the risk has been relatively stable over the past quarters. Then, we have 32% for LCL with an increase in individual risk on corporates, mainly in retail distribution sector. And then, we have a little bit in Italy in CIB. In CIB, the cost of risk remains very low with investment-grade customers mainly in a diversified and a balanced geopolitical risk. So if I conclude on this slide, there's no surge in loan loss provisions, even though, of course, we monitor closely the corporate customers in retail banking, and in particular, for example, small real estate developers, construction, distribution, automobile, textiles and more generally SMEs. But our lending policy is cautious. And as always, our provisioning is very prudent. And as you can see, our main asset quality indicators are very solid. The cost of risk as a share of outstandings is low, both at CASA and group. The loan loss reserves are very high, and we have among the best coverage ratios in Europe, both for the group and for CASA. I'm going to move very quickly on to the next slide, just to tell you that for Cr�dit Agricole Italia, in particular, you see that the cost of risk on outstandings is stable at 39 basis points, excluding the Banca Progetto provision. And you see that we have relatively stable cost of risk after very low quarters, by the way, in beginning of '25 and end of 2024. Moving on to the slide on quarterly results. So we have strong activity, managed operational efficiency, cost of risks that are under control. But, however, our results in the fourth quarter were impacted by 2 exceptional effects that I'm going to explain in a little bit more detail right now. First of all, a first effect, which is a negative impact, as you can see on equity accounting of the performance of our JV with Stellantis, which is Leasys with a minus EUR 111 million contribution. Now, what happened? In CAPFM, we have 3 growth drivers in 22 countries. And we have 2 growth drivers that performed well in 2025, the servicing to the bank entities and personal finance, which is restoring its margins. There was one growth driver, mobility that suffered in 2025 due to market conditions, in particular, because the automobile market has been suffering in 2025. And on top of that, the car manufacturers that we have close ties with have had specific difficulties. So I'm thinking of GAC in China. I'm thinking of Tesla in Europe. And of course, I'm thinking of Stellantis with which we have our JV. So the 3 entities that we have on mobility, one is Cr�dit Agricole Auto Bank, for which we have gross operating income, which is good. The second one is our JV with GAC Sofinco, where production has been impacted, but results are positive, and production is picking up in the last month of the year. And then, finally, Leasys. Now, the difficulties faced by Stellantis reduced the attractivity of the range of vehicles. And so Leasys, which is the JV we have with Stellantis, has to make commercial investments, and the performance of remarketing was impacted. And so, in the Q4, we decided to review all of the remarketing values of our used vehicles portfolios in Leasys, systematically applying a conservative discount compared to market prices. So this impacted the Q4 results, but it's going to strengthen our financial base for Leasys, and it allows Leasys to prepare for a rebound in profitability because we're well positioned to benefit from the growth, which is coming in the long-term leasing market. We're starting on a solid footing, and we also have a strong position in particular in Italy, number one. And going forward, we're going to roll out new services and insurance solutions focusing on added value. That's the first effect. The second effect is one that you know better, which is the impact of the first consolidation of Banco BPM. So you recall that we acquired Banco BPM shares in tranches, each at a different price. And so when we consolidate for the first time, we decided to take a prudent accounting position, which is to take as reference the equity value and not the share price. And so we assess at each date of the acquisition, our share of the net assets acquired. So we carve out the fair value effect in P&L and OCI for about EUR 1.9 billion. It's negative because the price is higher today than what it was when we bought the shares. And then, conversely, we recognize a badwill effect, which is the difference between the price of the shares at the moment of the acquisition and the equity value of our participation. And then, there's an adjustment to net book value and net position. And so all in all, since the difference between the price of our participation at the time of consolidation and the equity value of our participation today is positive, we have a P&L impact that's negative. But as I was saying, going forward, based upon Banco BPM's past results, we should have an increase of about EUR 100 million of net income per quarter. So this quarterly net income has these exceptional effects that made it a little bit complicated to read. But if you look at annual results without any form of restatement, we have stable results at EUR 7.1 billion. So we have a certain number of exceptional elements that more or less cancel out. We have the impact of the first consolidation that I talked about of Banco BPM. We also have in the Q2, the capital gain linked to the deconsolidation of Amundi U.S. in the Q2. And we also have an additional corporate tax charge for EUR 147 million. And so if you exclude all of these elements on the right of the figure, you see that we have a gross operating income, which increased in 2025 by 1.3%, thanks to buoyant activity in our business lines and thanks to our constant attention to operational efficiency. And cost of risk is under control. And so all in all, you remember that we had told you that we would have a stable net income over the year, excluding additional corporate tax. Now including this, it's stable. And excluding it, net income would have increased by 1.8%. Finally, as indicated by Olivier, the ROTE is high at 13.5%. Pro forma, it's at 13.9%, and this bodes well for 2028 financial trajectory. Now, if I move to capital, for CASA, recall that the target in our medium-term plan is 11%. So we still have a very high level of CET1 this quarter, 11.8%, about 300 percentage points -- basis points, sorry, above our 8.75% SREP requirement. And this is thanks to, first, retained results, 22 basis points, which are the consequence of the generation of income that I commented before, but also integrating a 50% payout, payout based upon a distributable net income, which we adjusted to exclude the capital gain related to the deconsolidation of Amundi U.S. for EUR 304 million. It's not a cash effect and to exclude this accounting effect of the EUR 607 million P&L impact of the first consolidation of Banco BPM. And so this amounts to a dividend of EUR 1.13 per share, an increase compared to last year of 3%. Now, if I come back to the waterfall, we also have the effect of the organic growth for the business lines, 6 percentage points. And we have an active management of our balance sheet. In particular, we have optimized, as planned in our medium-term plan, our RWAs through the synthetic risk transfers for about 7 basis points, and this allowed us to release EUR 1.6 billion RWAs in CACIB net and EUR 0.6 billion in Cr�dit Agricole Personal Finance and Mobility in the fourth quarter. So we're going to really have an attitude which is scarce resource monitoring, always making sure that the cost of release is accretive. But you see here that we have this active management of the balance sheet, which allows us to compensate almost the methodological impact in the M&A and others. These M&A impacts include a plus 9 basis points impact of Banco BPM. Now, we have a negative impact of the EUR 607 million P&L first consolidation effect that I talked to you about, 14 basis points. And then, there's naturally because we have this prudent view regarding our equity accounting, there's a decrease in the prudential value of Banco BPM and our CET1. So we have a positive impact corresponding to the reduction in RWAs corresponding to this decrease. And this is why the impact of the first consolidation is positive for CASA and nonsignificant for the group because for CASA, this positive impact is stronger because our exemption threshold for the significant participations above 10% had already been full. So this is why we have a different impact between CASA and the group on the next page. This box also includes a share buyback impact, which compensates the Q3 impact of the capital increase for employees in order to neutralize the dilutive impact of that Q3 capital increase. This is 9 basis points. And we have a couple of small M&A impacts of which beginning of the participation in ICG. And finally, we have a few methodological effects. For example, in Italy, we have put in place new retail RWA models. This was included -- this is about 15 basis points, and this was included in the 40 basis points methodological impact we announced on our Capital Markets Day. And so the waterfall brings us to 11.8%, which is very comfortably above 11%. And then slide CET1 Group Cr�dit Agricole, next slide. I'm going to go very quickly on this because I talked about the effect regarding Banco BPM in particular. But I just wanted to insist upon the fact that our objective is not to accumulate capital at the level of CASA. And so that's why in terms of solidity, the relevant figure is the CET1 of the group, which is very comfortable at 17.4%, a 760 basis points distance to our SREP requirements. And so we have organic growth of businesses, and we also have a slight methodological impact regarding the correction of corporate loss given defaults for the regional banks. Leverage ratio is very comfortable. TLAC and MREL ratios are very strong. So we have a very strong capital position at the level of the group. On Slide 18, we also have a very comfortable liquidity position, a high level of liquidity reserves at EUR 485 billion. The LCL and NSFR ratios are excellent. NSFR is going to be published end of March, but in the Q3, we were close to 120% for the group, 114% for CASA. And the group has mobilized various levers to diversify the sources of liquidity, thanks to its universal banking model. One, our customer deposits that are abundant, stable, diversified and granular. And so our liquidity coverage ratio is very high, above our targets, which is a range between 110% and 130%. On the next slide, we have our transition plan that continues to be organized around 3 pillars: accelerating of the development of financing to renewables and low-carbon energy sources that has increased from the first half to EUR 28.6 billion in 2025. We're also helping our customers in their own transition by providing financing consistently with the group's sustainable asset framework. This has increased this quarter to EUR 116.5 billion. And finally, we continue to decrease our financing to carbon-based energy sources. And so moving on to the next slide, let me conclude by saying that this quarter, net income is impacted by an accounting effect linked to the impact of the first consolidation of Banco BPM and by the difficulties of the automobile market. These 2 elements should, in fact, disappear in 2026 and contribute on the other hand to growth, thanks to the growth in mobility and thanks to the regular high recurring profit contribution of Banco BPM. Activity was sustained in all of the business lines with record inflows, outstandings and premiums income and asset gathering, record performance in CIB, a strong pickup in net interest income in France. The fourth quarter, as Olivier was saying, marks the beginning of the medium-term plan, and we have already started rolling out the different dimensions of our plan in retail banking in France, in Germany in terms of innovation and efficiency. And so the gross operating income increased in 2025 for CASA and the Group. Income is high at EUR 7.1 billion, and this strong performance allows us to post high profitability with an ROTE of 13.5% and to propose to the general assembly an increasing dividend. So we're very much on track to meet our 2028 financial targets. I'm going to stop here. Thank you very much for your attention. We can now open the floor to your questions. Operator: [Operator Instructions] The first question is from Jacques-Henri Gaulard, Kepler Cheuvreux. Jacques-Henri Gaulard: The question is a bit conceptual, but when I look at your results and revenues in particular versus consensus, I mean, very strong activity everywhere, you've beaten, it's very strong. But at the same time, Clotilde, I feel for you because you spent the last 45 minutes literally going through every single one-off and restructuring and everything. And at the end of the day, your stock is down 3%, which I think is a bit harsh. So -- I mean, I totally appreciate the whole non-recurring aspects of Banco BPM and everything. You've explained the legal cases. But, is it fair to say that the reason why you ended up with that accumulation of nonrecurring aspect is probably due to the fact that you have a plan coming and you need a bit of a reset for a perimeter you feel comfortable with over the next 3 years and everything? Or is it actually the problems of having a decentralized structure, which means that you end up at the end of each quarter with an accumulation of things that were not necessarily planned at the beginning? Just to try to figure out when we can actually expect something quite clean, if you see what I mean. Clotilde L'Angevin: Yes. Thank you, Jacques-Henri. I see what you mean, and thank you for feeling for me for the 45 minutes. It's true that we really want to set the stage for the medium-term plan. And so that's why we were very satisfied when we received the authorization from the ECB to equity account our stake in Banco BPM because that's going to reduce fluctuations and provide high and recurring profit going forward. We intentionally accounted for the restructuring costs in Amundi and Cr�dit Agricole Italia in 2025 because this again sets the stage for our medium-term plan and growth going forward in retail, in asset management. But we're also -- I didn't talk about it too much, but we're also investing also in CIB, in LCL. So the costs that you have this quarter really reflects this investment that we have for the future in our medium-term plan. Now there are a few one-offs that don't depend on us, in fact, regarding, in particular, the U.K. provision and the Banca Progetto restructuring. And we have this issue in terms of the automobile market, but all of this should pick up. And I think what we really want -- what I really want to insist upon is the fact that we have really an outlook that's going to be strong for 2026 because we also have the integration of the recent acquisitions. That's also something that's going to pick up. We no longer have these integration costs for CACEIS. We have very limited integration costs that are going to be coming in 2026 for the group, but it's going to be limited. And as you can see, we're on Slide 6, we really have a lot of tailwinds going forward, in particular, with margins that are going to pick up, in particular, for French retail and for consumer finance. And of course, performance continues to be very strong in CIB and Cr�dit Agricole Assurances. Operator: The next question is from Tarik El Mejjad, Bank of America. Tarik El Mejjad: A few questions on my side as well. First of all, I mean, given the restatements you've done for the BPM on your accounts, which was very helpful, would you guide for an increasing net income year-on-year from the restated EUR 7.27 billion in '25, given all the moving parts? Consensus has that flattish or slightly down, which I think is a bit too cautious. And the second question is on capital and distribution. I mean, you've been increasing your EPS, but still accumulating excess capital. So you've just presented your plan, so there's no policy increase, policy in distribution and so on. But just want to hear you in terms of your plans in terms of what areas you could do some bolt-on and where you see good use of capital. And then, talking about this bolt-on, I mean, you had a very interesting slide, Slide 41, showing the ROI for the previous M&A deals. I mean, I already picked some on this with you, Clotilde, on the CMD, when you said the 10% ROI -- above 10% ROI is satisfactory. I thought it was quite of a low number. But now, I look at what you've done so far, between 11% and 13%. I mean, is that something really you've kind of expected from the origination of those deals or you were hoping for better than that and been disappointed by integration? Clotilde L'Angevin: Thank you, Tarik, for your question. Now, regarding guidance, I think really what I want to go back to is what Olivier was saying in terms of how we're setting the stage for the plan -- for the Act 2028 plan. So indeed, if you look at pro forma, we had a EUR 7.3 billion net income group share in 2025. And so we're well on track to reach our target, which is to go beyond 8.5% in 2028. But as you know, we really like to remain on multi-annual targets. In terms of cost-to-income, what I can tell you maybe more precisely, however, is that the 57.4% pro forma cost to income is a peak. It should go down next year. So 2026 cost-to-income should be lower than what it was in 2025. On the other elements, in terms of revenues, net income and ROTE, what I can just tell you is all of this we're on track to increase, and it's true that the 13.9% pro forma ROTE of 2025, really bodes well for the future. And I think we can really say that the 14% target for 2028 is really a minimum. Now, you were talking on organic bolt-ons. You know that our track record is really based upon a mix of organic and a mix of bolt-ons. In the Capital Markets Day, we talked to you about the fact that we had revenue growth that was 70% organic and 30% external growth. And that's why we had a revenue growth that was more than 5% over the past 6 years, and we're targeting a revenue growth of 3.5% in this medium-term plan. This is supposing that there would only be organic growth. We do hope we will do external growth operations. And as you were saying, Tarik, we do have very strict financial criteria. And so thank you for spotting out to Slide 41, and so thank you for Cecile and the team, and by the way, who prepared this slide. We take into account ROI, of course, and we're happy to have these figures. The 10% figure is a minimum. But there's also other criteria that we take into account. And we talked about it in the Capital Markets Day. We have to have operations that are accretive in terms of ROTE. We have to have a demonstrated integration capacity by the benefit of this integrating. We have to have revenues and cost synergies. And of course, these operations have to be very well aligned with our strategy. And so, to answer maybe your question as to what we can see in terms of bolt-ons, it's going to be linked with our strategy. Olivier was talking about the fact that we want to develop -- in terms of -- in France, in Europe, in Germany, we want to develop in Asia. We want to support the savings development in Europe, in particular. We want to support the development of corporates, in particular with mid-caps. In Europe, more generally, we were talking about these different triangles of growth where the mid-caps and the corporates are going to support the competitiveness of Europe. All of these are areas where we want to continue to develop, and all the business lines that you see, by the way, on Slide 41, all of the business lines have critical size, are profitable and so are very well positioned to continue to seizing opportunities if they appear. But we're really in an opportunistic mode because our medium-term plan, we can reach the targets through -- solely through organic growth. Operator: The next question is from Delphine Lee, JPMorgan. Delphine Lee: Yes. So I have 2 questions. On the first one, if I can ask on sort of your comments going back to your comments on 2026 outlook, when you mentioned the headwinds on NII for Italy, CACEIS and wealth management. I'm just wondering, is that just you're trying to be conservative? Because you do have already volume growth, and NII has stabilized in Italy. Shouldn't volume be able to offset the rate headwinds, just if you could give a bit of color on that? The second thing is, do you mind just like expanding a little bit and elaborating more about sort of Leasys and GAC Sofinco in China? Because -- I mean, how quickly can we see a rebound in your associate income? Production is picking up, it seems, in China, but like how quickly can we see that already in the numbers? And how can we measure the sort of the implications of the write-downs you've done on Leasys this quarter in terms of what that means for '26 and '27? Clotilde L'Angevin: Thank you. Thank you for your questions, Delphine. Yes, we have tailwinds for net interest income in France, but we do have headwinds for net interest income, as you were saying, in Italy, in CACEIS and wealth managers. We're, of course, hoping that volumes are going to pick up, and we have dynamism in commissions, but it's true that there is a rate effect that we see in Italy. The decrease in net interest income in Italy should not be that significant. On the other hand, the increase in net interest income in France should be a little bit stronger, in particular for LCL, and of course, in the regional banks, which also are going to support which is also going to support growth in the regional banks, which is always good for the activity of the business lines of CASA. So relatively, reasonable headwinds on net interest income in Italy. Now, if I come back a little bit to Leasys and to China. So let me just maybe talk about China a little bit because I didn't go too much into detail about that because, in fact, the production had slowed down in the first quarters of the year. In particular, I talked to you about that in the Q2 and in the Q3 in China. And in fact, we have had in the Q2 2025, an event where the Chinese authorities imposed a 5% floor to the commissions, which caused the market to normalize because we had, had the entry onto the market of banks, which caused competitive conditions on the market. And so production is picking up. December was the highest month of the year for GAC Sofinco in GAC Leasing. But the effect of this normalization, it's going to take a few quarters to come into the income because the average duration of these loans is a little bit more than 30 months. So we have to be cautious. But nevertheless, GAC has also begun to diversify its activities to the used car financing, for example, to the development of new services. So I think reasonably, we could consider that China's income could stabilize in 2026 compared to 2025. And hopefully, it's going to pick up going after that. Now, for Leasys, there's going to be drivers of profitability going forward for Leasys and for mobility more generally, a diversification of the distribution channel, a revamping of the services catalog, an improvement in the remarketing process with value sharing with car constructors, IT tools. We're developing a cross-European remarketing strategy, building on synergies between the different entities. And of course, the automobile market should pick up, and we are going to have more value-driven pricing. Now, we're confident in the fact that Leasys was going to recover profitability levels in 2026 and pick up even more in 2027. So a regular increase over the years of the medium-term plan. Operator: The next question is from Pierre Chedeville, CIC. Pierre Chedeville: Two questions on my side. First question regarding the launch of the platform in Germany and more generally in Europe on the savings side and online side. Will it cost some -- do we have to anticipate some extra charges regarding this launch and this project in 2026? Because you are not very precise on that side in the P&C. So do we have, I don't know, IT investments, things like that? I'd like to come back also on the cost of risk in LCL. You mentioned some attention points regarding retail and distribution. Do you think that here we will have to have a forecast in the coming quarters in terms of cost of risk similar to what we see -- what we've seen in this Q4 for the next quarter? Or is this a peak, I would say, in Q4 and the normalization in the coming quarters? Clotilde L'Angevin: Thank you, Pierre, for your questions. So regarding the development in Germany, of which we have the development of the digital savings platform, but which includes the development, for example, with -- of everyday banking services. This development should be relatively low cost -- I would say, would be below EUR 50 million. Why? Because we already have a setup in Germany with Creditplus, 20 branches, and Creditplus is already doing EUR 15 billion in on-balance sheet savings. What we're going to do is we're going to put up a very agile and efficient platform, in particular, to internalize the margins in terms of on-balance sheet savings. And this is something that we should start in the first half of 2026. And then, we're going to incrementally build upon that, adding day-to-day banking solutions with essential banking products. This should come in the second half of 2026. And then, in 2027, we should have off-balance sheet savings offers. What am I talking about? I'm talking about all of the synergies that we can do with the entities of the group, such as Amundi, for example, or Cr�dit Agricole Assurances. But these on-balance sheet savings themselves should be relatively competitive because we're going to propose a number of on-balance sheet solutions for our customers in Germany, which should make this digital saving platform very interesting. But to answer precisely your question, Pierre, all of these developments should be at a very low cost, less than EUR 50 million. And hopefully, we're going to have revenues that are going to contribute to our growth, thanks to these initiatives. That's the first point. The second point, you're talking about cost of risk in LCL. It's true that we have had an increase in incurred Stage 3 cost of risk this quarter in LCL. And so it's true that we're going to be very cautious regarding the different sectors that I talked to you about, retail development, automobile, textiles, distribution, et cetera, et cetera. It's very difficult to say what's coming in fact, a lot of uncertainty. We have a lot of uncertainty in France, in Europe regarding the corporate market. What I can tell you is that we have had low cost of risk in the recent quarters. But we have, more importantly, accumulated over the past year very strong provisions, provisions at the level of the group, provisions also at the level of CASA. The provisions at the level of CASA include prudent provisions that represent about 1.5 years of cost of risk. At the level of the group, we're close to 3 years of cost of risk. So we have very strong provisioning. And so if the Stage 3 cost of risk continues to increase over the next quarters, we really have these buffers in terms of prudent provisioning that allows us to limit the cost of risk, and I'm still very comfortable regarding the hypothesis that we have in our medium-term plan, which is a cost of risk at 40 basis points for CASA during the medium-term plan. Operator: The next question is from Matthew Clark, Mediobanca. Jonathan Matthew Clark: I have a couple of questions. Firstly, on Leasys, and then, on Slide 41. So with Leasys, can we expect it to break even already next quarter? Or is more a full-year breakeven kind of project? Is that the right way to think about it? And then, the second question is just on the calculation of your ROI on Slide 41. Is the 13% as simple as your net profit divided by the sum of all the considerations for those entities? Or is it more like a return on invested capital calculation or some other aspects of it? Any guidance there would be appreciated. Clotilde L'Angevin: All right. Thank you, Matt. Regarding Leasys, I'm not going to give you any quarterly guidance. What I'm going to tell you is that hopefully, we're going to have a positive profitability for Leasys in 2026, picking up in 2027. But uncertainty is relatively high on the automobile market. So it would not be unreasonable for me to give you any quarterly guidance regarding Leasys, but we are comfortable in the fact that we're -- confident on the fact that we're going to resume profitability, double-digit contribution to net income in 2026. Now, for the M&A operations, it, in fact, depends because some of the M&A operations are difficult to -- the ROI is difficult to calculate because the objective of these operations usually is to really have them really feed into the business, and it's oftentimes very difficult to see what is the contribution of this integrated activity to cost or revenue synergies. So when we look at the ROI, we look at the revenue synergies. We look at the cost synergies. We compare that to the price of acquisition. And then going forward, we try to estimate the contribution of the integrated activity to the net income, but it's going to be an estimation naturally because it's difficult because we don't have separate entities. One of the cost synergies that -- one of the drivers of the cost synergies is the migration -- IT migration and the merging of legal entities. So this makes things difficult, but what we do look at to simplify is we do look at additional net income in year 3 compared to the capital that we invested. Jonathan Matthew Clark: So just to clarify, is it compared to the consideration that you -- when you say capital that you invested, is that the consideration you pay to the seller? Or is that the CET1 on capital that's--okay? Clotilde L'Angevin: It's the cash. It's the cash that we paid. It's not a CET1. We do have a return on CET1, but that is more comparable in fact to the ROTE. What I'm telling you that we have an ROI and we want to have something that is accretive in terms of ROTE, perhaps to have something that's accretive in terms of ROTE, we look at a certain number of elements, the RONE, but oftentimes, the ROCET1, which looks at the capital consideration that you're talking about. When we look at ROI, we're comparing it to the cash invested. Operator: The next question is from Alberto Artoni, Intesa Sanpaolo. Alberto Artoni: I have 2. The first one is just a quick follow-up on the cost of risk in LCL. And I just wanted to better understand if the increase of cost of risk was linked to a limited number of big tickets. Or was it more a broad-based issue with certain sectors that you called out in the slide? And the second one is on the tax. What do you expect for 2026 taxation at CASA level? Clotilde L'Angevin: All right. Thank you very much, Alberto, for your questions. Regarding LCL, it's an increase in a certain number of individual risks on corporates, but I would not say that it's 1 or 2 large deals. There are -- it's not completely a large number of small corporates. There are individual risks, but it's a little bit more diversified regarding the SMEs. So it's an increase in the SME risk in the different sectors that I was talking to you about. It's not 1 or 2 specific cases. Now, regarding the corporate tax, going forward, we do have, as you saw, the publication of the tax decisions by the government, which causes us to forecast a relatively similar corporate tax going forward. It's too early as of today to draw conclusions, but we still have a corporate tax that should be based on an average of the fiscal revenues of past year and current year. So that's why we can't estimate it as of today. The corporate tax for 2025 was based upon the average of the fiscal revenues of 2024 and 2025. So we have to calculate -- we're going to have to calculate the corporate tax going forward based upon the fiscal revenues of 2025 and 2026. Now, it's more or less the same type of corporate tax, except that the threshold in terms of turnover is a little bit higher. It goes from EUR 1 billion to EUR 1.5 billion, which could have an impact at the level of the group. But all in all, we will have a corporate tax. The amount will be in the same ballpark as what we had this year. And it's true that this is something that is taking into account -- in our medium-term plan, we know that we have to take into account a certain number of uncertainties, and this is one of the uncertainties that we have to take into account. Hopefully, it's not going to continue until 2028, i.e., the end of our medium-term plan. Operator: The next question is from Sharath Kumar, Deutsche Bank. Sharath Ramanathan: I had 2. Firstly, on Specialized Financial Services. I know that this is one area where consensus seems to be consistently underestimating your strength. Anything that you can say as to why consensus seems lower? And what do you think it is missing? And a follow-up on Leasys, can you clarify what drove the higher used car sale losses and whether there's more pain to come? And lastly, on Corporate Center, if you can give guidance, now that we will not have the Banco BPM accounting impact, do you think the 4Q underlying level of, say, call it, EUR 80 million negative net income, is a reasonable run rate to extrapolate going forward? Clotilde L'Angevin: Okay. Thank you, Sharath. So for SFS, the thing is that it's difficult to estimate the impact on mobility in the context that we have currently, which is a context of an automobile market that is under difficulty. So this is something, in fact, that has been -- had an impact on most of the car constructors, but it's true that the car constructors with which we have a relationship today with Cr�dit Agricole Bank, specifically with Tesla, GAC Sofinco with GAC and Leasys with Stellantis, we have had difficulties on these 3 car constructors, each for specific reasons that hopefully are going -- are behind us, and hopefully, activity should pick up. That's the first point. But if I extrapolate a little bit to used car, there is a market where the arrival of electric vehicles is making the residual value of used cars difficult also to estimate. That's also why we adopted a very prudent approach by applying a conservative discount to our used car residual values for Leasys. This is really to put us on a solid base for the future regarding this dimension. And if I -- because we have a certain number of growth drivers in CAPFM, not only mobility, we also have personal finance. And in terms of personal finance, we're optimistic. As to the pickup, we're going to have tailwinds linked to the margins, and we're going to have also a pickup in the insurance and services. So these are elements that should help us going forward. For Corporate Center, what we said in the medium-term plan was that we could target around EUR 900 million -- EUR 400 million in contribution, I think. I'm just verifying that with Cecile right now. She's nodding -- she's shaking her head. So maybe that's not that. I'm going to have to come back to you as to the guidance we have in the medium-term plan in terms of the corporate center. Operator: Next question is from Benoit Valleaux, ODDO BHF. Benoit Valleaux: A few questions on insurance, if I may, which was about a very strong figure. The first question is related to CSM, which has enjoyed a very strong growth of 9.1% over 12 months. So it's partly due, of course, to the activity, but also you mentioned some positive market effect. Can you just please tell us what has been the market effect or what has been the new business CSM, just to understand a little bit the quality of this strong increase? The second question is on P&C. Your combined ratio has been broadly stable at 94.6% for the full year. So what do you expect in terms of price increase this year? And what do you expect in terms of combined ratio this year and over the plan? I have in mind that maybe you expect a broadly stable combined ratio over the plan, but I don't know if you can confirm or elaborate a little bit on that. And maybe the third question is on solvency. Solvency is down a little bit compared to year-end '24, but it's still very strong. So it's fine. My question is, first, I mean, do you have a view on the dividend to be paid by Cr�dit Agricole Assurance to CASA in Q2 and the impact on CET1 ratio? Or is it maybe too early for this? And the second question is, do you have a view on what could be or what will be the impact of the Solvency II overview on the solvency margin? Clotilde L'Angevin: All right. Thank you, Benoit. Now, regarding the CSM, so we have a certain number of elements. And in particular, we have the variable fee approach dimension, which is contributing to the allocation of the CSM. So we have a very slight decrease in the allocation factor, but nevertheless, we have a CSM that is -- that we have -- which we have new business contribution that is higher than the CSM allocation. The positive market effects are effects that you can have, in particular, in the GSA in terms of -- for the life insurance. Now regarding P&C, we have a combined ratio indeed at 94.6% at the end of the year. Going forward, there's going to be pluses and minuses. There's going to be an impact on claims, for example, of climate change, for example. But on the other hand, the premiums in this context should adapt. And the idea for us is to be able to develop P&Cs in France, internationally to develop the equipment rate to diversify also to principalize our customers in the retail banking in order to increase the extent of P&C solutions that they can have. So these are areas for growth in terms of P&C going forward. But it's true that there will be this mix between claims and premiums going forward because this is linked to the evolution of the market. And in terms of solvency, it's really too early to give you any elements like that. Of course, the solvency ratio is something that we usually give you at an annual level for Cr�dit Agricole Assurances, which is very high. We had a slight decrease this year, 6 percentage points over year in the context of increased rates, but strong growth in activity and -- but it remains extremely high and very comfortable. Benoit Valleaux: Okay. Maybe just regarding the CSM, do you have the figures regarding the contribution from the new business to CSM in '25? Clotilde L'Angevin: We have the fact that the allocation factor is 7.5% and new business contribution is higher than the CSM allocation. Operator: The next question is from Ned Tidmarsh, Morgan Stanley. Edward George Tidmarsh: I just wanted to ask how is the current macro situation in France impacting CASA? And can you talk a little bit more about your outlook on French retail going forward given the recent positive developments on the deposit mix and pricing, please? Clotilde L'Angevin: All right. Thank you. So in fact, the uncertainty linked to the fiscal budget government situation has decreased a little bit. And we have seen that in the asset swaps from the OETs, which has decreased in these past weeks. In fact, the asset swap for OETs has gone below that of Italy. So we have had a market where conditions have been relatively good. Now, there is still uncertainty going forward more generally, but uncertainty linked to European growth to the aging of population, to competitiveness issues. There is an uncertainty linked to the level of public debt, for example, in Europe, and also, of course, to the geopolitical risk, which will have an impact on the supply chains -- global supply chains. This all creates uncertainty more generally. Now, 2 points. First of all, on our capacity to raise liquidity to meet our funding plans, CASA has a very strong position. There is an impact, a slight impact of the fact that we are -- we have an impact due to the government -- French government debt. But nevertheless, the spreads are very low for us. And in fact, our funding plan for last year, we went beyond our funding plan, which was EUR 20 billion. We went to EUR 23.1 billion because the conditions were very strong. And the funding plan that we have is very favorable, sorry. And the funding plan that we have this year is about EUR 18 billion -- 1-8, and we have already achieved about 31% of this funding plan as of end of January, which is very good and which shows that there's abundant liquidity for the European banks and for Cr�dit Agricole, which has a very strong capital and liquidity position, and our conditions, our funding conditions are very good. So that's the first point. The second point is what could be -- so there's no issue for us, CASA, Group Cr�dit Agricole in terms of capacity to raise funding. The second point is, will macroeconomic uncertainty have an impact on activity, activity in the countries where we operate and our activity? Now, you saw in our medium-term plan that we want to increase the share of revenues outside of France from about 55% to about 60%. So this is development that will allow us to diversify also our business mix, first point. And then the second point is that we consider that we're very well positioned to support our customers in the developments that will be necessary, i.e., for example, I was talking about aging population. We're very well positioned to support the savings, the development of savings in Europe, thanks to insurance, thanks to asset management, thanks to the deal that we just signed with ICG in private debt, et cetera, et cetera. That's the first point on savings. And in our medium-term plan, we're also committing to support the mid-caps in Europe in the way that they contribute to competitiveness of Europe in a certain number of sectors, like defense or health or agri or technology. So we're well positioned to navigate in this uncertain environment. Operator: The next question is from Cyril Toutounji, BNP Paribas. Cyril Toutounji: I've got 2. The first one will be on Germany. I know you're launching your platform this year. So I'm just wondering what's your strategy to capture market share in the market that's becoming more and more competitive with new entrants? And the second one would be on French retail revenues. So it was really strong this quarter. And the drivers of NII especially are pretty structural. So I'm just wondering what's preventing us to maybe extrapolate this growth that's quite above the strategic plan revenue targets. Clotilde L'Angevin: All right. Thank you for your question. How we want to gain market share? So we're being very reasonable in the targets that we have. We want to go from 1 million customers to 2 million customers in Germany. We have savings outstandings that are EUR 15 billion. We want to reach about EUR 30 billion in Germany. And if we expand that to other countries, it will reach -- we're going to reach the EUR 40 billion that we talked about in our medium-term plan. So it's a relatively reasonable target because we're starting on this basis of 1 million customers and EUR 15 billion in outstandings. And as I was saying this before, we think that we're going to have a competitive edge linked to the number of solutions we can provide in terms of on-balance sheet savings in this digital platform, time deposits, et cetera. So we have a certain number of solutions that should be more numerous than those of other competitors. But recall that Germany is a market where there's a very strong depth in terms of savings. We want to target affluent customers. And so we're relatively optimistic regarding this, first point. The second point, indeed, the net interest income revenue increased strongly in France this quarter, and in particular, in the regional banks. And in the medium-term plan, we have increased -- an increase -- we have included, sorry, an increase in net interest income. The 11% net interest income that we have seen in French retail this quarter is probably a little bit strong. But for going forward -- but in 2026, I think we can say that we will have a high single-digit increase in French retail in 2026. And then, maybe coming back because Cecile and the team were just checking to the Corporate Center, the minus EUR 400 million I was talking about is indeed a good order of magnitude for a guidance for the net income for the Corporate Center by 2028. Operator: [Operator Instructions] Gentlemen, Ms. L'Angevin, there are no more questions registered at this time. I turn the conference back to you for any closing remarks. Clotilde L'Angevin: Thank you. Thank you very much, everyone, for your attention. So I'm not going to come back to the results that are very strong this year. I just wanted to make one last point. We talked a lot about medium-term plan, which is very good because we're really orienting ourselves into this medium-term plan by 2028. And during the medium-term plan, we have promised that we would do a couple of workshops on a couple of businesses. And in particular, we had talked to you about a workshop for LCL in the first half of this year. And so I'm very pleased to ask you to save the date of May 26, where we will be pleased to host you for an LCL workshop in Paris. And I'm going to stop there. Thank you, everyone, for your attention, and have a very nice day. Thank you. Operator: Ladies and gentlemen, thank you for joining. The conference is now over, and you may disconnect your telephones.
Operator: Thank you all for your patience. The conference call titled Valvoline's First Quarter Fiscal 2026 Conference Call and Webcast will begin shortly. During the presentation, you will have the opportunity to ask a question by pressing Hello, everyone, and welcome to Valvoline's First Quarter Fiscal 2026 Conference Call and Webcast. My name is James, and I will be your operator for this call. If you would like to ask a question during the presentation, you may do so by pressing The conference call will now start, and I will hand it over to our host, Elizabeth Clevinger with Investor Relations to begin. Thank you. Good morning, and welcome to Valvoline's First Quarter Fiscal 2026 Conference Call and Webcast. Elizabeth Clevinger: This morning, Valvoline released results for the first quarter ended December 31, 2025. This presentation should be viewed in conjunction with that earnings release, a copy of which is available on our investor relations website at investors.valvoline.com. Please note that these results are preliminary until we file our forms 10-Q with the Securities and Exchange Commission. On this morning's call is Lori Flees, our President and CEO, and John Kevin Willis, our CFO. As shown in the accompanying presentation, any of our remarks today that are not statements of historical fact are forward-looking statements. These forward-looking statements are based on current assumptions as of the date of this presentation and are subject to certain risks and uncertainties that may cause actual results to differ materially from such statements. Valvoline assumes no obligation to update any forward-looking statements unless required by law. In this presentation, and in our remarks, we will be discussing our results on an adjusted non-GAAP basis unless otherwise noted. A reconciliation of our GAAP to adjusted non-GAAP results and a discussion of management's use of non-GAAP and key business measures is included in the presentation append. With that, I will turn it over to Lori. Lori Flees: Thanks, Elizabeth, and good morning. Thank you all for joining us today to review our first quarter results. We delivered a strong quarter to start the fiscal year, driven by strong productivity gains in our stores, network expansion, and margin improvement, which translated to meaningful earnings growth. I would like to begin by thanking our team members and franchise partners for their execution in delivering these results. At our December investor update, we shared our targets and are focused on executing against those. Our first quarter performance reflects good progress against these commitments. Starting with top-line highlights, we saw another double-digit increase to both system-wide store sales and net sales. System-wide same-store sales grew 13.8% on a two-year stack. This quarter, ticket contributed the majority of the comp, with all three levers contributing. Net price and premiumization were the largest drivers. We also saw continued positive transaction growth despite a tougher year-over-year comparison. As we look at same-store sales breakdown between company and franchise stores, Franchise was slightly higher than the system average for the quarter and for the two-year stack. We continue to grow our active customer base in line with what we expected while bringing in new customers, including fleet, to the network. We continue to innovate our marketing to connect with new customers. We have some fun taking inspiration from college sports with our instant transfer portal, which was designed to invite drivers to transfer from their current oil change provider to Valvoline. Customer demand for our non-discretionary services remains, and we are not seeing signs of trade down or deferral. Our customers continue to tell us they are delighted by our quick, easy, trusted service and are giving us a 4.7-star rating across our network and NPS scores over 80%. Looking at network growth, we saw significant store additions this quarter. The one-time contribution of 162 stores from the Breeze transaction is a noteworthy step forward in our path to a 3,500-plus store network. The Breeze business is performing as expected, and integration activities are underway. Our teams are working well together as we integrate the organization. For example, the team has already consolidated and prioritized our acquisition and construction pipeline. We continue to be excited about both the growth potential of Breeze stores as well as the opportunities to share best practices across the team. Outside of Breeze, we added 38 net new stores with 10 coming from franchise. Our franchise openings were more modest in Q1, but we have a healthy pipeline for both company and franchise and are confident in our full-year expectations. We are pleased to see expansion in both our growth and adjusted EBITDA margin, driven by the work we discussed at our December investor update. Kevin will cover the details. But as we think about the rest of the year, I will remind you that Breeze is only reflected in our Q1 results for one month, and we still expect near-term headwinds on our margin rates with the addition of 162 immature stores. Driving productivity within our stores, growing our network, and expanding margin rate translates into meaningful profit growth. In Q1, both adjusted EBITDA and EPS grew double digits year over year for the quarter and grew faster than top-line sales. The first quarter demonstrated the strength of our business and the continued resiliency of customer demand. We executed our playbook to deliver meaningful profit growth to start the year. As we look to the remainder of the year, we feel it is too early to make changes to our guidance, but we are pleased with our Q1 performance. While not directly in our financial results, I want to share a couple of team highlights. First, Valvoline earned the number one ranking within the automotive services category for Entrepreneur Franchise 500 for the fourth year in a row. We were also named one of Yelp's most loved brands. These recognitions highlight the strength of our franchise model and the strong customer trust and loyalty built across our network. Second, I want to thank our customers, franchisees, and teams for an incredible sixteenth annual campaign with Children's Miracle Network. Through funds donated by guests at the time of service, corporate-led fundraising efforts, and contributions from franchisees, we raised more than $1.8 million for local children's hospitals in the communities where we operate, a nearly 40% increase over the prior year. With that, I will turn the call over to Kevin to provide more detail on our financial performance. John Kevin Willis: Thanks, Lori. We provided a summary of our financial results on slides five and six. Let me spend a few moments to talk about some of the highlights. We saw strong top-line growth with net sales of $462 million, an increase of 11% on a reported basis and 15% when adjusted for the impacts of refranchising in Q1 of last year. The gross margin rate of 37.4% increased 50 basis points year over year, driven by leverage in labor and product cost, offset by increases in other service delivery costs, which includes rent, property taxes, and depreciation. Leverage would have improved by an additional 50 basis points excluding the impact of depreciation primarily from new stores. We remain committed to managing SG&A in the business. That said, SG&A as a percent of net sales increased 30 basis points year over year to 19.3%. The primary reason for this is related to a nonrecurring payroll-related benefit of about $2.4 million in the prior year quarter. Absent this benefit, year-over-year SG&A as a percentage of sales would have declined by 30 basis points. Overall, adjusted EBITDA margin increased 60 basis points to 25.4%. On a GAAP basis, we reported a loss from continuing operations of $32.2 million, largely driven by the loss on divestiture of certain Breeze stores that was required by the FTC. On an adjusted basis, income from continuing operations was $47.6 million. Turning to EPS, we saw an increase of 16%, 28% when adjusted for refranchising. As a reminder, we expect pretax interest expense to increase by about $33 million in fiscal 2026 versus fiscal 2025 due to the new term loan B. Operating cash flows improved to $64.8 million, and free cash flow was $7.4 million, improving approximately $20 million compared to the prior year quarter. Taking into consideration the new term loan, our leverage ratio is 3.3 times based on adjusted EBITDA for a trailing twelve months. As a reminder, you will now hear us talk about leverage in terms of net debt to adjusted EBITDA. As we continue our core business growth and integrate and grow Breeze, we are focused on getting our leverage back down to 2.5 times as quickly as possible so we can resume share repurchase activity. All in all, the results for this quarter are strong, with double-digit sales and profit growth, margin expansion, and improved free cash flow. I will now turn it back over to Lori to wrap up. Lori Flees: Thanks, Kevin. We delivered a strong quarter to start the year and feel confident in our ability to deliver on the guidance we set for fiscal year 2026. The Breeze integration work is underway, and our teams are working well together. The fundamentals of our business remain strong. As we shared at our investor update in December, we are an established category leader with a track record of industry-leading performance and growth. That, along with our differentiated capabilities, will continue to drive strong margin and cash generation, positioning us to deliver long-term value to our shareholders. I will now turn it back over to Elizabeth to begin Q&A. Elizabeth Clevinger: Thanks, Lori. Before we start the Q&A, I want to remind everyone to limit your question to one at a follow-up. With that, operator, can you please open the line? Operator: Thank you, Elizabeth. Lines are now open for questions. We now have our first question from Mark Jordan from Goldman Sachs. Go ahead, please. Your line is now open. Mark Jordan: Hey, this is Mark Jordan. Thank you for taking my question. I joined a minute late, I apologize if this is already covered. But for same-store sales, it looks like some or all of the new brakes revenue is now included in the calculation. And I am just wondering what impact that had on 1Q? And then on the mobile channel in particular, how big is that business in terms of revenue? Lori Flees: Thanks, Mark. Yes. We mentioned during that we were piloting opportunities to expand our reach with mobile service delivery. We want to be transparent about the definition includes inclusion while we were early in the early stages of doing that. It is relatively small, limited to a couple of markets. And it is really tied to trying to meet the needs of both consumer and fleet demands for increasing convenience. In terms of the overall contribution into our comp this quarter, it was around 20 basis points. Mark Jordan: Excellent. Thank you very much for that. Then just one follow-up on franchise store growth. I know usually ramps throughout the fiscal year are usually back half-weighted. Can you just let us know how you feel about the pipeline for openings this year? Lori Flees: Yeah, Mark. It is a great question. The quarter we had a good quarter overall for new unit additions, but it was light on the franchise side. I will note that we had 13 gross additions. We had some closures, which are unusual relatively small for our fleet, but those netted out to 10. When we look at January, our franchise partners have opened nine units in January. So, again, a real indication that the pipeline is robust. And considering the winter storm firm in the back half of January, nine was a pretty good result. So when we look at our pipeline for the rest of the year, it is still very strong both on the company and the franchise side. And, you know, we continue to build momentum to get to that 250 new units in fiscal year 2027. Mark Jordan: Perfect. Thank you very much for the insight. Congrats on a great quarter. Lori Flees: Thank you. Operator: Thank you. Moving on to our questions here. We have Simeon Gutman from Morgan Stanley. Skyler Tennant: Hi. This is Skyler Tennant on behalf of Simeon Gutman. Thank you so much for taking our question. First, can you speak to the complexion of sales this quarter in terms of how pricing and units are trending? Are you seeing certain trends by region or in newer younger markets? Or do you trends seem to generally be pretty broad-based? John Kevin Willis: Thanks for the question. We actually, in the quarter, from a cadence perspective, October, November were pretty much as expected. December was strong. We saw good growth on both ticket and transaction. Ticket was the larger contributor to our same-store sales growth in the quarter. But overall, the growth was quite balanced and good both on the franchise side as well as the company side. Lori Flees: I think the only thing we may have seen in November was a little bit of early weather during the Thanksgiving period in some of our geographies. But other than that, there were not any notable differences or significant trends regionally across our network. Skyler Tennant: Okay. Thank you for that. And Lori, maybe how much time do you think needs to be spent on Breeze? Can you kind of give us a sense of how much focus is needed there versus the core business? Lori Flees: Yeah, it is a great question. I think it is important to remember that while a sizable M&A, Breeze represents less than 10% of our financial commitments for FY 2026. And you can see that the underlying business, given Breeze is only one month of Q1 results, is the momentum in that core business is really strong. Now we continue to be excited about the growth possible in the 162 oil changer stores that we have added. And we are certainly starting to share some good best practices. But I think we have got to keep context that Breeze is an important asset, and we are going to spend time to integrate it and integrate it well. But it is a small portion of the overall financial picture for us. Skyler Tennant: Okay. Thank you so much, and congratulations on the quarter. Lori Flees: Thank you. Thanks. Operator: Moving on to our next question from Max Bracklenko from TD Cowen. Max Bracklenko: Hey, thanks a lot, and congrats on the nice quarter. So with the strong 1Q comps and easing compares the rest of the year, how should we think about the shape of the year in the context of your guide? Then just any comments on the first month of 2Q? John Kevin Willis: Wanna start, and then I can cover Q2? Sure. Sure. Yeah. Thanks for the question. I mean, as we said at our Q1 call and on the investor update, we have taken a measured approach to the outlook for the full year. Really, really pleased with how Q1 played out. It was a strong quarter, and we are very happy about that. You know, there is still a lot of year left. And we want to continue to see how that unfolds. But we are confident in the guide that we put up in Q1 and reiterated at the investor update in December. So again, we feel really good about where we are. There is a lot of year left. We are still working through the Breeze transaction, obviously, in terms of integration, but Breeze also performed as expected for the month that we owned it in Q1. And so overall, it is a great start to the year. And, again, we are very confident in meeting our commitments for the year. Lori Flees: Max, as we think about Q2, apart from winter storm firm, you know, our start to the quarter was really strong. Now with the snow and ice conditions that hit many of the geographies that we operate in, particularly on the company side, momentum obviously slowed. And we are still in many areas, Kentucky included, still not thawed out completely, which has impacted consumers' kind of return to normal activity. I think as you look at the forecast, and the groundhog said we have another six weeks in the polar vortex that they expect coming. And the storms that could follow with that. We think it is going to take a little bit more time to recoup the transactions that pushed out. We do not see significant customer deferral when we look a couple of weeks at a time. But we do know from history that customers will return to get their cars serviced when their normal day-to-day activities resume. So we expect that as we go out through the balance of the quarter, we will recoup some of the volume that we obviously missed as people stayed off the roads. But overall, Q2 before the weather started was very strong. Max Bracklenko: Got it. That is very helpful. And then on Breeze, what is the latest thinking around the timing of the store conversions? How many locations do you plan to convert this fiscal year? And then what could be left for year two or year three? Then how should we think about both revenue as well as the margin impacts the rest of the year? Sequentially. Lori Flees: Are you on the last question, because I will have Kevin answer. Are you talking Breeze specific or more broadly? On the margin and the sales and tax-free? On the P&L. John Kevin Willis: Okay. Lori Flees: Alright. I will cover the first one. Yep. I will cover the first part, which is this really our integration overall. We closed the transaction in December, and simultaneous with that had to complete the divestitures that were required by the FTC. And while that may sound simple, there is a lot of commingling of data in every part of the business that we had to start to separate and transition that out. And so a lot of the focus in the first month was really getting that business stood up within our portfolio and stabilizing the team to ensure that they continued to deliver. And as Kevin said, they delivered exactly as expected, and we feel really good about that business. Our teams have been meeting, obviously, over the holiday period, but we are two months into integration planning. And I would say we are having the discussion around how we integrate the Breeze stores into our network. And all the things like systems and I talked about pipelines being integrated just to make sure that we are not competing against each other in any market. So there is a lot of work underway with parts of our team. But it is a little premature for me to share the specifics on store conversions. We are obviously engaging the team specifically on that. John Kevin Willis: As far as the financial impact, consistent with the commitments that we made at the investor update in December, we would expect the Breeze stores to add about $160 million top line for the ten months that we will own the business in fiscal 2026. Around $31 million of EBITDA. And I think as a reminder, obviously, we did take on leverage to do this transaction. We expect the cash interest to be about $33 million on a pretax basis and that we would expect to have about a $0.20 per share impact on EPS for the again, the ten months that we own the business. Max Bracklenko: Awesome. Thanks a lot, and best regards. John Kevin Willis: Sure. Thank you. Next question here is from David Bellinger from Mizuho. Go ahead please. Your line is now open. David Bellinger: Sort of macro related. We have been hearing a lot more about these affordability concerns across most of the consumer high prices holding spending back to some degree, but Valvoline has consistently seen trade-up activity products premiumization. Why do you think that is the case? Does it say something about the pricing potential of this business and maybe something more you can gradually tap into over time? Lori Flees: Yeah. David, it is a good question. Valvoline is a strong brand and business in a category that, as you know, is nondiscretionary. And there are a lot of tailwinds that affect us. One is the aging car park that leads us to present more non-oil change revenue services on average per customer that then gives us that lift despite the macro maybe running counter because people feel that they need to maintain the vehicle they have. Such that they do not have to replace that vehicle. I also think that the car park has evolved. And as the new vehicles start to age into the car park, the automotive manufacturer is the one who specs the kind of lubricant that is required. Now as a customer has a high mileage vehicle, starts to get over 100,000 miles, they really do want to maintain that vehicle rather than having to trade up into a new one. Or a newer one. And so those are the things that are driving some of how we have been bucking the trend. Our team educates the customer on their choices. They educate them as to the choices for their vehicle, based on the mileage, and the age of the vehicle, and what the OEM requires. So we just run our play and educate the customer, which builds trust, and I think that serves us well. We continue to look at pricing. I think we always want to be a little cautious given the macro environment to not move too quickly. But, obviously, we continue, and net pricing was a contributor to the comp this quarter, and we continue to adjust our pricing appropriately given our value proposition to the consumer. David Bellinger: Great. Great. Thanks for all that. Second question, completely different topic, maybe for Kevin. But the material weakness for internal controls that has been in your filings that has lasted somewhat longer than the timeline you initially laid out. So how much of that is simply waiting for approvals with the new systems in place? Or is there more technical work you have to do to get all that cleaned up? Thank you. John Kevin Willis: Yeah. Thanks for the question. The team has put in a tremendous amount of work to get us to the point where we are. As a reminder, in fiscal 2025, we really had two aspects of the material weakness that we were working on. The first was around systems. So let us call it IT general controls. That needed to be put in place, remediated, tested, proven to work. Proven to be effective. And we passed that test as part of fiscal 2025. That was in our 10-K disclosure. The second part of the material weakness is around business processes related controls. That work remains underway. And we continue to work with both our auditors as well as several third parties who are helping us with this project. What it really comes down to is just a massive amount of work to get everything in place, in terms of controls documented, making sure that we have the right controls in place and then proving to ourselves and to our auditors that those controls are working and that the overall control environment is effective. And that is what the team is working on as we speak. And has been working on for a while. But good progress has been made. We are still climbing the hill, and it is certainly our expectation that by the end of this fiscal year, we will be able to put this to bed. As a reminder, the test or the opinion is an annual opinion. And so, we will not be out of the woods on this until we get through the fiscal year and have a chance to review the control environment in its entirety based on the work that has been done, the testing we have done, the testing they will do, to arrive at that conclusion and an opinion. Lori Flees: But I will just add that both us and E&Y do not have concerns on any statement any risk of our financial statements not being accurate and of the business. So this is around business process controls, making sure they are documented, making sure they are executed, making sure they are tested. It is not any concern around the financial reporting of the business. David Bellinger: Understood. Thank you both. Operator: Thanks for that question, David. Next up we have Steven Zaccone from Citi. Go ahead please. Your line is now open. Steven Zaccone: Great. Good morning. Thanks very much for taking my question. I wanted to start on the gross margin performance because it clearly came in stronger than expected. Can you elaborate a little bit more on the strength in the quarter? And then do you see this organic growth rate of kind of 50 basis points expansion as the right run rate for the balance of the year? And then help us understand how Breeze will impact that gross margin performance since you have better visibility at this point than when you first gave guidance a couple of months ago? John Kevin Willis: Yes, thanks for the question. We were pleased with the gross margin progress that we made in the quarter versus prior year. As indicated in the prepared remarks, we were up about 50 basis points year over year. Labor and product were the primary drivers of that. We have been working and continue to work on the labor piece of the equation. The team has done a great job with that as we have expected. We have not only held on to, but been able to improve upon, that labor leverage a bit, and we would expect that progress to continue. The team is really looking at all aspects of store spend, controllable store spend, and labor has been a big focus because it is the largest piece of COGS. Product side, we did see some benefit in the quarter. We have seen base oil come down just a bit. As a reminder, we get the benefit of that, but we also pass that benefit along to our franchise partners. So those two were the primary driver. On the flip side of that, we did see increases to other service delivery costs, which include things like rent, property taxes, depreciation. Those increases are largely driven by adding new stores, especially the depreciation part, which was about 50 basis point negative versus prior year. But we did also see some increases in terms of both the rent and property taxes. Again, primarily related to new stores, but also just ordinary course. In terms of the full year and the Breeze impact, as we said, we are bringing 162 immature stores into the system that will have a negative impact on overall margin. Believe at the investor update, we indicated that we would expect it to be about 100 basis points of EBITDA margin impact. We continue to expect that to be the case, but obviously are working with the Breeze team and with our internal team to improve the business, to grow the business so that we can increase those margins, both gross and EBITDA. Steven Zaccone: Okay. And just a clarification. The 100 bps of pressure for margin, is it more weighted to grosses than SG&A? As we think about the model? John Kevin Willis: It is more on the EBITDA line. It is a bit of both, but 100 basis points on the EBITDA line. Because they do have a corporate center. Steven Zaccone: Okay. Second question is just you talked about pricing. And ticket, you know, in particular being a bigger contributor to the comp. Just remind us, how do you see the balance of the year for same-store sales between ticket and transaction? John Kevin Willis: We would expect on an overall basis to really be balanced as we have been. As you look at fiscal 2025, as we talk through that, it is more heavily weighted to tickets, but transaction growth is also very important. And I think also importantly, we saw transaction growth across the system in Q1 just as we did in fiscal 2025. We would expect to see that for the balance of the year. Really across the system, franchise and company. And so both are important to the comp. It has been the case that ticket has been a bigger driver, and we would expect that to continue to be the case. But again, both are quite important to the Steven Zaccone: Thanks for the detail. Operator: Moving on, we now have Scott Stember from ROTH Capital Partners. Go ahead please. Your line is now open. Scott Stember: Good morning, and thanks for taking my questions. Lori Flees: Hi, Scott. I have a question. Scott Stember: Thanks. A question about just bigger picture. Potential gains at the quick lube market at particularly, Valvoline is seeing, maybe from people trading down from car dealerships. Could that be a potential benefit in this very high inflationary environment? Are you seeing that? I am just trying to get a sense of where things are coming from. Lori Flees: Yeah. When we open a new store and we track where our customers last got their oil changed, we know that they come from where they are going in the marketplace. And about 35 to 40% of customers still go back to a dealership. And so we know and track that when we open a new store, and we bring in a new set of customers into our system about that same proportion are coming from outside the QuickLube market and within dealerships. Now I do not want to get into the psyche of the customers as to whether or not they are doing that to trade down. I think the reality is we offer a much more convenient service where it stays in your car. You do not have to make an appointment. You do not have to wait in a waiting room. You do not have to leave your car and come back for it. It is fifteen minutes or less. It is a much more convenient experience for the consumer and I think that is really what the consumer is making the decision on. I cannot we do not get into the details of why they decided to pick us. In enough detail across our system to be able to say it is much different than that. I am sure there are people who trade down, but I think convenience is likely the largest driver of switching. Scott Stember: Got it. And then last question. Obviously, store closures due to winter storm Fern. But once stores start opening up again, could you potentially talk about potential benefits that you guys will see, whether it is batteries, windshield wipers need to be replaced because of the ice. Just talk about any tailwinds we can get from that. Lori Flees: Yeah. Absolutely. And this time of year, we always see that. So while this storm may have been broader in reach, and maybe more prolonged in some areas. The things that you are talking about are the things that are driven during this time. So batteries that are older tend to falter during this time and need to be replaced. Windshield wipers definitely need to be replaced. So these are things that we typically see in our business, and as we have these weather impacts, we do try to modulate our labor. So we will not add labor. We will not do as much new customer marketing during this time, and we wait until the weather pattern has passed. And then we ramp that back up again in order to serve the customers who did not get service during the winter sort of storm period. But all the things you are talking about are exactly right. This time of year, we always have storms that just depends on when in the quarter they happen, and for how long they last. Scott Stember: Got it. That is all I have. Thank you. Operator: Thank you. Lori Flees: Scott. Operator: Alright. Thank you. And moving on to our next question here is from Steve Chimas from RBC Capital Markets. Go ahead, please. Your line is now open. Steve Chimas: Thank you for taking the question and good morning. So as we think about the comp, sounds like ticket was maybe four and a half points given the tougher transaction compare. Any color you can share just on the breakdown of premiumization with price and non-oil change revenue? John Kevin Willis: Yeah. We do not normally get into the specific components of it. As we look at the mix between ticket and transaction, I would say that for the quarter, ticket was roughly three-quarters of the comp is the way to think about it. But again, as we look at the comp, we saw growth in all those categories that you mentioned on the transaction side. And in terms of ticket, also positive in terms of price premiumization and NOCR for the quarter. So, again, a good balance, but, yes, ticket was a bit higher in the quarter than maybe what we saw in, say, '25. Steve Chimas: Got it. That is helpful. And maybe just as a follow-up on a different topic. So at the time that deal was announced, you talked about eighteen to twenty-four months from deal, from deal closed to delever to two and a half times to potentially resume share repurchases. I just kind of look at the model, at least on my end, it seems like you could maybe get there by year-end. So I guess just from where you are today, two months of Breeze under your belt, is eighteen months still the right way to think about it, or do you think you can potentially get there sooner? John Kevin Willis: Well, we wanted to frame it up in terms of a target that we felt very comfortable with, and we are still comfortable with that. To your point, we will continue to monitor this. And as we make progress on the balance sheet as the top line and EBITDA continues to grow, our commitment is once we are back in the range, you should expect us to return to share repurchases. So if we get there sooner than we will in fact start repurchasing shares sooner as well. Steve Chimas: That answer your question? John Kevin Willis: It does. Thank you very much, and good luck. Lori Flees: Thank you. Thanks, Steve. Operator: Thank you. Moving on to our next question here, we have Chris O'Cull from Stifel. Go ahead please. Your line is now open. Chris O'Cull: Lori, we noticed in the FTD that the company may start a national ad fund in fiscal 2027. Can you talk about why now may be the right time to launch a fund, but maybe you are learning about the potential of national advertising and maybe how quickly the system could grow this fund over the next few years, if that is the path you move forward with. Lori Flees: Absolutely. You hit on the main driver. As our network has grown and the reach and densification has improved, moving from a hyper-local only marketing spend to a national fund drives significant efficiency. And as it relates to some of the company store spending, we have already started shifting some of our company marketing spend for stores into more national funding. And as we have proven out and shown the benefits of that to our franchisees, that is the reason why we are moving towards that. In terms of how big it could get, I think it is premature to say, but we will obviously just keep monitoring. And as we see more efficient, we will obviously balance our spend. Chris O'Cull: Okay. When do you think you would have an estimate for what the contribution rate be? I think the FDD mentioned, like, a quarter of a point, but I assume it will be much larger than that. Lori Flees: Again, I think we are working in part with our franchisees and I think the FTD spells out how we are going to start. And I think based on the results and the performance of the national fund, we will continue to optimize across the marketing pools of spend. Chris O'Cull: Okay. And then I know the average sales ramp of new stores is in that three to five-year range, but can you talk about the variance around that average in markets where brand awareness is high? Versus markets maybe where brand awareness and penetration are relatively low. Lori Flees: I am not sure I caught the first part of your three to five-year ramp. Oh, three to five-year ramp. Got it. Got it. How does that compare in how does it compare in markets where the awareness is high versus maybe expansion or greenfield market? Chris O'Cull: Yeah. So what we typically see is the ramp in the first three years is a bit faster. If we are adding a store to a market that has good brand awareness, and it would be a little slower. But we do modulate our marketing spend given that. And that is all factored into our new unit forecast, which continue to drive really strong IRR returns in the mid-teens. And so that is factored into those forecasts. Chris O'Cull: Great. Thanks, guys. Operator: Thank you. We now move on to our next question here from Thomas Wendler from Stephens. Go ahead please. Your line is now open. Thomas Wendler: Hey, good morning, everyone. Thanks for the question. You have now lapped some of the larger refranchising activity in fiscal quarter 4Q 2024 and 01/2025. Can you give us a little bit of an idea of how much the 10 stores refranchised this last quarter impacted results? Lori Flees: Yes. First, I will just comment and restate what we have been saying for the better part of last year and in our December investor update that we really do not have any plans to do any further large-scale refranchising, but we do make transfers. And I think what you are referring to is we had a 10-store transfer in Q1. From franchise to from company to franchise. Similarly, in '25, we had a six-store transfer from franchise to company. And we are really doing that to optimize market boundaries so that either the franchise or company can optimize our G&A and marketing spend. In a geography. Now the specific transfers in Q1 were not really material from a financial standpoint, and we have incorporated that into guidance. So unlike the previous refranchising where there were three transactions that happened over a two-quarter period and fairly sizable, we are not going to continue to adjust numbers or recast them going forward for these small transfers between. Thomas Wendler: Perfect. Appreciate the color. Maybe on a separate note here, the instant transfer portal campaign I think you had mentioned you saw some, you know, early success on the first few weeks of this quarter before the storm. Can you maybe give us some early reads on the transfer portal? Is that the driver there? Lori Flees: I would not. I would say that all of the marketing activities that we do end up driving engagement. In our brands and conversion into our stores. The transfer portal was a really creative opportunity that our marketing team and our marketing partners came up with to sort of capture on a lot of the frenzy in college sports. It created very strong creative engagement with is around, you know, brand impressions and offers. Which when we look at that relative to our other social performance, it benchmarked very well. So you know, when you are trying to find new ways to reach new customers who have not had the experience of your brand, this kind of creativity goes a long way, and that I am really proud of the team for some of the things that they are working on and that they have done. Thomas Wendler: Alright. I appreciate you answering my questions, and great quarter, guys. Lori Flees: Thank you. Thank you. Operator: Alright. Moving on to our next question. This is from Peter Keith from Piper Sandler. Go ahead, please. Your line is now open. Sarah: Hi. This is Sarah on for Peter. Thanks for taking our questions. First, can you just give us an update on some of the progress with your technology initiatives? Are you finding the company has moved to a cloud-based tech architecture providing any competitive advantages in the channel? And then if so, what are these? Lori Flees: As you know, we have since we became a pure-play high-growth retail services company, we have been investing in tech in retail-specific technology. You know, in the first year, we implemented a new CRM system for both our fleet business as well as our franchise and business development businesses. Or areas. We then implemented SAP or the first phase of SAP in 2024. And in fiscal 2025, we implemented HRIS. We also in fiscal 2025, moved our customer data into the cloud and we have been slowly working on replatforming our proprietary system we call SuperPro. For our stores. We have upgraded our infrastructure in the stores so that it could support a cloud-based architecture. And so we are in the process of becoming more modern. And with that, you typically see the maintenance cost from a technology go down, so you get efficiency. As you get into more of the capabilities of SAP and HRIS, you get more efficiencies in your back office. And then on the customer side, you end up having a better, more consistent process where you can optimize and take time out of the service experience for the customer or take labor out. As you apply more technology and tools to the store day-to-day operations. So I would say this is a journey for us, but we are through some of the basic parts of the technology, replatforming, and now we are getting into the more value-added efficiency and effectiveness driving initiatives. But we do not see the investment in technology continuing to need to go up, as we have mentioned in our Investor Day update. We did grow technology spend and we will continue to spend in technology. But we do not see the year-over-year growth of that going faster than sales. In fact, we would expect that to moderate. Sarah: Okay. Thank you. That is very helpful. And then just on advertising, were you guys winning in most here and then just early results that you are seeing? Lori Flees: We have a pretty sophisticated marketing playbook that includes both what we call our life cycle management, which is us keeping in touch with the customer. We can predict when the customer is going to need to come back in for not just an oil change, but for also added services. Based on their driving pattern and what we see or in doing look-alike analysis. So we have a fairly robust process of keeping in touch with our customers. And that we just continue to optimize in terms of how and when we insert certain promotions to that communication process. And then as it relates to new customer acquisition and new store openings, you know, we continue to modify to drive down our customer acquisition costs in those environments. We continue to test new channels. And I would say that the performance continues to improve. Our return on ad spend is very productive, and we continue to optimize that. At the same time, as optimizing the discounting or optimizing net pricing. For every transaction that we have in our stores. Sarah: Okay. Thank you. Operator: Thank you. And moving on, we now have David Lantz from Wells Fargo. David Lantz: Hey, good morning and thanks for taking my questions. So you guys called out the nonrecurring payroll-related item in SG&A in Q1, but curious if you can talk through some of the puts and takes through the balance of the year. John Kevin Willis: Yeah. Happy to answer that. Yeah. We did have a nonrecurring item Q1 of last year. Taking that out of the equation, we did see SG&A leverage of 30 basis points year over year, which our commitment is to continue to do that throughout the balance of the year and going forward. As we look at the rest of the year, we should continue to see overall improvement from a core business perspective. We are very focused on scrutinizing spend across really all categories, not just SG&A, but also capital costs around store bills as well as cost of goods sold as we have talked about with labor improvement and other areas. So we are continuing to really bear down on these categories. And would expect to continue to see improvement as we go throughout the course of the year. David Lantz: Got it. That is helpful. And then clearly, you know, winter storm burn is driving some choppiness around transactions. But curious if you guys could help us parse out the potential impact to Q1 comps that that will have. Lori Flees: You mean Q2? Yeah. I think it is a little too early to say. We had a strong start to the year, and our expectations really are not changing for Q2 through Q4. Obviously, we are monitoring the weather, and we make adjustments. But, again, if you look at history for our business, as we have a weather pattern cycle through, it just shifts around when we capture the demand and serve the guests. It does not have a long-term impact or downward impact on our business. So again, we have to be smart to manage labor cost and manage our marketing spend. And when we do that, and we have proven we have gotten better at doing that as we apply more tools and technology, we can manage both our sales line and our profit line pretty effectively. David Lantz: Thank you. Operator: Thank you, David, for that question. And that is it, our questions queue are now clear, which concludes today's call. Thank you all for joining, and you can now disconnect your lines. Everyone, have a great day. Bye for now.
Operator: Good morning, and welcome to the Equifax Q4 2025 Earnings Conference Call. At this time, all participants are in a listen-only mode. The question and answer session will follow the formal presentation. Please note this conference is being recorded. I will now turn the conference over to Trevor Burns, SVP of Investor Relations. Thank you. You may begin. Trevor Burns: Thanks and good morning. Welcome to today's conference call. I'm Trevor Burns. With me today are Mark Begor, Chief Executive Officer, and John Gamble, Chief Financial Officer. Today's call is being recorded, and an archive of the recording will be available later today in the IR Calendar section of the News and Events tab at our Investor Relations website. During the call, we will make reference to certain materials that can also be found in the presentation section of the News and Events tab at our IR website. These materials are labeled 4Q 2025 Earnings Conference Call. Also, we'll be making certain forward-looking statements including first quarter and full year 2026 guidance, to help you understand Equifax and its business environment. These statements involve a number of risks, uncertainties, and other factors that could cause actual results to differ materially from our expectations. Certain risk factors that may impact our business are set forth in our filings with the SEC, including our 2024 Form 10-Ks and subsequent filings. During this call, we'll be referring to certain non-GAAP financial measures, including adjusted EPS, adjusted EBITDA, adjusted EBITDA margins, and cash conversion, which are adjusted for certain items that affect the comparability of our underlying operational performance. All references to EPS, EBITDA margins, and cash conversion are references to non-GAAP measures. These non-GAAP measures are detailed in reconciliation tables which are included with our earnings release and can be found in the financial results section of the Financial Info tab at our IR website. Also in the fourth quarter, Equifax incurred a charge of $30 million related to a settlement associated with a resolution of inquiry disputes related claims. We expect costs associated with the settlement to be reimbursed by our errors and omissions insurers, with these insurance recoveries also included as one-time events when received. Moving forward, our non-mortgage results will be referred to as diversified markets. This terminology change does not affect any change in reporting structure. Also, for your modeling, additional 2026 guidance will be posted after the earnings call in the appendix to the earnings slide presentation. Now I'd like to turn it over to Mark. Mark Begor: Thanks, Trevor. Before I cover our results for the quarter, I want to spend a few minutes on our 2025 performance, a strong finish to the year, which gives us strong momentum for a strong 2026. Turning to slide four, Equifax delivered financial results well above both our February and October guidance with revenue of $6.075 billion, EPS of $7.65 a share, and free cash flow of $1.025 billion. Revenue was up 7% on a reported and organic constant currency basis at the low end, but within our long-term 7% to 10% organic revenue growth framework. Despite a continued weak U.S. mortgage market that was down 7% and the U.S. hiring market which was down 2%, the mortgage market had about a 100 basis point negative impact on Equifax 2025 revenue growth. EWS delivered 6% revenue growth with 51.5% EBITDA margins, but exited the year with strong fourth quarter 9% revenue growth. This accelerating performance was led by verification services, which successfully navigated difficult U.S. mortgage and hiring markets to deliver 8% growth for the year and over 10% in the fourth quarter, with fourth quarter growth driven by both strong low double-digit revenue growth in government, which was above our expectations, and an NPI vitality index of over 20%. The EWS team had another outstanding year adding over 20 million records to the Twin database. At the end of 2025, EWS had over 200 million active records, which were up 11%, and over 800 million total records, both big milestones for the business. USIS delivered 10% revenue growth and expanded margins 70 basis points to 35.2%. Diversified markets or non-mortgage revenue grew 5%, which is the highest USIS organic revenue growth performance since 2021 in our non-mortgage space. Mortgage revenue grew 22% and was up low double digits excluding the impact of FICO price increases as they gain share across both pre-qual and pre-approval solutions. International delivered constant dollar revenue growth of 6% and expanded EBITDA margins almost 100 basis points. The international team made strong progress towards cloud completion, which we expect to complete by the middle of this year. International also delivered 12% vitality last year, which drove good revenue performance despite weak Canadian and UK debt management end markets. Driving new product innovation is the core to our long-term growth strategy. In 2025, with 90% of our revenue in the new Equifax cloud, we pivoted from building to leveraging the cloud and accelerating our use of AI in new products. Equifax had another very strong year of NPI rollouts with a record 2025 Equifax vitality index of 15%, which was 500 basis points above our long-term 10% goal and equates to about $900 million of new product revenue during the year. USIS and EWS worked together to launch new products that deliver USIS credit files and leverage alternative data, including the twin indicator income and employment data in mortgage, card, and auto markets. With plans to launch similar products in the personal loan space early this year, these unique to Equifax products deliver credit, identity, and income and employment data in a single solution are gaining traction with mortgage and card lenders. In 2025, we launched 100% of our new models and scores powered by efx.ai. These new AI models and scores drive strong incremental lift versus traditional non-AI models and scores. And we're leveraging AI to help our customers identify clear and actionable insights. In 2025, Equifax secured a spot in the AI FinTech 100 list for our new patented explainable AI technology. We now have over 400 AI patents either secured or pending, and we added over 40 new AI patents last year. In U.S. mortgage, we made great progress working with mortgage lenders and resellers towards the adoption of VantageScore 4.0, with over 200 mortgage lenders testing or in production with Vantage given the significant cost savings opportunity. As we move through last year, we also leveraged our industry-leading cloud-native technology and efx.ai to drive operational efficiencies across Equifax through our new internal AI for Equifax initiative, which we expect to deliver cost savings, efficiencies, speed, and accuracy across Equifax in 2026 and beyond. And last, we delivered very strong free cash flow of $1.1 billion with very strong 120% free cash flow conversion. Flow was up $230 million from our February guidance. With our strong free cash flow, EWS acquired Vault Verify in the fourth quarter and also returned record amounts to shareholders. As we move into 2026, I'm energized about our commercial momentum and our strong exit from the fourth quarter, our new product innovation, our AI capabilities, and the benefits of the new Equifax cloud. Slide five provides detail on the strength of our free cash flow and free cash flow conversion. Our growth in revenue and EBITDA and declines in CapEx as we complete the cloud are driving accelerated free cash flow. We generated $1.13 billion of free cash flow last year with a cash conversion record of 120%, which is well above our long-term framework of 95%. This is about $170 million above the midpoint of our October free cash flow guidance. In 2025, Equifax repurchased over 4 million shares, returning $927 million to shareholders, including $500 million of purchases in the fourth quarter when our stock was weak and our free cash flow was strong. Further, we paid $233 million in dividends, resulting in a total cash return to shareholders last year of $1.2 billion. This was up 6x from 2024 and stronger than our plan for the year. In 2026, we expect to again generate significant strong free cash flow in excess of our 95% cash conversion long-term framework, which will allow us to continue to acquire bolt-on M&A and return cash to shareholders via dividends and share repurchases. Turning to slide six, Equifax fourth quarter reported revenue of $1.551 billion was up a strong 9% and $30 million above the midpoint and $15 million above the top end of our October guidance. This strong outperformance was most significant in Workforce Solutions, where we saw strength in mortgage as well as in government, which was above our expectations, and also in USIS. The strength was principally in mortgage. Both USIS and EWS saw the stronger mortgage markets that were better than our October framework. USIS mortgage hard credit inquiries were down about 1% but were better than our expectations of down high single digits. For the quarter, U.S. mortgage revenue represented about 20% of Equifax revenue. Diversified markets or non-mortgage constant dollar revenue growth grew over 6% in the quarter, slightly above our expectations and guidance. This was principally driven by broad-based strong execution in Workforce Solutions, driven by stronger auto, card, and debt services revenue growth, which was up low double digits, and talent, which was up high single digits. USIS diversified markets revenue was consistent with our expectations, while international was slightly weaker than expected, principally reflecting end market weakness in Canada and European debt management, despite very good performance in Brazil and Australia. On an organic constant currency basis, revenue growth of 9% was over 200 basis points above the midpoint of our October framework, which gives us strong momentum as we move into 2026. Equifax delivered fourth quarter EBITDA of $508 million with an EBITDA margin of 32.8%, which was slightly below our October guidance. While EWS and USIS EBITDA margins were above expectations, international was at the top end of our October guidance range. Equifax overall margins were slightly lower than guidance due to higher incentive compensation, which impacts our corporate expenses. We expect incentive compensation to normalize to target levels in the first quarter as 2026 compensation targets are set at our plan for the new year. EPS at $2.09 a share was $0.06 above the midpoint of our October guidance, and we returned $561 million to shareholders in the fourth quarter, including purchasing 2.3 million shares or about 2% of shares outstanding for $500 million to take advantage of a weaker Equifax stock price. Our strong fourth quarter revenue performance and business unit margins give us positive momentum as we move into 2026. Turning to slide seven, Workforce Solutions revenue was up a strong 9% and better than our October guidance and our expectations. Verifier diversified markets revenue growth was up 11%, which is a very positive momentum as we enter 2026. Government had a strong quarter building off the third quarter performance with revenue up low double digits. Government revenue performed very well despite a tough comp with continued strong state-level penetration. And we had minimal impact on EWS revenue from the federal government shutdown in the quarter. Talent Solutions revenue was up high single digits in the quarter. In October, we discussed weaker hiring volumes that continued throughout the fourth quarter. Despite the weaker hiring macro, Talent Solutions continued to outperform their underlying markets driven by penetration pricing and higher hit rates from record additions and new products, including new solutions from the Total Verified Data Hub, which includes trended employment data as well as incarceration, education, and licensing data. Consumer lending continued to perform very well with revenue up very strong mid double digits in the quarter from double-digit revenue growth in personal loans, auto, and card. EWS mortgage revenue was up about 10% in the quarter, delivering improved sequential trends from new products, record growth, and pricing. Employer services revenue was up two in the quarter despite continued weakness in our i9 and onboarding businesses from the weaker hiring market. In Workforce Solutions, EBITDA margins of 51.3% were driven by operating leverage from higher than expected revenue growth in the quarter. As mentioned earlier, Twin record additions continue to be strong again in the fourth quarter with 209 million active records up 11%. Our 120 million total current records were also up 9%, which represented 105 million unique SSNs. 105 million individuals with current records in Twin, we have a long runway for growth towards the 250 million income-producing Americans. In the fourth quarter, EWS signed agreements with five new partners bringing our total to 16 new agreements signed during 2025. Turning to slide eight, we continue to see momentum in our discussions in Washington and with state agencies to support their plans to implement the new TITAN OB3 social service eligibility requirements. Given our strong value proposition from Twin on the speed of social service delivery, caseworker productivity, and accuracy of income verifications, Equifax is uniquely positioned with our differentiated twin data assets and new solutions to help state agencies increase efficiency and strengthen program integrity, particularly with SNAP and CMS. Partnering with our customers, we're already bringing new innovative solutions to federal and state agencies supporting the government's goal of reducing the $160 billion of social services fraud, waste, and abuse. In the fourth quarter, we launched our new continuous evaluation solution for SNAP, which identifies changes in recipients' incomes above program levels, enabling states to reduce SNAP error rates where nearly 80% of states today are above the 6% federal threshold. Given the strong value proposition, we've already contracted with a few states in the first quarter on our new continuous evaluation solution, with many more actively in discussions to utilize this new product from Equifax. We expect this focus on programming integrity from OB3 will be a positive tailwind for our EWS government business in 2026 and 2027 and beyond. While OB3 related deals and revenue will likely be in the second half of the year and in 2027, the increased engagement represents positive opportunities in the near term to penetrate states not using Twin today for social service delivery. We're also continuing our positive engagement in DC with multiple federal agencies to support their efforts to strengthen social service program integrity. There are several new incremental opportunities that would drive positive future growth for EWS. This current environment is a unique opportunity for our government vertical with the big focus on improper social service payments. EWS has significant opportunities for medium and long-term revenue growth supporting government programs in the big $5 billion government TAM for Equifax, which gives us confidence in our ability to deliver government revenue growth above the EWS long-term revenue growth framework of 13% to 15%. Said differently, we expect our government vertical to be our fastest-growing business across Equifax going forward. Turning to slide nine, USIS revenue was up a strong 12% in the quarter driven by strong mortgage outperformance. USIS diversified or non-mortgage revenue grew 5% in the quarter and was in line with our guidance. Within B2B diversified markets, we saw very strong high double-digit growth in auto from pricing and strong volumes in auto pre-products and low single-digit growth in FI. Given the stable lending environment, we have not seen changes in customer marketing or risk management behavior. USIS mortgage revenue was up a very strong 33% and better than our expectations. While hard mortgage credit inquiries were down 1% in the quarter, these volumes were better than our October guidance of down high single digits. FICO pricing, along with growth in mortgage preapproval products, with our new twin indicator drove mortgage revenue growth for USIS. In 2026, we expect to see share gains in USIS mortgage pre-qual, pre-approval, and hard credit inquiry products from the adoption of our new mortgage credit file with Twin Indicator and Twin Total Income products. Financial Marketing Services, B2B offline business was up low single digits in the quarter. USIS' consumer solutions business had another very good quarter, up high single digits from strong customer acquisition trends in our consumer direct channel as well as strong growth in partner revenue. Our USIS B2C business remains on offense entering into an expanded relationship with Gen Digital providing our differentiated data their engine by Gen marketplace. Later this year, we'll also leverage engine by gen to power to provide MyEquifax consumers in The U.S. with access to expanded and personalized financial solutions. USIS EBITDA margins were 30.3% in the quarter and up over 100 basis points sequentially above the top end of our guidance range from stronger than expected revenue growth and operating leverage. Turning to slide 10. International revenue growth was up 5% in constant currency and below our expectations principally in Canada and our European debt recoveries management business. Latin America growth of 6% was led by high single-digit growth in Brazil and Argentina. Brazil continues to be a big success story for Equifax with strong above-market revenue growth from share gains. Canada, Europe, and APAC delivered 4% growth in the quarter. International EBITDA margins of 31.6% were slightly above our October framework. Turning to slide 11, proprietary data is the foundation of our highly differentiated products and analytical and decisioning capabilities through which our customers generate unique solutions to grow their businesses and mitigate risk. Only Equifax can access our unique and proprietary data sets. The application of advanced AI in traditional IT-based analytical techniques allows us and our customers to develop solutions that are reliant on our only Equifax proprietary data. As AI advances, we are confident we are able to generate more effective analytical solutions based on our proprietary data at an accelerated pace as well as make these advanced analytical solutions available to more customers. Slide 11 provides more perspective on the percentage of Equifax global revenue that is based on data that's proprietary and not available or broadly accessible. In total, about 90% of Equifax revenue was generated through the direct sale or through derivative products generated from our proprietary only Equifax data. Within The U.S., almost 90% of our revenue is generated from our proprietary datasets such as the credit file, and with our twin income and employment data database which is our most unique and valuable data asset. Within USIS proprietary data assets include the consumer credit file, along with our alternative consumer credit assets like NC Plus, DataX, Teletrack, and IXI Wealth Data Exchanges. These USIS assets are proprietary to Equifax and only accessible by Equifax. Within our international businesses, proprietary data includes consumer and commercial credit as well as other proprietary data exchanges like our financial services Broad Exchange in Canada and our Australia Income Verification Exchange with data approaching 50% of the employment market. Over 90% of international revenue is generated from proprietary only Equifax data. The proprietary and unique nature of our data is a huge asset for Equifax in this new AI environment as only Equifax can utilize the data for customer solutions and new products using our advanced AI capabilities. Turning now to slide 12, AI is fundamentally changing how we operate from technology to data analytics, products operations, and across Equifax. Our $3 billion cloud investment provides the technology platform that enables us to leverage AI capabilities across every corner of Equifax. We're driving AI deep into the organization with almost 90% of our team leveraging Google Gemini AI in their day-to-day roles. AI is not just an add-on at Equifax, it's now part of our DNA in how we operate every day. Our cloud transformation is now delivering measurable returns across software development, operations, and business processes from lowering operational risk from fewer service disruptions that increase customers' trust and capacity for innovation and creating predictable repeatable deployments and reducing human error with 90% of our infrastructure as code. We are also getting more software output from the same engineering investment with about 1,900 Equifax software engineers using AI coding tools that have generated over a million lines of code using AI. As we scale adoption across our broader developer population, these gains compound translating to accelerated product delivery, faster response to market opportunities, and improved return and capacity inside of our R&D and technology spend. Our Angetic AI platform is accelerating and standardizing the development deployment, monitoring, and governance of AI agents across Equifax. This is a strategic differentiator for Equifax that reduces duplicative efforts and enables build-once deploy-everywhere leverage across Equifax. We're continuing to advance our state-of-the-art machine learning capabilities that allow our data scientists to rapidly build higher predictive models and deploy them quickly as well as develop capabilities to automate model deployment to make models available faster for our customers. Our advanced model engine also allows our data to build models using Equifax's portfolio of proprietary and patented AI algorithms. AI is also extending into Equifax's operations or back office. The first part of 2026, we're focusing on improving our customer and consumer call centers with AI-enabled and AI-assisted call processes. Our AI call center transformation demonstrates our ability to fundamentally reimagine our labor-intensive workflows, which is a template for broader workforce productivity gains across Equifax. Over the next three years, we expect to drive towards $75 million of annual cost savings from our E3 AI operations initiative. The number of new products launched using efx.ai is up 3x since 2023. We launched our new Ignite AI Advisor in the fourth quarter. This powerful platform includes new AI-driven conversational analytics for deeper customer insights and personalized recommendations that solve a real need for customers. Following the successful U.S. rollout, we are introducing our new Ignite AI Advisor in our global markets in 2026. All new models in 2025 were built using efx.ai. Our efx.ai models consistently delivered industry-leading performance, an outstanding nearly 30% lift over legacy models last year. This big level of performance improvement demonstrates that our AI strategy is not only scaling but providing the superior predictive value required to lead in the marketplace. In USIS, we recently launched the credit abuse risk model, an adverse actionable model that leverages AI to help lenders identify first-party fraud and credit abuse behaviors like loan stacking, particularly where traditional credit scores indicate low risk of the consumer. With this score, lenders can identify pockets of prime consumer applicants with delinquency rates as high as 29 times greater than the overall prime delinquency rate. Our new EFX cloud foundation is giving EFX an AI advantage in innovation, new products, technology development, operations, and really across every corner of Equifax. It's not a vision for the future of AI at Equifax, it's broadly in motion across our business. Turning to slide 13. Enabled by our proprietary data and our strong momentum with efx.ai, we continue to make outstanding progress driving innovation and new products, delivering a record 17% new product vitality in the fourth quarter from broad-based double-digit performances across all of our businesses and a record 15% vitality for the entire year. We expect strong double-digit VI to continue in 2026 and be above our 10% long-term goal, leveraging our cloud capabilities to drive new product rollouts using proprietary data and efx.ai capabilities. Last year we launched new twin indicator solutions in mortgage, auto, and card delivering twin income and employment attributes at no cost to our customers, which is a huge leveraging our cloud data fabric to create powerful new solutions for our customers. In U.S. mortgage, these solutions were introduced first, we've seen strong adoption with over 1,400 customers accessing these new only Equifax products. We've already seen strong momentum in U.S. mortgage from Twin Indicator, with major mortgage lenders, which will benefit from our new solution in 2026. In auto, we have about 100 customers piloting the new twin indicator solution and we expect accelerating adoption in auto as we move through the year. And in card, although earlier in the product launch, we expect to see customer wins in 2026. Slide 14 provides perspective on the impact on Equifax operating results from the increase in FICO mortgage pricing over the past few years. As a reminder, Equifax profitability is driven by the sale and the value of our unique data that we sell. The FICO mortgage credit scores pass through to our customers at cost and we earn no margin on the sale of the FICO score. In 2025, FICO mortgage represented only about 3% of our total revenue. In 2026, that number will increase to about 6% or double. This drives a substantial P&L impact on Equifax. Last year, Equifax revenue growth excluding the impact of the FICO mortgage was about 6%. And in 2026, our guidance implies revenue growth on the same basis excluding the FICO score pass-through of about 7%, which is within our long-term financial framework. As shown on the right-hand side of the slide, the increases in zero profit FICO mortgage score revenue, which has no benefit to our EBITDA dollars, reduces the reported growth in our EBITDA margin percent. 2026 EBITDA margins are reduced by over 200 basis points by the FICO mortgage royalties we pass through to our customers, with 2025 EBITDA margins also reduced by over 100 basis points. When we set our long-term financial framework in 2021, we did not anticipate that FICO would have these dramatic price increases benefiting Equifax revenue but negatively impacting Equifax reported EBITDA margin rates. As we look at 2026, excluding these FICO mortgage impacts, our mortgage revenue growth at about 7% is inside our LTFF. Our EBITDA margins are expected to expand 75 basis points, which is 25 basis points higher than our 50 basis point long-term financial framework for margin expansion. As we go forward, we plan to share our performance excluding FICO mortgage royalties given the substantial impacts on our reported results. Turning to slide 15, our guidance assumes U.S. GDP growth consistent with our long-term financial framework of 2% to 3% and the U.S. mortgage market to be down low single digits in 2026 compared to last year. Internationally, we're expecting economic growth to be weaker than the U.S., particularly in Canada, the UK, and Brazil. And FX is a positive in 2026 versus last year, benefiting revenue at about 50 basis points in EPS about $0.02 per share. Our 2026 guidance also assumes that all mortgage scores that are delivered will be FICO scores delivered by the three nationwide consumer reporting agencies, consistent with our mortgage scores volume to date in January. There is still uncertainty around when the FHFA will formally accept Vantage for agency mortgage originations. We felt this was a prudent guidance framework at this stage for 2026. We continue to see strong mortgage industry momentum to move to Vantage given the sizable cost savings to consumers and the mortgage industry. And we already have over 200 mortgage lenders in production or testing our free VantageScore that we deliver with a paid FICO Scored offering. Total Equifax revenue at the midpoint of guidance is expected to be up about 10.6% on a reported basis and 10% on a constant currency basis in 2026. As discussed previously, Equifax revenue at the midpoint ex FICO is expected to be up about 7%. Mortgage revenue is expected to be over 20% of our total revenue and diversified or non-market revenue up high single digits on a reported basis and constant dollar basis. FICO mortgage royalties in our guide are up over 2x from 2025 assuming no Vantage conversion or FICO direct score calculation by mortgage resellers. Excluding these FICO mortgage royalties from both 2026 and 2025 revenue as shown on Slide 15, you can see our revenue growth at the midpoint is about 7% in 2026 on a reported basis and constant currency basis and up almost 8% excluding the low single-digit decline in the mortgage market. Equifax mortgage revenue growth excluding FICO mortgage royalties is up mid-single digits. EWS mortgage will continue to outperform the underlying markets by high single-digit percent consistent with our long-term goals. And USIS mortgage excluding the impact of FICO scores will outperform the market by mid-single-digit percentages as we gain share from the introduction of the Twin Report Indicator, Twin Income Qualify, and our telco utility data in mortgage products. And again, this assumes no incremental revenue or margin from Vantage Score conversions in our 2026 guidance. Diversified markets or non-mortgage constant dollar revenue growth at the midpoint of 7% is up over 100 basis points versus 2025 driven by stronger growth in EWS and USIS. With weaker overall market conditions in international markets, we are expecting revenue growth rates in 2026 to be about consistent with 2025. John will provide more detail in a minute on our revenue growth at the BU level in his more detailed comments around our 2026 framework. EBITDA dollars are expected to grow by almost 10% at the midpoint of our 2026 guide to about $2.122 billion, up from about 5.5% growth last year. And as a reminder, there is no profitability on the sale of FICO MortgageScore by Equifax, so EBITDA dollars are the same in both the with and without FICO mortgage score revenue views. And given there's no profit in the sale of FICO scores and mortgage, we are indifferent to TriMerge resellers calculating FICO scores under the new FICO direct model. EBITDA margins, however, are impacted meaningfully by the zero margin FICO score revenue in our reported results. Including the revenue from FICO mortgage score sales, reported EBITDA margins in 2026 would be down about 30 basis points at the midpoint. However, ex FICO, EBITDA margins grow substantially, up 75 basis points in 2026. The 75 basis point margin growth shows the leverage we are driving as we deliver high-margin data sales as well as cost savings from technology and AI operational initiatives. EPS in 2026 at the midpoint of $8.50 is up 11% versus last year and our free cash flow of over $1 billion will deliver free cash flow conversion of at least 100%, which is above our long-term framework. Turning to slide 16, the changes occurring in the U.S. mortgage market to provide lenders SCOR Choice Vantage or FICO in 2026 is very positive for consumers, the mortgage industry, and for Equifax. For lenders and consumers, VantageScore IV provides stronger score performance at least half the cost, which is a winning combination for the mortgage industry and consumers. As a reminder, the consumer data from the credit file is the basis for mortgage approvals by lenders and the GSEs, not the scores. Equifax is a provider of not only credit data but also unique telco and utility data with income and employment data and remains well-positioned to continue to deliver value to mortgage industry participants. Interest in the mortgage industry to move to VantageScore is extremely high. We have over 200 lenders testing our free VantageScore with pre-qual and pre-approval products through mortgage hard pull products, with over 40 principally non-GSE lenders now in production with only the VantageScore. We are already providing Vantage historical data going back to '08, '09 to market participants both directly and through advanced analytical capabilities via our Ignite for Mortgage platform to aid our customers in the conversion to Vantage. And we're providing a free VantageScore with the purchase of any FICO score across all industry segments, mortgage, auto, card, personal loans, and insurance. In mortgage, we believe that when the FHFA Fannie and Freddie clarify the requirements for using VantageScore, and begin full acceptance for mortgage pre-review and underwriting, we'll see migrations to Vantage accelerate. The conversion of Vantage is a significant opportunity to drive margin expansion and EPS growth for Equifax. As a reminder, our 2026 guide assumes no conversion to VantageScore in the U.S. mortgage market. For perspective and provide data for your analysis, slide 16 includes our guidance for 2026 assuming no Vantage conversion and the impact of several Vantage conversion scenarios. For example, full conversion in mortgage to VantageScore from FICO scores in 2026 would reduce Equifax total revenue guidance of $6.7 billion at the midpoint by about $270 million, would increase Equifax EBITDA by about $160 million, and increase EBITDA margins by almost 380 basis points and increase our EPS by about a dollar a share. As we move through 2026 and there is more clarity on Vantage conversion timing, we'll update our guidance to reflect this shift and the opportunity for the mortgage industry, consumers, and of course Equifax. As a reminder, the incremental about $160 million in EBITDA impact in 2026 is with the U.S. mortgage market still operating well below 2015 to 2019 levels. And now I'd like to turn it over to John to provide more detail on our 2026 assumptions and guidance and also provide our first quarter framework. John Gamble: Thanks, Mark. Slide 17 provides the specifics on our 2026 full-year guidance that Mark discussed in detail. The slide includes additional detail on revenue growth rates and EBITDA margins excluding FICO MortgageScore royalty pass-through revenue and expected BU revenue and EBITDA margins. EWS in 2026 is expected to deliver revenue growth of high single digits and EBITDA margins at 51.2% to 51.7%, about flat at the midpoint with 2025. Verification services revenue is expected to be up high single digits to low double digits. Mortgage revenue growth is expected to outperform the market by high single digits against a market that is down low single digits compared to 2025. Diversified markets verifier revenue is expected to be up about low double digits again consistent with 4Q 2025, government revenue growth, particularly in the second half, when new requirements begin to be implemented as well as in auto, card, and personal loans. Talent revenue is expected to continue to outperform an expected weak hiring market. Strong twin record growth, new products, and continued growth in both pricing and penetration, particularly in government, will continue to drive verification services. Employer services is expected to grow low single digits in 2026, again despite the expected weak hiring market. Employer services revenue is expected to decline in the quarter year to year. USIS revenue is expected to be up mid-teens percent and EBITDA margins are expected to be 32.4% to 32.9%. Excluding the increase in FICO mortgage score pricing in 2026, USIS revenue growth would be up mid-single digits at the bottom of our USIS long-term framework of 6% to 8%. And USIS EBITDA margins would be 39.6% to 40.1%, up 100 basis points at the midpoint year to year, reflecting leverage on high-margin data sales and disciplined cost controls. USIS mortgage revenue excluding the benefit of mortgage price increase is expected to grow at mid-single-digit percent rates against a mortgage market that is expected to be down low single digits year to year. The growth is principally from share gains as customers increasingly adopt our twin and NC plus-based solutions as well as price increases. Including the impact of FICO mortgage score price increases, USIS mortgage revenue is expected to be up over 35%. Diversified markets revenue is expected to improve versus 2025 and grow mid-single digits year to year, benefiting from accelerating NPI, including twin indicator and total income-based products and share gains as they accelerate leveraging Ignite AI capabilities. International constant dollar revenue growth is expected to grow mid-single digits at a lower rate than 2025 with EBITDA margins at 28.6% to 29.1%, up approaching 50 basis points at the midpoint from 2025. Revenue growth is below the long-term financial framework for international and 2025 growth rates, principally from weaker economic growth in Canada and the U.K. Corporate expense in 2026 excluding D and A is expected to be up low single digits versus 2025. We believe that our guidance is centered at the midpoint of both our revenue and EPS guidance ranges. As Mark referenced earlier, we expect to deliver over $1 billion of free cash flow in 2026 and a cash flow conversion of at least 100%. With EBITDA increasing to about $2.12 billion at the midpoint, we are also generating over $400 million in debt capacity at our current debt leverage. This creates about $1.5 billion in capital available in 2026 for M&A and return of cash to shareholders. We continue to look for attractive bolt-on M&A to strengthen workforce solutions, our differentiated proprietary data assets, as well as international platforms. And we have substantial capacity for share repurchases continuing the almost $1 billion we repurchased in 2025. Slide 18 provides the details of our 1Q 2026 guidance. In 1Q 2026, we expect total Equifax revenue to be between $1.597 billion and $1.627 billion, up about 11.8% on a reported basis year to year at the midpoint. Constant dollar revenue growth at the midpoint is up about 10.6%. Diversified markets revenue is expected to be up mid-single digits on a constant currency basis and near the low end of our long-term financial framework and U.S. mortgage revenue to be up over 30%. EPS in 1Q 2026 is expected to be $1.63 to $1.73 per share, up about 10% versus 1Q 2025 at the midpoint. Equifax 1Q 2026 EBITDA dollars are expected to be $444 million to $459 million, up about 7% at the midpoint. EBITDA margins are expected to be about 28% at the midpoint of our guidance. As a reminder, first-quarter EBITDA, EBITDA margins, and EPS are lower than the remaining quarters of the year in large part due to the structure of our employee long-term incentive and equity plans. Due to their structure, the disproportionately large percentage of the expense of these plans for the year impacts the first quarter. Excluding the impact of FICO mortgage scores, 1Q 2026 revenue would be up 7% to 9% nicely within our long-term financial framework and EBITDA margins in 1Q 2026 would be 29.9% to 30.3%, about flat with 1Q 2025 on the same basis. Turning to slide 19, the left side of the slide provides USIS hard credit inquiry growth rates for 2015 through 2025. We have historically used our hard credit inquiry growth rates as a proxy for U.S. mortgage market growth as they have in general tracked together. For 2026, we will continue to provide you the USIS hard credit inquiry growth rate data each quarter. However, in 2026, we believe that USIS hard credit inquiries will likely significantly outperform U.S. mortgage market origination activity due both to significant Equifax wins that we believe will increase our relative share of hard credit inquiries and also the mortgage triggered lead legislation that goes into effect in March, which we expect will result in an increase in the use of hard credit inquiries by lenders in shopping. And therefore a reduction in prequal and preapproval usage. We will continue to use the trends that we are seeing in hard credit inquiries, which drive the bulk of USIS mortgage revenue as well as soft credit inquiries to forecast USIS mortgage revenue. The right-hand side of this slide shows the potential incremental mortgage revenue available should the market recover to average 2015 to 2019 levels. For this view, we have continued to use our historical USIS hard mortgage credit inquiries as a basis. We have also revised this slide to show Equifax mortgage revenue excluding FICO mortgage royalties and have updated the market recovery column to include the benefit of a full transition from FICO to VantageScore in mortgage. As you can see on this basis, with a full mortgage recovery and a full shift to VantageScore at 2020 pricing levels and EWS records, Equifax mortgage revenue, which would include no FICO mortgage royalties, could increase by $1.2 billion. At our very high variable margins, this would deliver incremental EBITDA of over $950 million and adjusted EPS of over $5.75 a share. For your perspective, you determine your view of the 2026 U.S. mortgage market based on a review of Equifax data on mortgage home purchase issuances since early 2022. We estimate that there are over 13 million mortgages with an interest rate over 5%, including about 11 million with rates over 6% and almost 8 million with rates over 6.5%. This provides a perspective on the pool of mortgages potentially available to refinance as mortgage rates change. Now I'd like to turn it back over to Mark. Mark Begor: Thanks, John. Turning to Slide 20, as I mentioned earlier, our strong 2025 execution sets us up very well to deliver on our long-term framework in 2026. With constant dollar revenue growth of 7% ex FICO, which is inside our 7% to 10% long-term framework. Achieving our long-term revenue framework allows us to deliver EBITDA of $2 billion, up high single digits with a margin rate up 75 basis points ex FICO, which is well above our 50 basis point long-term framework. And deliver over $1 billion of free cash flow from cash conversion of at least 100% and 11% EPS growth. We are confident in our ability to deliver organic revenue growth in our 7% to 10% long-term target range, continue expanding EBITDA to maintain cash conversion above 95%, and to execute on bolt-on M&A. And in 2026, we expect to maintain a strong return of capital to shareholders. On the left side of the slide, you see our updated EFX 2028 strategic priorities, which are principally consistent with our prior framework. However, we've updated our EFX 2028 priorities to reflect our drive to accelerate our use of AI both internally and externally to drive efficiencies and cost savings for Equifax and bring new and improved products to market quicker that deliver greater lift and performance for our customers. Wrapping up on slide 21, Equifax executed very well last year against our EFX 2028 strategic priorities inside a challenging economic backdrop with a stronger second half and fourth quarter, which gives us some momentum as we enter 2026. Our new cloud-native infrastructure is already providing competitive advantages of always-on stability, faster data transmission speeds, and industry-leading security for our customers, and importantly, Equifax resources and technology product DNA are leveraging the new Equifax cloud for innovation, new products, and growth. We're using our new single data fabric efx.ai and Ignite our analytics platform to develop new credit solutions powered by clean indicators like verticals like mortgage, card, and auto that only Equifax can provide, which is leading to share gains and growth. We're also broadening our product sets in key verticals like government, talent solution, and identity and fraud. The Equifax team is fully focused on growth and innovation. Given our strong free cash generation, we are also delivering on our commitment to return substantial excess free cash flow to shareholders. As mentioned earlier, in 2025, we returned $1.2 billion to shareholders, which was well above our guidance for the year, and in 2026, we expect to have $1.5 billion available to invest in bolt-on M&A like our 2025 Vault Verify acquisition and return substantial cash to shareholders through share repurchases and dividends. The new Equifax is investing in technology, efx.ai, and proprietary data assets to help our customers grow and deliver returns for our shareholders. I'm energized by our momentum as we enter the New Year, but even more energized about the future of the new Equifax. And with that, operator, let me open it up for questions. Operator: Thank you. We will now be conducting a question and answer session. Our first questions come from the line of Jeff Meuler with Baird. Please proceed with your questions. Jeff Meuler: Yes, thanks. Good morning. Mark, loud and clear, you've been front-footed on AI, both from a product and productivity perspective, and it sounds like you also have an AgenTeq AI platform in-house. Obviously, you have a massive data advantage in employment and income today. I know it's still relatively early on AgenTeq AI, just how do you think about the applicability of AgenTeq AI to the employment and income business given that a lot of the market is still manual, I guess, both from an opportunity or a potential risk perspective? Mark Begor: Yeah. Thanks, Jeff. First off, the Equifax moat around data is very high. Whether it's our twin income unemployment data or our other credit data, our data is proprietary and over 90% of our revenue comes from proprietary data. What that means is no one else can access it. You know, when you think about credit data or in your question, income and employment data, the income and employment data comes from either payroll processors or individual companies, and that's also walled off. So the only way to access that is on a permissioned basis or in an aggregated basis like we have that's proprietary. So we think that there's a real moat around it from a data perspective. With regards to using AI in workforce solutions, we're doing a lot around our employer business where we, as you know, deliver regulated services to HR managers, things like i9 validations for new employees, unemployment claims management, work opportunity tax credit. We see big opportunities both in how we deliver those services from an AI perspective to the HR managers and their teams, but also how we actually complete the processes, you know, using AI in the paper processing to really drive productivity, speed, and accuracy. We're seeing a lot of opportunities there. And we talked, you know, in my comments earlier, between AWS and USIS. This has really happened in the last six months as we've been applying AI off of our new cloud platforms inside of Equifax. We're seeing big opportunities for productivity, speed, and accuracy in our operations by using AI call centers, paper processing, in workforce solutions as you referenced. To really drive efficiencies and productivity really quite substantially. And we talked about over the next couple of three years in the neighborhood of $75 million of productivity from those efforts on internal operations. So we're quite energized around the use of AI. The investment we made in the cloud gives us a platform now across Equifax where we can really deploy it inside of Equifax. And back to the first point I made in obviously a topical point with what happened in the markets yesterday, you know, we have a lot of confidence around the moat that's around our data broadly. That really protects us from someone else using AI to try to disintermediate us. You know, we have the data, and as you know, you can't do AI without data. And when you have proprietary data, you've got the ability to really protect that and really deploy it in a very effective way. Jeff Meuler: Very helpful. And then overall margin, let's good to me normalized for FICO, but any additional perspective on the EWS margin outlook just any specific investments or headwinds things like the rev share on data partnerships or anything like that? Thank you. Mark Begor: Yeah. And we're pleased. I'm pleased, Jeff, that you are. I hope others are that we're gonna try to be transparent around the increasingly large impact that the FICO pass-through has on our reported results. And that's why going forward, we'll share with you what our particular margin rate impact is, which is quite substantial. And we're pleased with our guide of 75 basis points of margin expansion. I think that's a big number. You know, it's 50% above our long-term framework. It reflects the operating leverage in the business and, you know, some of the cost actions that we're taking, you know, driven by AI inside of Equifax. With regards to workforce solutions, you know, those EBITDA margins north of 50% are very attractive. You know, we think a lot about continuing to invest, and we are, in workforce solutions to maintain those margins because they're so accretive broadly to Equifax with our long-term framework, EWS growing faster than the rest of Equifax. And with those 50 plus percent EBITDA margins, you've got a lot of accretion, you know, to our margin rate, and they generate a lot of EBITDA dollars. So we are continuing to invest there. We talked a little bit in our comments about some of the new products we're investing in, particularly in government. Like the continuous monitoring solution. Twin Indicator is a new solution that's a product between AWS and USIS. So, you know, investing in new products, investing in new tech, investing in some of the AI capabilities inside of Equifax and workforce solutions on how they deliver solutions like in the employer business as part of the investments. And, you know, we continue to invest in the acquisition of records and investing in our commercial team. So maybe a long-winded answer to say, we like our 50 plus percent EBITDA margins. Our goal is to maintain those, which we've been doing quite consistently, you know, while continuing to invest in the business to drive that kind of double-digit long-term framework revenue growth that is, as we all know, quite attractive at the 50 plus percent EBITDA margins. John Gamble: And as Mark covered, just in the total Equifax long-term plan. Right? Again, it's to hold those EWS very high margins and have them outgrow the rest of the company to add accretion, continue to drive USIS margins up, which you're seeing in our guide, continue to drive international margins up which you're seeing in our guide. And then also to get leverage corporate expenses that are outside the BUs, which again, I think you're seeing in what we guided for 2026. So I think 2026 is very consistent with our long-term model and something you should expect to see from us consistently going forward. Jeff Meuler: Got it. Thank you. Operator: Thank you. Our next questions come from the line of Toni Kaplan with Morgan Stanley. Please proceed with your questions. Toni Kaplan: Thanks so much. And thanks for all the information around the FICO impacts and spelling out the different scenarios in the slides. I was hoping I know your guidance is assuming 100% FICO score sourced through the bureaus. Just maybe flush out sort of the hurdles that sort of get you like, get the lenders and resellers to being able to use Vantage. What are what's still remaining and what what's the timing on what those could be to get resolved? Mark Begor: Yes, that's a great question, Toni, and a tough one to answer. The timing element of it. As you know, the real hurdle that's left, the significant hurdle that's left is the FHFA as well as Fannie and Freddie, you know, completing their work, you know, from a technology and, you know, planning process in order to allow for the adoption and the implementation of the VantageScore. That's really the big hurdle. Our intel is that it's, you know, underway, meaning it's gonna be imminent. It's hard to handicap when that is. And we just thought it was prudent, you know, for given that that's uncertain when that's going to happen to put the guide out that we did. We also talked about there's a lot of energy in the marketplace with our customers, you know, number one, adopting our free Vantage Score for doing their own testing internally about VantageScore versus the FICO score, which is actually well known. You know, as you know, Vantage is widely adopted in the non-mortgage space. So we've got good adoption there. We've got a couple of lenders that are non-agency, you know, a handful of lenders that have made the conversion because of the cost savings and performance and gone to full Vantage. They're smaller mortgage lenders for sure, but they're not the Fannie and Freddie, you know, conforming mortgages. So it's really a matter of when does that work complete, you know, by both agencies, you know, we're collaborating with them, you know, around that. And as it unfolds, we think there's energy in the marketplace to drive conversions once that gets green-lighted and you're available to submit a mortgage, you know, using Vantage. John Gamble: Also wanted to be clear in the presentation around in terms of the FICO direct model, which I know there's a lot of discussion around that. And, again, to us, we're indifferent in terms of operating profit. Right? Our level of operating profit generation is the same whether we sell the score or not. Because as Mark made clear that there is no margin pass-through to us. So should that occur, it doesn't affect our operating result our operating profit, yes, revenue would be lower. But it's, again, it's zero margin revenue. So we think we're in very good shape for that transition as it occurs or if it occurs. And then obviously we're in very good shape when Vantage transition occurs. Toni Kaplan: Great. And looking at government, I think there's a big opportunity there with OV3 and this year as well as next year. You just talk about the momentum that you're seeing there versus prior quarters? Like if the getting closer and closer to having to hit those error rate targets, is impacting the states' behavior? And is there a large season like, a large quarter for you for government? Like, is there seasonality that we should be aware of? And just anything in terms of momentum in that part of the business? Thanks. Mark Begor: Yes. It's a great question, Toni. It's one that we're quite energized about and we're putting a lot of effort into given this unique environment that really started a year ago when came in and there was a large focus or increased focus at the federal level and now at the state level. Around the improper payments. And OB3 that was passed in July is a big catalyst for that. And what it's resulted, I think we've been clear that a lot of the OB3 specific requirements, you know, will have, we believe, revenue impact for us, meaning positive revenue in the second half of the year and into '27 when some of those requirements, you know, have a start date in the, you know, in the states. But what the OB3 is driven and this focus on improper payments and some of the focus on error rates or the increased focus and penalties from the error rates above the federal thresholds is a very, very broad-based engagement with each of the states that we haven't seen really in the history that I've been here. Meaning, the states are focused on it. They know that they have challenges. If they don't, you know, take actions to drive some of the integrity in the programs, and we've just seen an uptick in commercial activity. And I think you've seen the business really have some sequential improvement in the third and again in the fourth quarter, which we're pleased with. They were above our expectations of what we characterize as kind of normal state penetration commercial activity that is probably, you know, driving, you know, some increased commercial discussions or commercial engagement, you know, because of the focus on improper payments that's so strong. And because the states know that there's these new requirements coming later in the year and in 2027. So we're really pleased with the engagement at the state and federal level. And the federal level is a very, you know, obviously, a big, big opportunity for us with the IRS and some of the other agencies. Who aren't using our data today, which we think there's real opportunity. So we expect this business to be stronger in 2026 and 2025? As you know, '25 was impacted by some of the changes made in the Biden administration. Around cost sharing of data. You know, that was challenging for some of the states that air pocket that we had is behind really from a comp standpoint, which I think is positive. And then you just got some real commercial momentum. And the other thing we talked in our comments and with Jeff a minute ago is that, you know, AWS is investing increasingly in new products, you know, to aid in broadly in the delivery of social services like continuous monitoring and things like that that we weren't doing before. So that's another catalyst for us as we move into 2026. Toni Kaplan: Great. Thank you. Operator: Thank you. Our next questions come from the line of Andrew Steinerman with JPMorgan. Please proceed with your questions. Andrew Steinerman: Hi, Mark. I wanted to think a little more about Slide 11 and proprietary data. When you look at your most sophisticated clients in terms of their use of AI, are these clients consuming more or less data from Equifax and why? Mark Begor: Yeah. It's first off, it's more. And we're the only place you can get scale data. At a proprietary basis in the set of datasets that we have. Think about our credit file's proprietary. TU and Experian also have one. They're proprietary. No one else has the scale of that data, and no one else can get to it. Obviously, a bank is gonna have or a financial institution their own internal data for their clients when they're trying to acquire new clients and they're also trying to understand what kind of debt does their consumer have in other financial institutions. You have to come to one of the three of us for that. Add to it the cell phone utility database that we have is only Equifax. DataX, Teletrack, only Equifax. The IXI dataset is proprietary at only Equifax. And then, of course, the Twin database, you know, if you wanna get payroll data, you're gonna come to Equifax or you're gonna have to go to an individual on a consumer-consented basis companies don't share payroll data. Just broadly in a weighted scale. So that's another proprietary dataset. To your question, you know, around the data macro, there's no question that this is for years. There's been a macro of all of our customers wanting more data in order to broaden their decisioning. And as you point out, some of them are using their own AI and ingesting our proprietary data assets but we're increasingly using our AI to deliver those solutions because we have the scale data assets. So, you know, the moat around our data is very high. It can only be accessed by Equifax. Or by our customers, you know, when they're buying the data from us. You know, that's just it's got a it's got a very high moat around it and, you know, we think the combination of that moat around the data in our investments in Equifax AI capabilities. We mentioned on the call, we've got 400 explainable AI patents. We added 40 more in 2025. So we're expanding our capabilities to leverage our proprietary data assets with AI in order to deliver those higher-performing scores, models, and products. John Gamble: And even smaller and mid-sized financial institutions we've delivered technology that lets them ingest our data easier. Right? So one score, right, integrates a substantial amount of our credit alternative data, which and it makes it easy for a mid-sized financial institution to access more information using our scores and to drive greater usage. And we're seeing that absolutely occur. And the AI advisor that Mark talked about now being launched is supposed to make that even easier because we'll be able to help them create new credit policies more rapidly using our agent to capabilities that will again help them ingest more data more quickly using AI Advisor as well as OneScore. Andrew Steinerman: Makes sense. Thank you. Operator: Thank you. Our next question has come from the line of Shlomo Rosenbaum with Stifel. Shlomo Rosenbaum: Hi, thank you very much for taking my questions. Mark, I just want to ask you a little bit more about the mortgage lenders that are testing or in production with VantageScore. Are you able to discuss what are the size of some of those mortgage lenders and FICO talked about their direct to lender, they're a, you know, the top. It top five of the resellers. Where are you with the really heavy users of, like, you know, resellers and lenders in that? And then just in general, are you planning to spend a lot more money this year just marketing the Advantage score and helping your clients test it? Is that you know, an item that you're absorbing into your margins? Mark Begor: Yeah. So on the first half of the question, you know, there's clearly given the cost difference between FICO and Vantage, there's a lot of energy around, you know, the testing and utilization, you know, of Vantage. As we've said, you know, we've got, you know, a number of large as well as a large number of customers that are taking advantage of the free VantageScore delivery so they can, you know, work on their systems on how you how you would, you know, bring in a second score and also looking at the performance of that VantageScore. And we mentioned that there are a number of smaller recognizably, but smaller lenders that have made the conversion, but they're not in the Fannie and Freddie space. But they've gone from FICO to Vantage. So there's no question that there's a, you know, real interest in it, and we think it just a matter of when do when does the FHFA, you know, authorize the ability, which they, you know, said they're going to do last July to bring the VantageScore in, and we think there'll be a and it'll obviously take time, but there's definitely a lot of enthusiasm there. With regards to, you know, marketing and costs, you know, we're obviously, you know, working with our customers to support them. I think, you know, part of the marketing effort was to offer the free VantageScore with every paid FICO score not only in mortgage but in the other spaces. So that's one that we're putting commercial effort behind as well as marketing effort. Of course, any of our expenses associated with that which are I would characterize as not meaningful, but in our P&L and in our guide, you shouldn't expect us to do, like, TV advertising or something, but you know, we're clearly incenting our commercial teams to work with our customers, you know, around this to use the VantageScore at half the price of the FICO score and really drive that conversion as soon as it becomes available and working hard to prepare our customers. We're also delivering, you know, data on VantageScore performance, you know, going back to '08, '09 to our customers, so the risk teams can look at the performance which is very clear in the datasets that we have. So that's another element that we're doing to help support our customers as they evaluate the Vantage. As John pointed out, you know, from a, you know, a guide perspective, we put guidance in place assuming there's no conversion. We thought that was prudent because we don't know when it's gonna be greenlighted, you know, by the FHFA. And if there is conversion, it's only upside. To us. There's not any downside to it. And fundamental to that is that we sell the credit file that's used to calculate the FICO score. And we sell the credit file that's used to calculate the Vantage score. And of course, as we said a couple of times in this call and it's well understood, when we sell FICO, you know, that $10 is a full pass-through with no margin on it. But we make full margin on the credit file that we sell because you can't calculate the FICO or VantageScore without our credit data. Shlomo Rosenbaum: Just a question if I can follow-up with John. Just on that selling the credit reports, it seems like from the guidance that you're taking the full hit of a pass-through from the FICO score, not marking that up it doesn't look like there's much of a change in the cost of the credit reports to offset that. Am I understanding that correctly? John Gamble: So you're talking about we indicated excluding the pass-through of the FICO revenue, would be up mid-single digits. So you should compare that against the market that's down low single digits. So doing that math, that's high single digits ish, right, type of outperformance relative to the market. Which we think is relatively good. And relatively good relative to the other segments in which we operate. So that reflects certainly some price increase. It also reflects share gain that we're driving and we expect to see from Twin Indicator and the other only Equifax products that Mark would have already talked about. And there is also a little bit of headwind built in there related to what's going on with triggers, right. So as trigger legislation comes in our expectation is you'll see an increase in hard pulls, but some reduction in soft pulls, and that could have a slight impact on our revenue. So we did the best we could to bake all those things in, but we think growing in that, you know, mid to high single-digit range, x the FICO score is a really nice outcome for our mortgage business. Mark Begor: Well, it's also our long-term framework. Yep. You know, our long-term framework is to grow organically seven to 10 and in USIS, six to eight, you know, in there. So, you know, we have our mortgage business ex FICO kind of in that range, which we feel good about, and we think you should too. Shlomo Rosenbaum: Thank you. Operator: Thank you. Our next question has come from the line of Manav Patnaik with Barclays. Please proceed with your questions. Brendan Popson: Hey, this is Brendan on for Manav. I just want to follow-up on some of the mortgage market commentary. Because obviously, in the last couple of years, kind of saw the opposite trend where there is a lot of shift to prequal, and you guys have, you know, taken some share there as well. So it sounds like you think there'll be a reversal of that? So I guess just clarify, what's going on in the ground there. And then also just to be clear, it sounds like you're saying the originations will be down low single digit. That's not the inquiries you the hard inquiries you actually think would be better than that. John Gamble: Sure. So on your last point, generally, we're talking about hard inquiries and that's generally the way we guide. Now admittedly, we did indicate that we think we're gaining share there. So that we have to kind of net out the share gain when we're coming up with a view of the market. But our down low single digits kinda reflects what we think inquiries would be doing absent the share gain that we're driving and absent some of the shift related to trigger legislation. And you know what's going on with trigger legislation I'm sure you're familiar with it. Right? We just we think we're gonna see some customers choose to purchase a hard pull earlier in the marketing cycle as opposed to purchasing soft pulls since those hard pulls now cannot be shared with other lenders, so that they have an opportunity to market to the customer that's applying for the loan. So we think every customer is gonna do it. We still think there is we've seen growth continue. In soft inquiries and prequal and preapprovals. But we think this legislation is probably gonna result in some incremental adjustment where you might see a little more hard pull relative to soft pull for certain customers who choose to move to purchasing hard pulls earlier in the mortgage cycle. Brendan Popson: Okay. And then on the twin indicator, you're launching that kind of across the board obviously, it's already in market in some areas. But I guess, where should we think of the biggest incremental opportunity across your different product lines? Mark Begor: Well, certainly in mortgage. You know, mortgage is the largest FI vertical. It's one where income and employment is used in every origination. Along with credit. And we've talked many times that the way the market historically worked is, you know, you pull a credit file upfront, but you don't have any visibility of that applicant, you know, is working or what their income employment characteristics are because that's typically done later in the process. And that's why we launched the Twin Indicator really last summer. We're seeing great traction with mortgage originators. We're offering it, I think, you know, for free, you know, with our credit file, not only in mortgage, but auto and card and we'll do it in personal loans this year also because it's really gonna differentiate, we believe, our credit file and drive some credit file share particularly in the mortgage space and that prequal application space that'll aid lenders in their kind of marketing funnel to really differentiate, you know, what kind of loan or will a consumer, you know, close because they'll now have visibility, you know, around their employment, a range of income for them that they didn't have before. So we're seeing, you know, some really good traction there and what it should result in and we're seeing some beginning traction there is share gains. You know, when there's a one b poll, you know, in the mortgage prequal area, we want it to be an Equifax file because we're offering that differentiated data at no charge. Which we think will advantage us from a share perspective. And think about that same opportunity in auto, which would be kind of the next big vertical then we're also seeing some traction in card. You know, same reasons, you know, historically, you know, card originations have always been done just on someone's credit profile. But you don't know if that credit profile supports someone with the capacity to repay or if they're employed. By adding the twin indicator, it just drives that decision higher as a card originator, you can approve more at a lower loss rate. And if we're doing it for free, which is our business model, to drive share gains, you know, we're seeing some traction there too. So we're super energized around the twin indicator, which is a great example of, you know, the kind of solutions we can bring because of the breadth of our proprietary and scale data. Brendan Popson: Alright. Thank you. Operator: Thank you. Our next question has come from the line of Faiza Alwy with Deutsche Bank. Please proceed with your questions. Faiza Alwy: Yes, thank you. I wanted to follow-up on the government vertical. So one is, it sounds like you're saying the business for diversified markets will be up low double digits. So one, I'm curious what you're embedding for the government vertical growth. And then I guess as you're having these conversations with various states and agencies, what are some of the factors that they're focused on? Sort of how important is, you know, pricing as a consideration, and if, you know, some of the funding issues that we saw with some of the states, you know, seem to have resolved. Mark Begor: Yeah. Government that, you know, as you know, has had a long track record of very strong growth through 2024. Kind of the five years prior, it had a CAGR of over 20%. So it's been penetrating into that large $5 billion TAM which is principally at the state level. And as you know, what we're delivering to states is, you know, speed of social service delivery because it's done instantly versus a manual verification of income eligibility. We're delivering productivity for the caseworkers at the state level, which is a very strong value prop. Then we also deliver integrity meaning it's very current. It's dated, it's from last week's paycheck, you know, so it's a very current dataset. And that growth penetration is really because of those three value props and that hasn't changed. It's south of around $700 million of run rate revenue, a little north of that in our government vertical versus the $5 billion TAM, our commercial team's focus is, you know, on those states and agencies. It's really agencies. That are still doing it fully manually. And when you think about a $5 billion TAM, in our business, you know, at, you know, less than 20% of that, there's a long runway for growth as we work with the states. To your question around, you know, what are why are why isn't it $3 billion business? You know, we think it will be over time. There are challenges around technology around process flow change. And as you point out, there can be challenges around budgets, you know, in states. We deliver a very, very high ROI. We deliver a big ROI on caseworker productivity, you know, meaning they can cover more individuals that are coming after social services. But we also deliver a huge ROI payback, you know, on the improper payments. And as you know, the federal government pays for social services, you know, with the states delivering it, and, you know, over the last year, they've really quantified the improper payments as being a massive number of $162 billion. So that's the incentive at the federal and state level. And what changed in the last, call it, twelve months is the passing of the OB3 bill that put more teeth into the requirements that the states have to deliver those social services. Meaning they have to use more verified data, they've got to do it more frequently, today, there's twelve-month redeterminations, it goes to six months. In 2027. All those actions are really putting teeth around addressing the $162 billion and it creates opportunity for Equifax and workforce solutions. So we were pleased to see the kind of above expectation revenue growth from call it, state penetration that's where it happened in the fourth quarter. Was some of that in the third quarter and we expect that to continue in 2026. And then you've got, you know, kind of the macro of the OB3 requirements that go into place later this year and into 2027 and beyond. A lot of those conversations are happening now about how do I get prepared for that. Because of the incentives or penalties perhaps you wanna call it, that are embedded in OB3 for states that don't take these actions they're now gonna have massive cost sharing or cost shifting from the federal government to the states where the states are going to be required to pay for a large portion of the social services if they don't get their error rates down. So that's been a real catalyst for an increase in conversations which gives us confidence in this vertical going forward. And as we've said a couple of times on this call, it's our expectation that this vertical government will be our fastest-growing business not only in workforce but across Equifax going forward because of the uniqueness of our data set and our solutions and because of the ROI value we deliver to the agencies when they utilize our data. Faiza Alwy: Great. Thank you. And then just to follow-up on the mortgage, and correct me if I'm wrong, I think you're guiding mortgage to low double digits ex FICO in the first quarter. And mid-single digit for the year 2026. So just curious like is that conservatism? Are you assuming higher rates? For the remainder of the year? Or what's behind that assumption? John Gamble: It's really it's really related to the way the mortgage market and overall mortgage revenue moved in 2025, right? You saw improving levels as you moved through the year. So when you do year-over-year growth rates, they just look a little different than a flat level of performance relative to a consistent level of performance in each quarter. That's all that's happening. So the run rates that we're seeing today relative to where the first quarter was last year actually results in a little better mortgage performance in the first quarter as you move through the year if that run rate is maintained what you'll find is that you'll see the growth rates decline as we go through the year and that's what it reflects. Faiza Alwy: Understood. Makes sense. Thank you. Operator: Thank you. Our next question has come from the line of Ashish Sabadra with RBC Capital Markets. Please proceed with your questions. David Paige: Hi, good morning. This is David on for Ashish. Just following up on the government vertical I was wondering if you could talk about some of the pricing trends you've seen or expect to see in that vertical? I understand the three value prop that you're providing. Seems strong. There was a letter sent by some of them senate senators regarding pricing. And then as a follow-up, was there any updates to the tried merge to buy merge? Mark Begor: Yes. On the first question, we have modest price increases at the government vertical. We don't price is not really a lever for us. We really think more about penetration. In the last year, we've gone to more subscription models in government in order to, you know, help a new state get used to using the service, you know, and really help them in the adoption of our solution. So we don't think about price as being a big lever for us and it's not one that, you know, is central, you know, where we have multiple levers in workforce solutions. It's when you think about government penetration is such a huge one. We focus on delivering the right value in return for our customers. Product is a big one as we roll out new solutions. Last year we rolled out a consumer-consented solution in government to go after some of the gig individuals who are going after social services that might have a w two job and be in our data set, but we don't have income. So we've got that in market now and we talked about our new monitoring solution that we're rolling out and we're seeing some real traction with that. So product is a big one. And of course, record additions are a big positive in this business and unique to Workforce Solutions. When we add new records and we added five more partners in the fourth quarter and 12 last year. In workforce solutions that really drives higher hit rates. So you've got a lot of levers for growth regards to your second question, of the buy merge, try merge, obviously, there's still some noise around that. Everyone we talk to understands whether it's the mortgage industry, you know, our customers, you know, or, you know, on the hill or with the agency they understand the large differences between the three credit files from TU, Experian, and Equifax, and why a tri merge is so important. Now number one around access to credit, you for example, there's 10 million consumers in The U.S. roughly that are only on one credit file. If you don't pull all three, you might not be able to approve that consumer, you know, in a mortgage which is federally guaranteed. With the intent of expanding access to housing with the federally guaranteed support. So from an access to credit and getting a complete picture on the consumer, the tri merge is super important. And there are all kinds of studies that have supported that. And then from a safety and soundness, same thing, you know, if you went to pulling, you know, one or two of the credit files and instead of three, you may not pick up all the trade lines, and there could be trade lines that are either positive that help the consumer or negative that say there's more risk with that consumer and that's why we think TriMerge is well embedded as an important tool for theMark Begor: underwriting of consumers' mortgages. And frankly, the most sophisticated lenders in The United States outside of mortgage, you know, pull TriMerge for cards, they pull it for auto, they pull it for personal loans for that same reason because they get a more complete picture of the consumer and it really drives their ability to approve more at lower losses, but also make sure that they're managing their loss profile from an underwriting standpoint. David Paige: Thanks so much. Operator: Thank you. Our next question has come from the line of Jason Haas with Wells Fargo. Please proceed with your questions. Jason Haas: Hey, good morning and thanks for taking my questions. I'm curious if you could talk about your philosophy and how you're thinking about pricing the credit file. I guess, we know the price for this year, but for next year and going forward, can you talk about how you're thinking about that? And I guess, particularly for mortgage. Mark Begor: Yes, I think it's the same in mortgage and non-mortgage. We do price increases every year in all of our products. And across whether it's workforce solutions or USIS or across our business. We generally do those on one-one. We think about those as being reasonable and modest, you know, compared to, you know, to what FICO has done, it's obviously public, you know, doubling their price that we don't do doubling a price and we have lots of relationships with our customers which is why, you know, I would characterize it we're balanced around price and will continue to be balanced going forward. Jason Haas: Got it. That makes sense. Very helpful. And then I wanted to focus in on talent, which I thought was a bright spot. Even despite the soft tire markets. Can you just reiterate what drove the strength there? I mean, how you expect that to trend going forward? Thanks. John Gamble: Yes. So our talent business is really heavily driven by not only our twin data, continues to perform well and we continue to increase penetration but we also have a broader set of products including in education around incarceration, right, that is that are also expanding. So I think the way we continue to outperform that market, which as you saw BLS was down low single digits. We grew obviously much stronger than that up mid to high single digits. So very good performance on our talent business is really driven by continued performance on the team of continuing to build penetration with our income-based products and then also expand consistently our education and other products including incarceration which also continue to grow. So nice very very nice performance by the team in a very tough market. Jason Haas: That's great. Thank you. Operator: Thank you. Our next question is come from the line of Kevin McVeigh with UBS. Please proceed with your questions. Kevin McVeigh: Great. And congratulations on the execution. It's obviously a lot of moving parts out there. I guess just a little bit higher level. I mean, seems like there's really no changes to the longer-term framework, right, despite a pretty meaningful shift from FICO. So is the offset you're able to lean into the AI a little bit more to drive more rev? I mean, see it in the vitality index. Is that driving more revenue and expense management or other parts to the business you're helping offset that? And, you know, obviously, there'll be some shift as VantageCore starts to kind of season a little bit. But just any thoughts on the model overall just given you know, pretty dynamic shift in FICO? Mark Begor: Yeah. FICO is one that obviously is just a no-margin pass-through for us, you know, and it's very sizable now, which is why we to spike it out, and we will do going forward because it's such a big piece of our revenue. And, yeah, it's zero calories. You know, when we sell a FICO score, you know, we just pass that through. And, you know, we're gonna do that. You know, the performance of the business, we're pleased with. We're pleased with our revenue guide and, you know, for 2026 with a mortgage market that's, you know, down slightly again, you know, we had hoped that inflation would come under control and the rates would move down. Obviously, they've ticked back up, which has put some pressure on the mortgage market. But to have a 7% ex FICO guide, which is at the lower end of our long-term framework ex the mortgage market, you know, I think we're something closer to 8%. We feel good about that and when you look at the three businesses versus their long-term framework against the seven to ten, having EWS in that low double digits think is a big, big positive moving forward. As they return to their long-term growth rate. USIS performing well both mortgage and diversified markets are non-mortgage and then same with international. So, you know, what's driving that? I think it starts with our unique and differentiated data. And, you know, as you point out, you know, we've had a big focus obviously investing in our technology, but our technology is now enabling us to deliver more innovation and more new solutions. We think that's accretive and supports our growth rate. And the fact that we have our vitality index last year 50% above, you know, our long-term framework of 10% is really good. Because that's momentum as we go into '26 those new products. And you look at some of the new products we're rolling out that a year ago we weren't talking about with you, we weren't doing because we were still finishing the cloud. You know, like the twin indicator. You know, that is a we think a really powerful solution. We're offering it at no charge to our customers to drive share gains for our USIS credit file. And as you know, the next credit file we sell is very high incremental margins. So we're pleased about that. With regards to the margin, ex FICO of 75 basis points, you should be pleased about that. We are that's 50% above our long-term framework of 50 basis points. That's really positive. It's going to drive double-digit EBITDA growth and EPS growth which is going to drive our free cash flow. We're really pleased about that and that's really driven by the pure operating leverage that we have with a very high fixed cost structure. So our next product sale, our next credit file sale, or twin indicator sale or, you know, twin data sale is very high incremental margin. So that operating leverage is very high on revenue growth. And then as you point out, we're driving really in the last six months, the second half of last year, a big focus on using AI inside of Equifax to drive productivity, speed, accuracy, customer service. But on the productivity side, we laid out that, you know, we've got a plan for 75 odd million of cost saves over the next couple of three years from a lot of AI deployment inside of our back office. So I think that's a real positive. So, you know, we're excited about the business and, you know, really the performance in momentum coming out of last year. But then, our kind of outlook for 2026 we're pleased with. Kevin McVeigh: Very helpful. Thank you. Operator: Thank you. Our next questions come from the line of Kelsey Xu with Autonomous Research. Please proceed with questions. Kelsey Xu: Hi, good morning. Thanks for taking my question. Some of your peers have called out the improvement in the underlying post-consumer credit supply-demand dynamic. I was wondering if you can talk a little bit more about what you're seeing there in terms of just volume growth outlook for card, auto, and personal loans? Thanks a lot. John Gamble: Yeah. The market is still quite solid. We talked about the mortgage market. We tend to talk about that from a market standpoint because it's so impactful and it's been a negative for quite some time because of the high-interest rates. Going to the other verticals and they're solid. Some of the activity is kind of below still pre-COVID levels but there's still attractive. And then there's a question earlier around kind of the data macro, that's a positive for us as well as our ability to use AI to deliver higher-performing products and solutions. Our customers from an origination standpoint are still originating. You know, there's no change. We don't see any, you know, kind of behavior around people thinking about slowdowns or recessions, but they're after more data. Which is a positive for us. They're after higher-performing scores and models and we talked about some of the big lifts we're delivering now with our AI-generated scores and models and those become positive for us to penetrate in with our customers because we're delivering higher-performing solutions. But your question on the markets, like our customers are strong, meaning financially, the banks and financial institutions. And broadly, the consumer is in good shape because they're still working and spending. So, you know, that's a positive for us. Mark Begor: So we're seeing FI for us has been good. You look at online, we're seeing nice mid-single-digit type of performance. Auto really strong, which I know Mark talked about in his comments. Insurance was very strong. We're seeing double-digit type of movements there as well, so very, very strong. And for us really across these segments, fintech is performing extremely well. So that's an area of real growth for us where we're seeing very good performance that's helping us across each of those segments that I referenced. So overall, we think our performance in USIS, especially as you look at online, is very good. Kelsey Xu: Got it. So second question, understanding that you are EBITDA agnostic on the cycle direct program, but it does impact revenues. So just curious to hear what you're seeing in terms of TriMerge resellers' adoption or pickups for the FICO direct program? And your guidance, I think, implies a 0% penetration rate for this program. So just once again, more of your thoughts behind that assumption. Mark Begor: Yeah. I think we said in our comments, there's zero CRA reseller score calculation so far this year, meaning in January. We know there's dialogues going on between the CRA resellers and the CRA TriMerge resellers and FICO. I think FICO talked about that on their call maybe last week I believe they said that they didn't see this happening until maybe the second half, but meaning that the resellers being prepared to do it, going through the approval process, etcetera. But, you know, really, we tried to say in our comments earlier that we're kind of agnostic whether we calculate the score or the TriMerge reseller calculates the score. Because if they calculate the score, we're gonna sell them the credit file. You know, at our full price. And then, presumably, they're gonna have to pay FICO $10 for the score. Whether they pay the $10 to FICO and calculate the score or we do it, we're kind of agnostic because, you know, it has no margin impact to us. Meaning, we don't get any margin when we sell the FICO score. We get the margin when we sell the FICO credit, I'm sorry, the Equifax credit file. So, you know, how that'll unfold is tough to handicap. What the incentives are? Why a reseller would want to calculate the score? Is, you know, I think something they're trying to figure out, meaning, how are they gonna make incremental margin for investing in the score calculation. If they're paying a full price to FICO and a full price to Equifax, I think that's challenging. But we're agnostic, you know, and we're gonna be, you know, collaborative, you know, with our customers, which are the TriMerge resellers to help them in ways that make sense if they decide they want to do it because there's really no P&L impact to us, meaning, and we think about P&L as our EBITDA, our EPS, and our free cash flow, it's neutral to us whether we calculate the score or not. And, again, because of that uncertainty, we opted to have a guide that said there's gonna be no CRA score calculation in 2026, and, you know, there's gonna be no vintage conversion. You know, I don't think either of those are true, but it was the best guide that we could put together, and we thought, you know, putting those scenarios in place for you helps you think about if there is a conversion, what it means to Equifax. And we'll be super transparent, you know, every quarter on what activity we're seeing or not seeing, you know, on both of those fronts. You know, so we can share with you. And then you've got enough information so you can make your own assessments of, you know, how you think gonna unfold going forward. But, you know, between the FHFA and Fannie and Freddie's decisioning, and timetable being uncertain and the same with the CRA TriMerge resellers. We thought that was the right guidance to put in place for Equifax. Kelsey Xu: Super helpful. Thanks a lot. Operator: Thank you. Our next question is coming from the line of Scott Wurtzel with Wolfe Research. Please proceed with your questions. Scott Wurtzel: I just wanted to go back to the EWS margins. And just with sort of this assumption around new kind of government revenue from these benefits coming in, in the second half of the year. Should we assume that there could be like a ramp in EWS margins as we move throughout the year? Thanks. Mark Begor: Yeah. So I think John said it, and I said it in a different version. We like our 50 plus percent EBITDA margins in EWS. Our goal is to maintain them. In our long-term framework, because they're so accretive from a free cash generation as well as the overall Equifax margin rates, which are so powerful. And, you know, we're making investments to keep that top line at EWS, which is also accretive to Equifax. You know, going, whether it's around new products, you know, new technology, we're investing in AI. I talked about some of our product delivery in the employer business. New products that we're rolling out. So we're going to keep that balance of investing in AWS to keep their top line double-digit top line growth over the long term going. While still balancing maintaining those 50% plus EBITDA margins. For overall Equifax, obviously if they're growing faster that's part of the accretion, it's in our 75 bps expansion this year. And then the operating leverage in the rest of Equifax helps drive that 75 basis points, which we're very pleased with that's well in excess of our 50 basis point framework over the long term. Scott Wurtzel: That's helpful. Then just a quick follow-up just on sort of your outlook on international and sort of your assumptions around the macro and key geographies. I know you called out some weaker economic growth prospects, I think, in Canada and The UK, but I know there's also been some macro volatility in Brazil as well. So just wondering if you can kind of give sort of high level, you know, macro assumptions in your key international geographies that's sort of underpinning guidance this year. Thanks. Mark Begor: Yeah. I think it's well recognized the Canadian and UK economic macro challenges. Just to contrast in The UK, we performed well in our CRA business, very strong performance even in a weak market. The debt management business where we do a lot of debt recovery analytics, you know, was under pressure in The UK. Canada is clearly has got a challenge from the tariff conversations that's happened really over the last year. We expect to see that be pressure for that business, but we expect better performance in '26 and '25 out of Canada. Australia, fairly stable, and we've seen, you know, good performance in our business there. Latin America broadly, in good position. There are some Brazil economic conditions, but we've had very strong performance in Boa Vista our acquisition we made a couple years ago. Is where we're gaining share there. So we would expect that business to perform well again in 2026. So, you know, international, we've got kind of framed out at the lower end of their long-term guidance of seven to nine. Principally for some of the underlying economic weaknesses in some of the markets. Operator: Thank you. Our next question has come from the line Craig Huber with Huber Research Partners. Please proceed with your questions. Craig Huber: Great. Thank you. My first question, you said several times today and in the past that you're agnostic if a FICO score was sold through Equifax or the resellers and so forth. Obviously, you're agnostic because you've raised the price of your credit file for mortgages and the associated fees to offset that, which is fair. I mean, it's must-have data if you wanna originate a mortgage out there and stuff I'm curious on two fronts there. What has the reaction been to the price increase to your credit file significant price increase there in the mortgage market? What's been the reaction out there? And is there any learnings there about that reaction there that you could potentially about raising prices more aggressively in other markets credit cards or maybe auto more importantly? That's my first question. Thank you. Mark Begor: Craig, your comments really accurate. Around what we've done with the credit file. And I think there's some misconceptions out there about what was marked up or what was not marked up. From our perspective, we've always been selling a credit file and a credit score, you know, for years. And that credit file, you know, included the FICO score, you know, where we pass through the cost of the FICO score. So, you know, from our perspective, we haven't had a large increase in the credit file in 2026, and we haven't in the past. And we've shared that in prior investor meetings. You know, we passed through the FICO credit score, and you know, I would tell you that there's, you know, a lot of, you know, consternation in the marketplace, meaning with mortgage originators around a FICO credit score going from 495 to $10. You know, that's just the reality. You know, that's not, you know, we didn't we we we didn't take our credit file price up anywhere near, you know, in a 100 miles away from that kind of a price increase. So that's really been the focus of the conversation. And, you know, what's the learning for us? You know, is we're gonna continue to have very modest increases on our credit file going forward, we would not do those kind of large price increases and we're we're we've not done them in the past. John Gamble: And as a reminder, we added a twin indicator, we added NCTUE data to our credit file. Right, with that modest price increase. So we not only had a modest price increase, we also made the information we're delivering more rich. Right? So a better product with a modest modest price increase. Craig Huber: Sorry. Just to be clear on my end. So where did you exactly get the extra money to make up for the loss that you're no longer getting a margin on the FICO score that you were selling before? Mark Begor: We never we did again, is a narrative that was created by, you know, really FICO. We never had a margin on the on the FICO score. And I think we've been very clear on that. We sell a credit file and that credit file cost is what we've been delivering to our customers and then we pass through a FICO score. Last year was four ninety five, and we passed that through. It was very clear to our customers and this year it's $10 and we're very clear to our customers on that period. Craig Huber: Okay. And my last question if I could, your vitality index of 15%, just talk real quick if you could about the AI-enhanced products or new products that you're very excited about here. That's a big number. Mark Begor: There's a bunch. I had them in my prepared comments earlier. And a lot of around scores and models around risk underwriting, credit underwriting, we're seeing, you know, big 10, 15 kind of lift in performance, which is massive. So those higher-performing scores using more data, you know, from our differentiated datasets deliver higher performance for our customers. So we're seeing share gains. We call that, you know, one score is one of our products that pulls together all of our differentiated data that we rolled out last year, and we're seeing a lot of take there. We're also seeing in identity and fraud really the same thing. By ingesting more identity and fraud data assets, we're seeing higher, you know, hit rates or higher performance rates on our identity solutions or higher pass rates. So that's been a real positive. So scores and models really big deal. We talked about some of the additions we're making in our adding AI capabilities to our Ignite analytics platform to make that, you know, more functional, more usable, you know, for large, but particularly medium and smaller lenders. So it's easier to use Angetic AI around those product solutions. It's really quite broad-based on, you know, the energy we have around AI. It as you point out, our 15% vitality last year or 17% in the fourth quarter, obviously, we ramped through the year. A lot of that is being driven by our differentiated data that's really proprietary to us. And then second, our use of AI. And as I mentioned, you know, on the call, we continue to invest in our explainable AI capabilities with 40 more AI-related patents that we filed in 2025. I think that's a great kind of indicator of our investments to, you know, to drive our industry leadership around using AI to deliver our differentiated data to our customers. Craig Huber: Great. Thank you. Operator: Thank you. Our next questions come from the line of Zach Lasich with Feet Partners. Please proceed with your questions. Zach Lasich: Hi, thanks for the question. Despite no impact to EBITDA or EPS, is there an assumption built into the revenue guidance on what percentage of mortgage volumes will move to the direct model for FICO? And any color on how the brokers have been thinking about the direct model and the option for the performance pricing would be greatly appreciated. Thanks. Mark Begor: Yeah, I think we said earlier in our comments and there was a question a couple of minutes ago on that one that our assumption in our guide is that there's no Vantage conversion and there's also no CRA reseller or tri-merge originator so-called direct model using FICO's term score calculation. And we haven't seen any of that in the first so far in the first quarter, meaning in January. And our conversations, you know, with, you know, those, you know, kind of TriMerge resellers is, you know, there's no dates we can see, you know, call it in the first quarter, don't see any of that happening. And just as a reminder again, for probably the fourth or fifth time on this call, we're agnostic to that. Because there's no P&L impact to Equifax. Or benefit for the customer. You know, for the TriMerge resellers calculating the score, you know, we're gonna sell our credit file at the full price to them, and then they'll buy the FICO score presumably for $10, you know, from a FICO and then sell that once they start doing it. It's hard for me to see what the benefit is of reseller doing it, but, you know, that's why we put our guide together because there's no indications that that's, you know, has any certainty about when gonna happen. There's also some questions about what kind of approvals would have to be completed by the regulators. Around someone else calculating the score and that likely means time. But again, just to be crystal clear, we're agnostic. You know, if the TriMerge resellers and FICO decide they wanna calculate the score, we're cool. It has zero impact on Equifax P&L, meaning EBITDA EPS, and free cash flow. It'll clearly impact our revenue because someone else will calculate the score but when, you know, the zero calorie revenue, we're agnostic to that. So, you know, we'll see how it unfolds, and we thought we gave the right guide of assuming none of that happens. I think that guide is likely wrong because there'll likely be some activity at some point. But it's impossible for us to handicap when that'll happen. But the Equifax bottom line, you know, is not impacted by that change. Operator: Thank you. Our next question comes from the line of Arthur Truslow with Citi. Please proceed with your questions. Arthur Truslow: Hi there. Thank you very much for taking my question. So just sort of following on from that. Just wanted to clarify in simple terms. If what we're saying is that you are calculating the credit score for mortgages using the FICO algorithm, are you able to say whether the sort of contribution in dollars per mortgage inquiry is gonna be higher, lower, or the same in 2026 relative to 2025? Thank you. Mark Begor: It's higher. John Gamble: Yeah. There's no question. We'll make more margin dollars because we took up the price of our credit file, and John kinda gave a framework of what that increase looked like. So we'll have higher margin dollars. Our revenue obviously is impacted by the FICO score going from four ninety five to $10 because that's the pass-through that we have, but our margin dollars on mortgage by selling the FICO credit score are clearly gonna go up. Now the margin rate is impacted just by the math, but the margin dollars are what you and I should care about. And, you know, we've given a framework for overall Equifax margin dollars being up low double digits broadly in the business and this is one of the elements that drives that. John Gamble: Just to reiterate, just if the score if there's a if the score is sold by the CRA, or if the score is sold by Equifax, our EBITDA, EPS, and cash flow are unchanged. Right? Doesn't matter. Right? Arthur Truslow: No. Thank you. And the second question I had just sort of following up from that. When you produced your long-term framework for USIS, did you assume that you were gonna, you know, benefit from an organic growth perspective from FICO very significantly raising prices every year. Of course not. Or not? Mark Begor: Of course not. No. This was done back in 2021. When we put that long-term frame in place, I think the FICO score was like $0.55 and we expected which they had for kind of the decade before that to them, they would do modest price increases. You know, which was in our long-term framework. You know, think about, you know, kinda mid to high single digits, something like that was in our long-term framework. Obviously, changed dramatically and that's why we've, you know, opted to spike out the FICO impact because it's so significant, you know, in our reported results. And give you better visibility around the underlying performance, which was always there. You could always look at our EBITDA dollar change. And, of course, we set as a framework a margin rate of 50 basis points per year, but that clearly did not assume that there'd be this kind of FICO price increase which is why going forward, we'll show it to you with and without. FICO. Again, you should and we're really pleased with the operating leverage of 75 basis points ex the FICO pass-through. That's quite strong and one that we're really pleased with. Arthur Truslow: Brilliant. Thank you very much. Operator: Thank you. Our final question will come from the line of Simon Clinch with Rothschild Co. Redburn. Please proceed with your questions. Simon Clinch: Hi, thanks for fitting me in. Mark, I was wondering if you could help us think about quite an important question today, all the ruptures we've seen in the market. With the application of AI, to alternative datasets, beyond your own proprietary sets, is there any situation where the value extracted from that data reduces the relative value that you extract from your proprietary data sets. And thus, make some marketing more competitive in that front. That's definitely a question that, you know, I think a lot of people ask these days. Thanks. Mark Begor: Yeah. It's clearly we've been swept into a neighborhood we don't think we live in, you know, where AI could disrupt or disintermediate our business. I think the scaled data assets we have are unmatched. You know, there's no way to, you know, get to the kind of credit data we have or something that has the same predictive elements of our proprietary credit data. Our alternative data, the income and employment data we have, and the fact that it's not publicly accessible, you know, by third parties through any kind of AI tool. You know, pick the dozens out there that are creating very sophisticated that can access public market data, they can't get to ours. So I think that's a big part of the Equifax moat around data. To your question, I think you were heading towards is, you know, what other kinds of data that might be accessible from a public standpoint, you know, could replicate, you know, what we do today, and we don't see any. You know? You can't get credit data in the public market. You can't go out to the web and, you know, really aggregate that kind of data. You can't get payroll data. You can't get, you know, income and employment data. It's just that those kinds of datasets are proprietary to proprietary, the contributors that are giving us that data, you know, that data is a proprietary environment in their world. Think about the 20,000 financial institutions that contribute data to us, you know, every month, you know, they've got a walled garden, you know, around their data. It's not accessible, you know, same with income and employment data, you know, the 4.8 or 9,000,000 companies delivering payroll data to us either directly or through a payroll processor or HR software company, you know, that's a walled dataset that's not accessible from an AI tool in any way. So, you know, we think obviously what happened in the last twenty-four hours in the broader industry around AI concerns of disintermediating businesses that principally, in my view, you know, rely on public market data. We're not in that neighborhood, but we've been swept into it. So we'll work to continue to communicate to our investors around the Equifax moat around our data, which we think is big and tall. And one that, you know, we think is gonna be long-term sustainable. And only Equifax can use the data for our customers when we authorize them to do it. In order to use that data in any way. Simon Clinch: Really useful. Thank you, Mark. And I think just as a follow-on to that, I mean, as I'm thinking particularly long-term here, but do you see the value of a credit score maintained in an environment where AI is producing a lot more value and insight from even your own proprietary data? I mean, is there a situation where VantageScore, the value of VantageScore to the market as a whole goes down while the value of your underlying data goes up? Mark Begor: Well, we think the underlying data is always the linchpin. You can't calculate a score without the data. And remember, like, Vantage only can calculate the score because we own Vantage along with TU and Experian. We use that Vantage algorithm on our data. So like a third-party AI algorithm can't calculate a score because it has no data. You know, the only way to do that is to have access to the data and obviously, we control, you know, who uses our data and how it's delivered. So in my view, with all the data we have only gets more value. And as you know central to our strategy is to continue to add more data, either organically or through acquisitions and we've done acquisitions of, like, PayNet, DataX, Teletrac, you know, we've done a number of acquisitions to add more data into our proprietary dataset. And, you know, to me, I think what's fundamentally missing in the market today is that, you know, investors need to understand you can't use AI without data. And if you fundamentally believe that Equifax data, in our case, is proprietary, that's a pretty big mogul. Because the only ones who can use AI on our data is Equifax. Simon Clinch: That's great. It's really good to hear you say that. Thank you. Operator: Thank you. We have reached the end of our question and answer session. And with that, I'd like to turn the floor back over to Trevor Burns for some closing comments. Trevor Burns: Yes. Thanks, everybody, for your time today. Appreciate it. If you have any follow-up questions, you can reach out to Molly and I. Otherwise, have a great day. Thank you. Operator: Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. Please disconnect your lines at this time and enjoy the rest of your day.
Operator: Thank you for your continued patience. Your meeting will begin shortly. If you need assistance at any time, please press 0, and a member of our team will be happy to help you. Good day, everyone, and welcome to Performance Food Group Company's Fiscal Year Q2 2026 Earnings Conference Call. Bill Marshall: Please press the star key followed by the number one on your telephone keypad at any time. I would now like to turn the call over to Bill Marshall, Senior Vice President, Investor Relations for Performance Food Group Company. Please go ahead, sir. Bill Marshall: Thank you, and good morning. We are here with Scott McPherson, Performance Food Group Company's CEO, and Patrick Hatcher, Performance Food Group Company's CFO. We issued a press release this morning regarding our 2026 fiscal second quarter results, which can be found in the Investor Relations section of our website at pfgc.com. During our call today, unless otherwise stated, we are comparing results to the results in the same period in fiscal 2025. Any reference to 2025, 2026, or specific quarters refers to our fiscal calendar unless otherwise stated. The results discussed on this call will include GAAP and non-GAAP results adjusted for certain items. The reconciliation of these non-GAAP measures to the corresponding GAAP measures can be found at the back of the earnings release. Our remarks on this call and in the earnings release contain forward-looking statements and projections of future results. Please review the cautionary forward-looking statements section in today's earnings release and our SEC filings for various factors that could cause our actual results to differ materially from our forward-looking statements and projections. With that, I would now like to turn the call over to Scott. Scott McPherson: Thanks, Bill. Good morning, everyone, and thank you for joining our call today. Before jumping into our second quarter results, I would like to recognize George Holm. We announced in December after nearly 25 years with Performance Food Group Company, George has retired from his role as CEO. Over his career, George built an impeccable reputation as an industry leader, a visionary, and an agent of growth. Since Performance Food Group Company's IPO in '2, sales have more than quadrupled to over $60 billion, and the market cap of Performance Food Group Company has increased sevenfold. Much of which can be attributed to the vision and influence George has had on the company. More importantly, because of George's stewardship, Performance Food Group Company is defined by more than just financial results. It is a place where people want to work, customers and suppliers want to do business, and a preferred partner for strategic M&A. There's a reason that Performance Food Group Company is often the first and sometimes only call from prospective acquisition opportunities. Many of you have had the opportunity to meet with George and experience his knowledge and insight firsthand. On behalf of our entire organization, I would like to share my heartfelt thanks to George for everything he has done for the many thousands of people who have crossed his path. I'm also thrilled that George will continue to play an important role for Performance Food Group Company. As executive chair of our board, he will be heavily involved in the pursuit of strategic M&A opportunities, maintain his connection to key customers, and be active in Performance Food Group Company's overarching strategy. Following an industry icon like George comes with great responsibility, and I'm excited to take the helm and lead Performance Food Group Company through our next chapter. George and I have worked together closely for the past four years, developed a powerful friendship, and collaborated on the vision for Performance Food Group Company. As I look ahead, I'm excited to lead this organization, and I'm extremely confident in our ability to continue to drive growth and EBITDA performance by executing on our strategic priorities. In May, we outlined our three-year strategic vision, which the company and I are deeply committed to delivering. More specifically, this is a roadmap grounded by a balance of continued revenue growth, market share gains, gross margin enhancement initiatives, and improving operating leverage. The organization is off to a solid start in achieving our three-year plan and has strategies in place to give us a high level of confidence we will deliver. Let's now turn to our results for the second quarter of our fiscal 2026. Despite a difficult macro environment, I'm proud of our organization's ability to overcome the challenges in the final months of the calendar year. The quarter saw declining foot traffic, the impact of the government shutdown, and softer sales per location across our segments. Despite the challenging backdrop, our company was able to post solid revenue and profit performance within our previously stated guidance range. Breaking it down by segment, let's begin with food service. Our organization delivered 5.3% organic independent case growth driven by a 5.8% independent account growth. During the quarter, we gained share across independent, regional, and national business largely consistent with our gains in prior quarters. Share gains were broad-based across a range of concepts with particular strength in chicken, burger, barbecue, and seafood restaurants. To elaborate further, after a strong start to October, volume trends moderated soon after the government shutdown took effect. We did see some recovery once the shutdown was lifted, and we finished the calendar year with case growth in December roughly in line with the November result. According to Black Box data, industry-wide foot traffic decelerated through the quarter with December traffic down 3.5%. Our chain restaurant business followed a similar glide path reflecting consistent industry pressures. Our total chain restaurant volume grew by low single digits year over year, as new business we've onboarded over the past several quarters offset the softer traffic environment. We attribute our consistent market share outperformance in part to our efforts behind growing, training, and supporting the best sales force in the food service industry. Our efforts in this area are proven out in the independent restaurant space. We continued to hire new associates during the period ending December with nearly 6% more salespeople than we had at the end of calendar 2024. As we have discussed on past calls, we do not have a corporate-wide hiring mandate nor do we require artificial hiring goals. Instead, we emphasize the importance of expanding our sales force as a key driver of volume and market share growth while empowering our local operating companies to hire according to their specific needs. We still believe a rate of hiring at or above 6% makes sense for the long-term support of our growth rate, but expect this number to fluctuate in any given period. I want to take a moment to discuss the integration of Channing Brothers. As we discussed last quarter, we are pleased with the work being done at Cheney and expect this company to be a significant contributor to Performance Food Group Company's revenue and profit growth long into the future. That said, we have been very consistent in our messaging around synergy timing when we expect the financial performance of Cheney to accelerate. When we made the acquisition, Cheney was making meaningful investments in its infrastructure to support growth. More specifically, the addition of a new 350,000 square foot facility in Florence, South Carolina, and a new 42,000 square foot facility in Saint Cloud, Florida, to expand its manufacturing capabilities. These investments, along with other integration costs, have had a short-term impact on Cheney's performance and our overall P&L. Despite this activity, Cheney continues to grow independent cases at a rate consistent with the rest of our food service operating companies, gain share in its distribution markets, and provide its customer base with great service. To close out my comments on Cheney, I want to remind you that we anticipate the majority of the synergies to start flowing through the income statement late in year two through year three after the close of the acquisition. Profit performance for Cheney should begin accelerating accordingly. All in all, our food service segment had a solid second quarter growing volume through market share gains, new business wins, and expansion of our private brand portfolio. We faced two meaningful EBITDA hurdles in the quarter that are likely to persist in the Q with my earlier comments on Cheney and the impact of cheese and poultry deflation. Despite the challenges, we remain confident in our strategy and expect our results to accelerate as we move through our fourth quarter, setting us up for a strong fiscal 2027. Turning to the convenience segment, on our prior earnings calls, we disclosed the addition of sizable new business wins for Core Mark. In the final weeks of September, we successfully onboarded over 500 Love stores contributing nicely to our second quarter results. Also joining the Core Mark fold in December, were over 600 Racetrack locations which we successfully integrated into our network, setting the segment up for a strong finish to fiscal 2026. Let's look at the convenience segment's performance during the second quarter. Net sales increased 6.1%, benefiting from market share gains and the onboarding of the new accounts just discussed. Our data shows a mid-single-digit industry decline in the key convenience categories as persistent inflation continues to weigh on the channel. Hallmark's positive volume results reflect the company's strong share gain outperformance and execution during the period. Convenience segment sales were driven by low single-digit dollar growth from food, food service, and related products and mid-teen non-combustible nicotine product sales growth. Cigarette sales were flattish in the period. As a reminder, the mix shift away from cigarettes towards other nicotine categories and growth in food, food service, and related products causes a revenue headwind that is nicely accretive to our gross margin. This dynamic is a consistent secular tailwind for our profit growth which we expect to gain momentum over time. Moving on to profit. In the second quarter, our convenience segment adjusted EBITDA increased 13.4% as a result of strong cost discipline and operating efficiency in addition to business from Loves and Racetrack. Once again, our great team at Core Mark showed remarkable resilience and the ability to drive profit growth despite a challenging backdrop. Turning to specialty, trends in the second quarter were broadly similar to the first quarter. With a modest improvement in top-line trends coupled with nice productivity gains, produced segment adjusted EBITDA margin expansion. Sales growth was tempered by another difficult quarter in theater which was down over 30%, representing an approximate $50 million drag on overall sales. Outside of theaters, specialty performed well growing sales at a high single to low double-digit rate in the vending office coffee retail, campus, and travel channels. Proactive management of operating expenses produced nearly 7% segment adjusted EBITDA growth in the quarter, representing 40 basis points of margin expansion. Closing out my remarks, it's certainly been a dynamic operating environment to take over as Performance Food Group Company's CEO. That said, I'm inspired by our organization's ability to consistently gain share across our business segments, operate safely while delivering exceptional customer service, and enhance our operating leverage. Driving sustained growth in EBITDA dollars and margins for our shareholders. Our diversification seeks to provide consistent performance in a range of economic scenarios, and our strong pipeline of new potential business should result in consistent long-term revenue and profit growth for Performance Food Group Company. I'll now turn it over to Patrick, who will review our financial performance and outlook. Patrick? Patrick Hatcher: Thank you, Scott, and good morning. Today, I will review our financial results from our second quarter, provide color on our financial position, and review our updated guidance for 2026. To echo Scott's comments, despite challenges in the quarter, we are very pleased with our progress through the first six months of 2026. Through December, we continued to make progress on our financial position, as our strong cash flow was used to invest behind our business to drive growth and reduce leverage. We believe that the investments we are making today will pay off nicely as we execute our strategy. We believe that the investments we are making today will pay off nicely as we execute our strategy. In a moment, I will provide additional color on our financial position and capital allocation priorities. First, let's review our results for the second quarter. Performance Food Group Company's total net sales grew 5.2% in the second quarter, with growth in all three operating segments and particular strength in foodservice and convenience. Total company cases increased 3.4% during the quarter, highlighted by a 5.3% organic independent restaurant case growth and a 6.3% organic case gain in our convenience segment. As a reminder, having fully lapped the Cheney Brothers acquisition, as of the second week of the second quarter, Cheney was reported as part of our organic business for the vast majority of the period. As Scott mentioned, in our convenience business, we are very pleased with the contribution from the addition of Loves, and are looking forward to the benefit of the Racetrack business, which started onboarding late in the second quarter. These businesses are expected to deliver incremental sales and profit dollars over the next several quarters. Total company cost inflation was approximately 4.5% for the quarter, just slightly higher than what we experienced in the prior quarter. With that said, there were some items moving around within our cost basket. Foodservice inflation of 1.8% was below recent trends, with notable deflation in the cheese and poultry categories, somewhat offset by higher inflation in beef. Specialty segment cost inflation was 5.4% year over year, about 140 basis points higher than the prior quarter, mainly the result of candy and hot drink price inflation. Convenience cost inflation increased 7.4%, again, slightly higher than the prior quarter due to inflation in tobacco and candy. As Scott mentioned, the inflation impact on the convenience segment sales growth is offset by the revenue mix shift away from cigarettes. The inflationary environment has been volatile over the past several years, but as a company, we have demonstrated our ability to handle a range of outcomes. We continue to model inflation rates remaining in the low single to mid-single-digit range throughout 2026. Moving down the P&L, total company gross profit increased 7.6% in the second quarter, representing a gross profit per case increase of $0.20 as compared to the prior year's period. We are very pleased with our gross profit results, which shows our organization's resilience and long-term growth opportunity. In 2026, Performance Food Group Company reported net income of $61.7 million, a 45.5% increase year over year. Adjusted EBITDA increased 6.7% to $451 million, with all three operating segments contributing to our adjusted EBITDA growth. Diluted earnings per share in the fiscal second quarter was $0.39, while adjusted diluted earnings per share was $0.98, flat year over year. Our EPS was impacted by several below-the-line items, including higher interest expense and an effective tax rate in the period. Our interest expense increased due to higher finance lease costs, offsetting lower debt balances and more favorable interest rates. Looking ahead, we anticipate a very modest sequential decline in the net interest expense. Our effective tax rate was 28.8% in the second quarter, an increase from 25.2% last year. The increase in our quarterly effective tax rate was due to a decrease in deductible items related to stock-based compensation and an increase in foreign taxes as a percentage of income, partially offset by an increase in tax credits. We continue to expect our 2026 tax rate to be close to our historical average. Turning to our financial position and cash flow performance. In the first six months of 2026, Performance Food Group Company generated $456 million of operating cash flow, an increase of $77 million compared to the same period last year. We invested about $192 million in capital expenditures during the first six months. We continue to anticipate full-year 2026 CapEx to be approximately 70 basis points of net revenue, in line with our long-term target. Our investments in CapEx are primarily focused on maintaining and supporting growth within our infrastructure and high-return projects that we believe will support our long-term growth goals. In 2026, we generated about $264 million of free cash flow, up nearly $89 million compared to last year. We did not repurchase any shares under our share repurchase program in the quarter. We will be opportunistic around share repurchase, but our priority remains debt reduction. The M&A pipeline remains robust, and we continue to evaluate strategic M&A. Performance Food Group Company has a history of successful acquisitions to drive growth and shareholder value, and we expect that to continue. At the same time, we will apply our typical high standards and robust due diligence to evaluate high-quality acquisition opportunities. Turning to our guidance. Today, we announced guidance for 2026 and updated our range for the full year. For the third quarter, we expect net sales to be in the range of $16 to $16.3 billion and adjusted EBITDA between $390 million and $410 million. These ranges include continued deflation in cheese and poultry, the investment in our business, including onboarding of new capacity at Cheney, and continuation of a difficult backdrop for our specialty segment. We have also contemplated the impact of the recent winter storms in our outlook for the third quarter. For the full fiscal year, our sales target is now a range of $67.25 to $68.25 billion. We now expect full-year adjusted EBITDA in a range of $1.875 to $1.975 billion for 2026. The adjustments in our full-year projections are largely a flow-through of the more difficult second quarter period. Our results keep us on track to achieve the three-year projection we announced at Investor Day with sales in the range of $73 to $75 billion and adjusted EBITDA between $2.3 and $2.5 billion in fiscal 2028. To summarize, we are pleased with our progress despite a difficult operating environment in the second quarter. We are in a solid financial position, which supports our growth investments and capital return to our shareholders, and expect strong execution in the second half of the year. Thank you for your time today. We appreciate your interest in Performance Food Group Company. And with that, Scott and I would be happy to take your questions. Operator: Thank you. At this time, if you would like to ask a question, please press 1 on your keypad. To leave the queue, press 2. Once again, that is 1 to ask a question and 2 to remove yourself. We'll pause for just a moment to allow questions to queue. We'll take our first question from Mark Carden with UBS. Please go ahead. Mark Carden: Great. Good morning. Thanks so much for taking the questions. To start, on organic independent case growth, you started the quarter with some solid momentum. Called out the shutdown. Any additional color you can add on performance by month? And then you also just called out some of the recent weather headwinds and impact to guidance. How is January lined up relative to your initial expectations? And do you still see a path to that 6% organic independent case growth for the full year? Scott McPherson: Hi, Mark. This is Scott. Great questions. And as you talked about in Q2, we started the quarter in October, you know, fairly strong. That was the strongest period of the quarter. And then obviously, the shutdown certainly had an impact the longer it carried on. We saw our November and December months, you know, relatively equivalent. Definitely some choppiness week to week. And then as we moved into January, we saw, you know, really nice rebound, nice performance in January. And then, you know, certainly, as you know, you know, February has been, you know, materially impacted by weather. Last week, you know, really a good portion of the country was impacted. And this week, you know, a little more isolated to the Eastern Half and the Southeast. But certainly had an impact and something we factored into guidance. When I look at the big picture, you know, we're very optimistic about the full year. And I think, you know, you called out the 6% target. That's always what we aspire to. That's that's kind of how our sales organization is geared is we want to be 6% or above. So we're certainly fighting to get there. Mark Carden: Great. And then on the Salesforce front, have you guys seen much of an impact on either new hiring or retention in the back of some of the earlier uncertainty relating to US Foods discussions perhaps earlier in the quarter? And then just how did the pace of your Salesforce growth compare to recent quarters? Scott McPherson: No. It's a great question. You know, really, what I look at when I think about Salesforce, force hiring and performance is really market share. And as I look at the Salesforce's market share performance, not just over the last couple of quarters, but over the last, you know, five or six quarters, we've been very consistent in our independent market share gains. You know, as far as actual headcount, we've been right at that 6% range for the first two quarters of this year. I'm totally comfortable at that level, you know, to see them continue to grow share, you know, to demonstrate through new account acquisition, we're at 5.8%. Net new account gains this quarter, same last quarter. But at the end of the day, and I talked about this in my comments, you know, we are decentralized around that hiring. We certainly have opcos that are hiring in the double-digit range. And some that are, you know, probably below that 6% range. And we really leave that up to them. But, you know, what I use is my gauge is really anchoring back to market share. So I feel really good about where we're at right now and the availability of talent. Mark Carden: Great. Thanks so much. Goodbye. Operator: We'll hear next from Alex Slagle with Jefferies. Please go ahead. Alex Slagle: Wondering if you could dissect the dynamics at play for the foodservice business. In the second quarter. It seemed like really strong independent growth and the independent mix, you know, sales jumped a lot, but the OpEx was elevated. You called out the chain investments and the cheese and poultry deflation. But maybe you could kind of talk a little bit more about how impactful that was and the cadence of the investments, behind Chaney and, you know, how that maybe differed from expectations or if that was sort of similar to what you expected. Scott McPherson: Yeah. Let me just start off with Chaney. You know, want to take a step back and just, you know, that acquisition is something that we pursued for a long time. It's been a great acquisition to date. It's a great cultural fit. It fills in a geography that is really strategic for us. So we're really happy with the progress of the acquisition. As I called out in my remarks, we knew going in that we were going to make some material investments in their infrastructure. We have a brand new building that is just completed. We just started receiving product this week. It will start shipping probably over the next three to four weeks. So, certainly, there are some costs related to that. We also opened a new manufacturing facility for them. So overall, I would say, you know, their costs are running a little bit higher than we anticipated. And the other thing that we're taking them through right now is, you know, they transitioning into being part of a public company is, you know, the integration cost to our benefits to our payroll, to our financial mapping. So, again, really happy with the acquisition. Certainly, you know, expenses are on a little bit higher than we anticipated. Then just, you know, you kind of asked about the overall cadence in food service. You know, as you pointed out, really happy with our market share growth, both in independent and chain. You know, from a margin standpoint, you know, as we continue to grow that independent market share, that mix really helps our margin. So that's performed really well. And then, you know, I think from an OpEx standpoint in the core food service, you know, ex Cheney, you know, we have leverage, but I'd say, you know, definitely, there's some opportunity in leveraging OpEx in that area as well. But really, you know, pretty happy with how the core food service segment performed. And then we talked about the deflation in those two couple categories did have an impact on margins for sure. We over-indexed in those two categories. So, really, you know, summing it all up, you know, Cheney and the deflation were really, you know, at the end of the day, really the miss in the quarter that would have gotten to the upper half of guidance. Alex Slagle: Okay. And then I guess along the same lines, at least in terms of the improving mix of convenience, EBITDA margin opportunity, I wanted to ask about. I mean, it's expanded nicely, and some of that is the foodservice growth. And some other mixed items. But, I mean, the food service penetration actually is still seems to have a long way to go. Kinda curious what that could mean over time for the overall convenience EBITDA margins as we look out the few years, you know, and we continue to grow that portion of your business there. Scott McPherson: Yeah. It's a great call out, Alex. There's a lot of things going on in the convenience segment that really, I think, help our margin profile over time. You certainly called out food service, and I agree with you. There's a long runway ahead. You know, we continue to grow food service in that high single-digit, low double-digit range. Both in our convenience segment and our food service segment into convenience. So, you know, kind of hitting that from two ends. So that's performing really well. When you look at the macro of convenience though, you know, one of the things that's, you know, I think really encouraging is what's happening in the non-combustible space. Non-combustible nicotine, oral nicotine, and other forms of nicotine that aren't combustible are growing at a rapid pace. Those have a nicer margin profile than combustible cigarettes. So as we see that migration, there's a natural benefit to our margins in mix. So, you know, that's been a great progression, and I think that's going to continue for a long time. So we feel really good about how we're set up in convenience from a margin standpoint. Alex Slagle: Thanks. Operator: We'll hear next from John Heinbockel with Guggenheim. Please go ahead. John Heinbockel: Hey, guys. Scott, maybe you can touch on some of the self-help that you referenced back at the Investor Day, particularly strategic procurement. Where are we in that journey? You know? And then maybe as a related question for Patrick, just the impact of deflation on margin comes from where? I don't know if that's mix or, you know, inventory gains, or how does that flow through? Scott McPherson: Yeah. So I'll take the first half of that and let Patrick tackle the second. So, John, we, you know, at Investor Day talked about procurement opportunities. And we've done a lot of work on that. And, you know, certainly in the clean room environment that we had over the last few months, you know, that allowed us to really dig into our own side of the procurement ledger. And really, at the end of the day, it gave us, you know, that much more confidence that, you know, we're going to be able to get to that top end of the $100 to $125 million of procurement synergies over our three-year plan. You know, the cadence of that, I'd say it's fairly, you know, linear. I think, you know, we're starting to capture some of that in the back half of this year. We'll definitely see capture in year two or in year three and get us to that end number. So we feel really confident about that. Patrick Hatcher: Yeah. And, John, thanks for the question. I'll jump in here. Yeah. So where we're going to see the impact from the deflation is largely going to be in margin, but it could also be a little bit of inventory gains. I mean, you have to remember we have a very large basket of commodity goods that are constantly moving around. We called out cheese and poultry because our expectations for the quarter were higher than what we actually saw come through with the inflation. So that's the reason we called it out, and it's because we also over-indexed in those two commodities versus the rest of the basket. John Heinbockel: Alright. Maybe follow-up for Scott. I know as part of The US food process, right, was some chain business. You know, that had sort of gotten tabled. Does that come back? When does that come back? And you know, how material is that? Scott McPherson: Yeah. I think as George mentioned on prior earnings calls, you know, we had two or three folks in the pipeline, I'd say fairly material pieces of business that we felt like we had a really good shot at picking up. And as we said, you know, we felt like they were on the fence. Most of those, what they do in that situation is they will renew for the short term, and that's what happened with a couple of these. They signed one-year extensions on their agreements. You know, so we're certainly still in dialogue. But I would just step back and say, overall, in the food service space, we feel really good about our pipeline, both in chain. In the convenience space, obviously, you know, they're performing exceptionally well from a market share standpoint. And I'd even step back and look at specialty and say, you know, we definitely called out the headwind in theater. That's been certainly a challenge. That challenge will really persist for us in the next quarter. That's when we lap at the end of this next or I guess this third quarter that we're in. We lap a pretty material loss in theater. But the rest of the segments are really performing pretty well. When I look at vending and retail, our e-commerce platform, you know, we're starting to see some momentum there. So feel really good as we get into, you know, Q4, that you're going to start to see some nice performance out of the specialty from a growth standpoint. John Heinbockel: Thank you. Operator: We'll move now to Jeffrey Bernstein with Barclays. Please go ahead. Jeffrey Bernstein: Great. Thank you very much. My first question is just on M&A topic. Scott, you mentioned the pipeline is robust. Just wondering whether there's any change in Performance Food Group Company's specific interest. Seems like you're still working hard on the Chaney integration. Maybe costs are coming in a little higher than you thought. So I'm wondering if there's any change to the approach to that M&A, maybe with George stepping back, how we kind of prioritize that process? And then I had one follow-up. Scott McPherson: Yeah. I would say overall, you know, really no change to our approach to M&A. I mean, George and I have collaborated on M&A for the last four years. We'll continue to collaborate moving forward on that. We certainly are looking at things in our pipeline, you know, to your point, you know, Cheney, I think has progressed really well. We're really excited about what that's going to bring. And we called out early on that, you know, the synergies that we'll see in Cheney really come at the end of year two and year three. And that's really the way we approach M&A. You know, we try not to make any drastic changes in those first couple years to really, you know, let them acclimate to the organization. We try and learn what we can from them as well. And we think that just makes for a much better long-term approach to M&A, and that's paid off with Reinhart. It's paid off with Core Mark, and it's certainly going to pay off with Cheney. Jeffrey Bernstein: Understood. And then just to follow-up on the independent organic case growth. I know you talked about always targeting kind of that 6% type range. I think the impression is going to be a little bit more of a fight to get there in the fiscal third quarter. So I'm wondering if you could share any of the current run rate or your expectation for that third quarter. And there was a passing mention on the weather. I was expecting to hear something more material. I was wondering whether you could quantify how much potentially that weather impact has had on sales, which were modestly below street expectations for the third quarter, but EBITDA, which was well below. Just trying to gauge the primary driver of that EBITDA shortfall, whether weather had a more outsized impact or whether it's primarily Cheney. Thank you. Scott McPherson: Well, I'll talk to the cadence of the quarter. And, Patrick, you might want to fill in a couple of things here. We actually started January off really nicely. I would say it was a, you know, call it a rebound from where we were at in December, picked up nicely in January. And then certainly, you know, last week's weather was impactful. And, you know, I think going into this week, certainly having an impact as well. And that's certainly something that we took into consideration when we talked about our guide for the third quarter and the full year. Patrick, anything you want to add? Patrick Hatcher: Yeah. Just a couple of comments on the guidance for Q3. You know, really what we have embedded in that guidance in the EBITDA is, you know, we do expect to see some continuation of the OpEx challenges that we've had to Cheney that we saw in Q2 will continue in Q3. We also are seeing that deflation impact from cheese and poultry continue into Q3. Scott touched on specialty. And then, obviously, the weather, we contemplate that. You know, we've had bad weather last year, two years ago during this quarter. It is our smaller quarter. It's very hard to, you know, obviously nail down weather, but we have recently experienced two weeks of, you know, impact from weather. And as Scott mentioned, you know, we did see a nice uptick in independent cases as we entered this quarter. And we have the convenience with their new Racetrack customer being for the full quarter. So we have some tailwinds as well. And that's really kind of how we built out the guidance for the quarter. Jeffrey Bernstein: Thank you. Operator: We'll turn next to Edward Kelly with Wells Fargo. Please go ahead. Edward Kelly: Yeah. Hi. Good morning, everyone. I'm sure George is listening. If he is, you know, he will be missed, and so just wanted to say congratulations. I wanted to follow-up on the cost side, you know, for you. As it pertains to, you know, some of the higher than expected costs related to Cheney. I would think that the weather disruption probably adds, you know, some added cost too. I'm curious as we think about when the business normalizes and we look out, you know, into the next, you know, fiscal year, are there, you know, tailwinds associated with lapping this type of stuff? You know, just kind of curious as to how sort of, like, one-time in nature, you know, some of the stuff is. Scott McPherson: No. It's a great, great question, Ed. And, you know, certainly, as we talked about, Cheney, the, you know, the major investment in a facility, you know, that's a 350,000 square foot facility that, you know, we're staffing and have been staffing over the last couple of months. And, you know, that won't be fully online, you know, until probably two months from now. So you've definitely got some expense involved with that. And then, you know, as you called out, certainly, creates some expense challenges. You know, as I look at the three-year guidance, I think that's really where we contemplated, you know, what those tailwinds look like. And certainly, you know, our synergies in Cheney we expect to come in years two and really into year three. And that's going to be a nice contributor to our three-year guidance. And, you know, we feel really strong about delivering that. Edward Kelly: Alright. And then just a follow-up for you and, you know, pertains to the three-year guide that you referenced. That, you know, there's been concern about this inflation. You mentioned it on the call today. I guess, first, you know, what's embedded in that three-year guide in terms of, like, an inflation outlook? If food service, you know, is just sort of, like, plotting along at one to 2%, is there any issue with hitting the three-year, you know, guidance if it's a low level of inflation? Just kind of curious as to how you contemplated all that in that outlook. Patrick Hatcher: Yes. This is Patrick. And it's a great question. And as we think about the three-year guidance and inflation, you know, we embedded into our models what we thought would be a consistent number. And, you know, we've always said, you know, where we are right now is pretty good. We're calling out the deflation this quarter just because, as I've mentioned, our expectations were cheese and poultry specifically were going to not be as deflationary as they are. So when we think about the three-year guidance, we have a lot of confidence in hitting that guidance. We're very much on track if you look at where we're projecting this full-year guidance to be. And then as we enter next year, yeah, we have just a lot of confidence in executing our strategy. Continue to take market share, and then, you know, everything else that we've talked about. Edward Kelly: Great. Thank you. Operator: We'll move now to Kelly Bania with BMO Capital Markets. Please go ahead. Ben Wood: Hi, good morning. This is Ben Wood on behalf of Kelly Bania. Thank you for taking our questions. Could you provide any more detail on the monthly cadence of volume trends you saw in convenience? Some of the industry data we look at suggest that sales trends really accelerated into December and through year-end. Is that consistent with what you guys saw? And if so, how are you thinking about the possibility of some of those key categories in convenience inflecting positive going forward? Scott McPherson: No, it's a great question. As I look back over the full second quarter, those results were, you know, I would say fairly consistent with what we've seen historically, which was kind of low to mid-single-digit declines in a number of categories. To your point though, as we exited the second quarter in December and maybe even into January, I think one of the things that we've benefited from in the convenience segment is when you get fuel pricing that drops down, you know, in some markets into the $2 range, that certainly helps car travel and people being out on the road. You know, obviously, we were really, you know, propelled by, you know, new account wins. But even taking that away, you know, we continue to gain share in our convenience segment, you know, both at the chain level, the regional level. So, you know, our segment's performing well. And to your point, I think there are some signs of improved performance and traffic in convenience. Ben Wood: Great. And then just kind of following up on that. In light of the announcement yesterday from Pepsi to pretty majorly lower price in some of their key snack brands, do you expect others to follow suit? And is there a possibility that some of the snack and convenience categories might become deflationary off of this? And how does that impact your different businesses? Scott McPherson: I wouldn't want to make predictions on whether other snack categories would become deflationary. That would be, you know, I've been in this space for thirty years. I've never seen those categories become deflationary. Yesterday's announcement was very interesting. You know, what I have since heard is that that's primarily just on the big bag. So right now, we don't see that as being a big impact on our convenience segment. Certainly, that could change and pass along to some other SKUs. But, you know, I don't see that becoming an industry trend just based on my historical experience. Ben Wood: Great. Thank you. Operator: We'll move now to Lauren Silberman with Deutsche Bank. Please go ahead. Lauren Silberman: Thank you. So I wanted to go back on the OpEx side. Can you help us understand how core underlying OpEx is growing ex Cheney? I guess I'm trying to understand how much of the growth is investments in the core business, Salesforce, versus some of the noise that's changing with the new facilities coming online? Scott McPherson: No. It's a great question, Lauren. I would say and think I said a little earlier in the call, I would say there's certainly always opportunity in getting more expense leverage, you know, across all of our segments. I would say in the core food service segment, you know, quarter over quarter, our expense performance was fairly consistent. We are certainly seeing leverage as a percent of gross profit dollars in our expenses. So, you know, feel good about how the core is performing. Certainly, to improve. But, you know, the bulk of our miss in OpEx from what we anticipated was really just the overrun we saw in Chaney. Lauren Silberman: Okay. I guess in the back half of the year, any way to frame how we should be thinking about that growth now that it's in the full segment year over year clean? And I guess is the overrun more of a pull forward of expenses or higher overall expenses? Scott McPherson: No. I think it was really situational just to Cheney. And as I talked about with new buildings coming on, some of the things that we're doing to get them to be part of our overall, you know, public organization is certainly added some cost to them. So, you know, we expect that to continue a little bit into the third quarter. As we called out. But, you know, in the long run, you know, we're a company that's really focused on getting OpEx leverage across all our segments. And, you know, feel very comfortable that in our full year, we'll get that in a position that we feel really comfortable with. And that was all, obviously, contemplated in our guidance for the full year. Lauren Silberman: Okay. And then if I could just go on the promotional environment, can you talk about what you're seeing in amongst competitors? Any changes in the promotional environment, especially as one of your competitors seems to be building some momentum, and then there's just the moving pieces of product inflation and how different peers react. Scott McPherson: Certainly. You know, what I said earlier, what I consistently look at is market share gains. And I think we have performed exceptionally well, you know, this quarter, last quarter. And now as I look back for a number of quarters, market share gains have been very consistent across the independent space, across the chain space as well. You know, so from that perspective, I feel good about how we're performing. That's really my focus. You know, as far as the competitive environment, you know, I would say it's always competitive. I wouldn't say that I saw anything different, you know, this quarter or last quarter than I've seen, you know, from prior quarters. Lauren Silberman: Thank you very much. Scott McPherson: You bet. Thank you. Operator: We'll move next to Brian Harbour with Morgan Stanley. Please go ahead. Brian Harbour: Brian, we can't hear you. Operator: Yeah. Your line is difficult. Are you able to pick up a handset? Brian Harbour: Can you hear me now? Operator: Yes. Perfect. Brian Harbour: Okay. Great. On your deflation comments, can you remind us how those products get marked up? And I guess, you know, for, like, cheese, for example, I mean, how much is this sort of like, category issue if you think about pizza? You know, in contrast to chicken, I would think that, you know, that's demand is still very good there. Could you just elaborate on that? Patrick Hatcher: Yeah. So just I'll try to keep this high level, but, you know, we're going to, we take our independent customers, we're going to have a markup on cost, and our salespeople are the ones that determine that. A deflationary environment, what's happening with these two commodities is there's oversupply. There's a lot of supply. A lot of capacity came on with cheese. And so it's at a very low point. And same thing with poultry. They're able to increase their supply significantly. They do this from time to time, and they go oversupply, and then they go undersupply. So again, it's really just our over-indexing because of our customer base in those two commodities that we called this out. Brian Harbour: Yep. Okay. Understood. And then just in convenience, I guess I would assume that there's sort of, you know, secular pressure on snack foods and that it's not just the inflation that's happened there, but sort of preference. I think we're seeing that in grocery stores. So, you know, how much do you think that do you agree with that? And do you think that, you know, the convenience stores are sort of committed to replacing some of those products with perhaps healthier options or more on-trend options? Do you think that's happening fast enough such that it sort of, you know, improves sales in that segment versus what you've been seeing? Scott McPherson: No. It's a great question. There's a lot to unpack there. The first thing I'd say is just looking at product inflation. If you look at snack and candy, you know, I guess, since pre-COVID until today, you know, those are two of the categories that had the highest inflationary increases of any consumable product that's out there. So certainly, I think that price elevation had an impact on demand. And so, you know, Frito's response, you know, like I said, is surprised me a little bit because I do think the consumer is catching up. And, you know, so as we talked about, we've seen a little heightened demand over the last couple of periods in convenience. As far as the mix of products, I think the one real opportunity for us is really in food service. You know, I think the convenience store more and more is becoming a relevant option for high-quality food options. And, you know, so as we think about consumer behavior changing, they want fresher, they want healthier, and, you know, convenience stores have an opportunity to fill that need. And we feel that, you know, we're somebody that can certainly fill that. As far as consumer packaged goods and that mix changing, there's been a shift in general to more healthier and convenience. And to your point, I think could this, you know, kind of dynamic accelerate it? Certainly, could. But I think as we all know, it takes consumer package companies a while to get products to market. So I don't see anything dramatically happening quickly. Operator: We'll move next to Peter Saleh with BTIG. Please go ahead. Peter Saleh: Great. Thanks for taking the question. I did want to come back to maybe Jeff's question on the forward guide. Can you just talk a little bit about maybe what's embedded from a macro perspective going forward? I mean, we do have some, you know, much higher tax refunds coming through. That should benefit this quarter or maybe into the, you know, first calendar half of the year. Have you embedded any of that into your guide? Have you thought about that? I know you said January was a pretty good month. February, I guess, started off pretty slow. But I think the quarter is really defined by how March performed. So any thoughts on that would be helpful. Patrick Hatcher: Yeah. Peter, that is a really good question. I spent a lot of time looking into the, you know, the tax refunds. The no taxes on tips or overtime that are going to start coming through. Yeah. And other tailwinds, honestly. I mean, what's the World Cup going to do? All these things as we go Q3 and Q4. We did not embed those in our guidance, mainly because it's very hard to know what that flow-through is going to be, but we do know that putting more money in the consumer's pocket, especially the folks that are maybe on the lower end, we'll see how much of that goes into the market and how much they use that for discretionary spend into restaurants. But we do know that's a very positive thing, and then we know that the World Cup should also be another tailwind, but we didn't put that in the guidance. Peter Saleh: Great. I appreciate that. Can you also comment I think last quarter, George commented that there could be some changes to the SNAP benefits and that could have an impact. Have you seen any change on that front and any impact to date? Scott McPherson: And there's some, you know, recently contemplated changes as well. But no, I can't say that we have seen any material impact on any of the changes or contemplated changes in SNAP at this point. Peter Saleh: Thank you very much. Operator: We'll move now to Karen Holthouse with Citi. Please go ahead. Karen Holthouse: Hi. Thanks for taking the question. I wanted to dig into, you know, Florida a little bit and just kind of excluding Chaney Brothers or noise from that, your sense of just the underlying health of that market. I think we're hearing some concerns around travel tourism, particularly international tourism around theme parks and whatnot. Being down pretty materially. And then just as snowbird season has gotten underway, any risk that Canadians are avoiding the market this year? Scott McPherson: No. I think it's a great question. And, certainly, we have our finger on that pulse pretty closely. You know, the one thing that I would say that I've been very pleased about with Chaney is their independent share gain. You know, they continue to grow independent share at a rate consistent with the rest of our business. And definitely, you know, we've been following very closely the travel patterns, and I've seen the recent theme park attendance. So I do think there's been a little bit of a slowdown with international travel and the Canadian travel in the marketplace. But I'll tell you, we have a ton of confidence in Florida overall. I mean, that's been a state that's been growing consistently for a number of years. And, you know, I feel like that, you know, they're poised for a big rebound, and that's state. But, you know, we're performing really pretty well in the state, all things considered. Karen Holthouse: And then one quick follow-up that just prior to the bigger weather events that we saw the last week or so, anything to comment in terms of geographic performance in the quarter today? Scott McPherson: Oh, it's a really good question. Yeah. We had called out on prior earnings calls that we saw some slowness in the Midwest and we'd also called out areas where we had, you know, friends travel from Canada. But as I think back to, you know, last quarter, the start of this quarter, you know, particularly the start of this quarter, you know, January, which, you know, January isn't the bellwether month because it's a smaller month, but really saw a pretty consistent performance across the map. Didn't see any markets that had any material, you know, lulls or surges. Karen Holthouse: Great. Thank you. Operator: And once again, ladies and gentlemen, that is We'll turn next to Danilo Gargiulo with Bernstein. Please go ahead. Danilo Gargiulo: Great. Scott, once again, congratulations on your new role. And I want to ask you a more strategic question to begin with. So as you embark in this new role, how would you like your era to be remembered for? In other words, where do you see incremental opportunities for performance going forward? Scott McPherson: I really appreciate the question. I think it's a great question. One of the reasons that I'm at Performance Food Group Company, it's one of the reasons that, you know, as I was running Core Mark that we decided to merge with them is culturally, I truly foundationally believed in what George and Performance Food Group Company were doing as a company. So, you know, as I've worked with George over the last four years, I would say that, you know, we very much align in how we look at the business. I think fundamentally, we're both believers in driving growth, you know, both organically and through M&A. I think we both pay particular attention to margin and, you know, how mix can help and drive margin. Culture is very important, you know, to me. And then I'd say if there's any, you know, anything that maybe is a little different is I probably have a little slant towards, you know, how are we going to leverage technology? How are we going to leverage that to be more efficient as a company? You know, but outside of that, I'd say, you know, George and I, our approach to the business is very consistent. And my priority for this company is to continue to drive, you know, that top-line growth, but make sure that, you know, everything that we do allows it to flow to the bottom line and that we do, you know, with a great culture and make sure there's a great place for people to work. Danilo Gargiulo: Okay. Great. Thank you. And you mentioned margin in your answer. And earlier, you also talked about the discovery that you really had with the, you know, during the process of a potential merger with US Foods on the procurement side. So I'm wondering, over what time frame do you expect performance to start closing some of the margin gap versus peers? You know, absent, obviously, the mix impact that it's going to be favoring you over time. And what are some of the low-hanging fruits you think you could capture without impacting the case growth? Scott McPherson: No. Another great question. I would say that the work we did in the clean room was just validation. We felt like when we, you know, sat down and put together our strategy for investor day, you know, this is a company as I called out in my prior remarks that's grown dramatically over the last ten years. And so we felt like as we sit down with our vendors and partner with our vendors that there's opportunity to create cost of goods benefits, to create logistics benefits, you know, just through our size and scale and creating efficiency with our vendor partners. So, you know, I think the clean room exercise was just a further validation that that opportunity exists and that, you know, we have a clear line of sight to go capture it. And the second, I'm sorry, the second part of your question? Danilo Gargiulo: What is the right time frame for the closure of the margin gap? Scott McPherson: Yeah. I think I've called that out a little bit. You know, we really incorporated that synergy into our three-year guide. And as I look at, you know, the cadence of that, I would say that, you know, we're in the early innings. We're, you know, in the first couple of quarters of that. But we felt like and still feel like that's going to flow, you know, fairly consistently year to year. So, you know, I think that my thinking there is unchanged. Danilo Gargiulo: Okay. Thank you. Operator: As there are no further questions in queue at this time, I would like to turn the call back over to Bill Marshall for any additional or closing comments. Bill Marshall: Thank you for joining our call today. If you have any follow-up questions, please reach out to Investor Relations. Operator: Thank you. This brings us to the end of today's meeting. We appreciate your time, and you may disconnect.
Operator: Good morning, and welcome, everyone, to the IDEX Corporation Fourth Quarter 2025 Earnings Conference Call. Today's conference is being recorded. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. Simply press the star key followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one again. At this time, I'd like to turn the conference over to Jim Giannakouros, Vice President of Investor Relations. Please go ahead. Jim Giannakouros: Good morning, everyone. And welcome to IDEX's fourth quarter 2025 earnings conference call. We released our fourth quarter financial results earlier this morning, and you can find both our press release and earnings call slide presentation in the Investors section of our website, idexcorp.com. On the call with me today are Eric Ashleman, President and Chief Executive Officer of IDEX, and Sean Gillen, our Chief Financial Officer. Today's call will begin with Eric providing highlights of our fourth quarter and full-year results, and a discussion of our current business outlook and strategies. Then Sean will discuss additional financial details and our outlook for 2026. Following our prepared remarks, we will open the line for questions. But before we begin, please refer to Slide two of our presentation, where we note that comments today will include forward-looking statements based on current expectations. Actual results could differ materially from these statements due to a number of risks and uncertainties which are discussed in our press release and SEC filings. As IDEX provides non-GAAP financial information, we provided reconciliations between GAAP and non-GAAP measures in our press release and in the appendix of our presentation materials, which are available on our website. With that, I will turn the call over to Eric. Eric Ashleman: Thanks, Jim. Good morning, everyone, and thank you for joining us today. Before I dive in, I want to welcome Sean Gillen, who joined us in January as our Chief Financial Officer. Prior to joining IDEX, Sean served as CFO at AAR Corp for over seven years, and he brings extensive experience driving profitable growth, operational execution, and disciplined capital allocation. His expertise and track record of successfully implementing operational efficiencies, optimizing portfolios, and executing on strategic M&A fully complement IDEX's strategy. He's hit the ground running as he finishes up his first month of onboarding, and we look forward to benefiting from his leadership as we continue to shape and execute our enterprise strategy. Welcome to the team, Sean. I'm proud of the results the IDEX teams collectively delivered in the fourth quarter. We'll go into each of these in more detail, but we delivered organic sales growth and margin expansion for IDEX while also significantly expanding the order book within HST as we closed out 2025. These results show signs that our strategy is working and provide strong momentum as we enter our fiscal year 2026. I'd like to thank our teams around the world for their hard work, agility, and disciplined execution. Turning to slide three. We are progressing well through phase three of IDEX's purposeful evolution as we thoughtfully expand and integrate our capabilities in targeted advantage markets. With the support of our 8020 playbook, we are making this pivot both organically and through M&A. As a key element of this strategy, we built new scalable growth platforms that allow us to compound our efforts through cross-business unit collaboration. Please turn to slide four where I'd like to illustrate how this work is paying off within our HST segment. We've seen acceleration in order rates over the last year and a half with our strongest mark coming in 2025 with organic orders growth of 34%. This has driven organic sales growth towards a mid-single-digit level as we move into 2026. Our performance pneumatics group, we are helping customers support data center construction driven by demand from artificial intelligence. Specifically, our air tech and gas businesses are collaborating with thermal management applications to support data center liquid cooling and on-site, behind-the-meter power generation. We provide blowers, vacuum pumps, valves, and other specialty components to solve key problems in these areas. If customers have asked us to scale up quickly, our pneumatic teams have leveraged their own global footprints while also utilizing shared Asia Pacific facilities and capabilities within IDEX. We first talked about this emerging growth potential about a year ago. It's inspiring to see how far we've come since then. We walked through the strategic building blocks of our material science solutions on last quarter's call. At the highest level, we've mapped each business' unique capabilities to one of three competitive attributes as we form unique properties from materials, shape, and control surfaces enable surface function through coatings capabilities. We continue to see strong growth across the platform within space and defense, semiconductor, and data center communication markets. In 2025, we complemented our organic efforts with a small but meaningful acquisition in Microlam. A very high-quality bolt-on that brings proprietary difficult-to-machine forming capabilities into our already advantaged optics toolbox. Integration into IDEX is going well, it's great to see strong growth momentum out of the gate for the business. They are largely booked for 2026 as we work to expand capacity by applying the IDEX operating model. At Mott, which transforms material powders for specialty filtration, we see growth within the same MSS markets for many of the same customers. In fact, our life sciences, MSS, and Mott leaders are expanding the scope of coordinated commercial efforts for maximum focused impact. Our life sciences team, operating within our longest chartered integrated platform, continues to win in the pharma space, as a key initiative within their long-term growth strategy. Our materials processing technologies group with strong food and pharma-focused global development and production resources, is also driving favorable growth results for HST. And our sealing solutions businesses are seeing nice growth from semicon sealing applications, largely in support of the increased demand for data center memory. Our 8020 playbook, which supports the formal resource choices in segmentation to drive growth in this way, also has a part to play to support margin expansion within the segment. Our teams will be taking advantage of the flywheel effect of HST growth from our 80 to support the next round of 20 simplification to help boost overall segment portfolio margin. We'll call out some of these results in the quarters to come as we highlight the top line and bottom line power of 8020 within our enterprise strategy. Before I turn it over to Sean for more detailed financial commentary, I'd like to pull back up quickly restate the highlights for HST, and expand our IDEX Q4 story with some framing comments around the more industrial and municipal-facing businesses within FMT and FSDP. I'm on slide five. IDEX delivered better than expected fourth quarter results despite the continued challenges our businesses face given macro uncertainties. Our 345%, respectively, as they capitalized on advantaged growth supporting the AI-related ecosystem within and near data centers. HST is also seeing growth in semiconductor filtration and sealing consumables, space and defense applications, and wins within food and pharma markets. Industrial and auto market exposures within HST, make up about 20% of segment revenues, remained flattish we have not observed any meaningful signs of demand improvement. HST also drove 60 basis points of margin improvement year over year. We leverage volume growth, apply 8020 and operational excellence standards in newly acquired entities and improved mix, we will drive continued margin expansion within HST going forward. In Fluid and Metering Technologies, organic orders and sales grew 41% year over year, respectively. Our municipal water-facing businesses remained strong, growing mid-single digits, and mining through our AVO franchise continues to be an area of strength as demand for precious metals increases. While the general industrial landscape all in continues to trend flattish, SMT is experiencing noticeable softness in chemical, energy, and agriculture markets. Regarding the broad, mature, and fragmented industrial end markets, there does seem to be an emerging consensus that 2026 will see a return to growth after three years of PMI contraction. Made more likely if last year's volatile policy headwinds moderate. But at this point, as we look at our leading indicators, we are not seeing an inflection point and activity, and our guidance reflects this reality. Due to the rapid replenishment nature of our businesses, if there is a return to growth, we'll see it quickly, and we are well-positioned to capitalize on it should it occur. Finally, in our fire and safety diversified product segment, growth in our North American fire and rescue business was more than offset by pressures outside The US, and cyclical softness in dispensing, Bandit is trending generally flat alongside our other diversified industrial businesses. With that, I'll pass it over to Sean to discuss our financials and our 2026 outlook in greater detail. Sean Gillen: Thanks, Eric, and good morning, everyone. I appreciate the warm welcome, and I'm thrilled to have joined the IDEX team. In my first few weeks, I am struck by the solid foundation of the IDEX franchise which is underpinned by a strong focus on 8020. I'm excited to work with this talented team embracing 8020, targeting key high-growth markets, and continuing to optimize our portfolio. All while maintaining a disciplined approach to capital allocation. With that, I'll turn to the financial results in more detail. All the comparisons I will discuss will be against the prior year period unless stated otherwise. Please turn to Slide six. As Eric mentioned, in 2025, IDEX delivered better than expected financial performance. Organic revenue growth of 1% came in as expected with strength in HST more than offsetting negative year-over-year performance at FSDP. Adjusted EBITDA margin expanded 40 basis points year over year, on positive price cost and productivity improvements, and adjusted EPS came in higher than our guided range in the fourth quarter. Overall, our orders grew 16% organically in the quarter. Our HFT segment reached a record high at $493 million with orders growing 34% organically in the fourth quarter. FMT orders grew mid-single digit and FSDP orders were flat year over year. Recall that we typically enter any given quarter 50% booked overall. However, the strong order activity and record backlog in HST gives us greater visibility and confidence in our outlook for that portion of the business. In FMT and FSDP, the rapid fulfillment nature of those businesses limit our visibility to approximately midway into a quarter. Touching on some of the more meaningful business demand trends in the quarter, we saw strong order activity in areas influenced by data centers. And for us, as Eric mentioned, that's in power, semiconductor, and optical switching. We also saw strength in municipal water, food and pharma, and space and defense. And in life sciences, we continued to see low single-digit growth. Organic sales in the fourth quarter grew 1% as positive price more than offset volume declines. The teams drove positive price across each of the segments. Volumes were flat at HST and declined year over year at FMT and FSTP. IDEX adjusted gross margin was flat year over year in the quarter as price cost and productivity benefits were offset by volume deleverage and mix. Adjusted EBITDA margin expanded 40 basis points versus last year, reflecting productivity gains favorable price cost dynamics and cost discipline more than offsetting volume deleverage and negative mix. We were successful in our platform optimization and cost containment efforts as they yielded approximately $60 million of full-year savings. Free cash flow for the full year 2025 of $617 million increased 2% versus last year and free cash flow conversion for the year came in at 103% of adjusted net income. Our targeted free cash flow conversion of at least 100% at IDEX remains unchanged. We ended the year with strong liquidity of approximately $1.1 billion. And finally, we spent $73 million to repurchase IDEX shares in the quarter, taking our total share repurchases for the year to nearly $250 million or 1.4 million shares. Now quickly some color on our results by segment. I'm on Slide seven. In 34% and revenue grew 5%. Volumes increased in data center applications semiconductor consumables, and space and defense. Volume strength in these areas were partially offset by year-over-year declines in life sciences pharma, and general industrial. HST adjusted EBITDA margin expanded 60 basis points year over year as positive price cost and productivity gains more than offset unfavorable mix and higher variable compensation. Turning to slide eight. In FMT, organic orders increased 4% and organic sales increased 1%. Orders growth was supported by our intelligent water platform, which was partially offset by softness in the chemical end markets. Looking at our leading indicator industrial order rates, they appear range bound without any indication of a sustainable inflection in demand. Within FMT, we continue to see subdued spending environments within the oil and gas, chemical, and agricultural markets. These exposures make up over a third of FMT. FMT's adjusted EBITDA margin declined 20 basis points year over year as positive price cost and platform optimization and cost containment actions were more than offset by volume deleverage higher employee-related costs, and unfavorable mix. Please turn to slide nine. FSDP organic orders were flat year over year and organic sales declined by 5% for the second consecutive quarter. Continued growth in North American fire OEM and stability at Bandit were more than offset by continued weakness in fire and safety outside The US and subdued capital spending in dispensing. These headwinds were identified last quarter and continue to persist. FSDP adjusted EBITDA margin increased 50 basis points year over year, as productivity gains and favorable mix more than offset volume deleverage. Please turn to slide 10, where I'll touch on capital allocation. We drove $190 million of free cash flow in the fourth quarter, and $617 million for the full year 2025. During 2025, we reduced our gross leverage position from 2.2 to two times. We did this while paying $213 million in dividends, in 2025, and as mentioned previously, repurchasing nearly $250 million worth of shares. Regarding our capital deployment methodology, I view this across four key areas. Maintaining a strong balance sheet, organic investments to drive growth, M&A, and return of capital to shareholders via dividends and share repurchases. With IDEX's strong financial position and cash flow generation, we can allocate capital to each of these areas. First, we will maintain our investment-grade credit rating, which provides reliable access to capital at attractive rates. Second, we will continue to organically invest in our businesses to drive growth where we have the highest return opportunities. Third, regarding M&A, in the near term, we will focus on the integration of recently acquired businesses, and new acquisitions will likely be bolt-on in nature. In parallel, we are doing the work to chart a road map for where IDEX goes next. We are looking at what other technologies and market access points could be additive to our portfolio and where potential divestiture could make sense. We expect M&A activity to be an ongoing part of our long-term growth algorithm. Fourth, we will return capital to shareholders via both dividends and share repurchases. Regarding dividends, our target of 30% to 35% of adjusted net income paid remains unchanged. On share repurchases, we will look to have a base amount of repurchase that we consistently return to shareholders. We can flex above this amount based on leverage levels and relative M&A activity. We look forward to executing on this capital deployment methodology and driving value for our shareholders. Now I'd like to discuss our guidance for 2026. Please turn to Slide 11. For the full year 2026, we expect organic growth of 1% to 2%. Jim Giannakouros: Our overall IDEX organic growth guidance balances approximate mid-single-digit growth for HST, and flat to slightly down outlooks for FMT and FSTP. Mirroring trends we experienced in 2025 and visibility afforded to us by HST's strong order book in the fourth quarter. Adjusted EBITDA margin is expected to be in the 26% to 27% range in 2026. While we expect solid leverage and margin expansion of perhaps 50 basis points improvement at HST this year, volume decrementals offsetting price cost and productivity is our base assumption for both FMT and FSTP. Regarding our effective tax rate, we expect it to be approximately 24% in 2026. Adjusted EPS guidance for 2026 is $8.15 to $8.35 representing low to mid-single-digit growth year over year. For 2026, we expect organic growth of 1%, adjusted EBITDA margin of approximately 24.5%, and adjusted EPS of $1.73 to $1.78 relatively flat year over year. As a reminder, the first quarter is typically our seasonally softest both from a top and bottom line perspective. Within FMT, businesses such as ag and water are impacted by the winter season, while FSTP and HST experience a reset of budget cycles for larger volume orders. Our initial outlook contemplates a typical low to mid-single-digit sequential increase in second-quarter sales with a more pronounced step up in earnings given higher volumes and normalization at the corporate expense line. Our current forecast reflects plans for 8020 informed reinvestment into our businesses to drive organic growth and continued execution to improve operational performance across all businesses. And lastly, we will maintain a balanced capital deployment plan near term skewing towards tuck-in acquisitions and returning capital to shareholders. Similar to 2025. With that, I'll turn the call back over to Eric. Eric Ashleman: Thanks, Sean. I'm on slide 12. We believe our strategies will drive increased growth in sustainable value creation for IDEX going forward. And our bookings in the fourth quarter are a strong indicator that our strategies are working. 8020 is at the heart of all that we do at IDEX, working across integrated business units is a meaningful expansion of our source code. Within our earlier walk through of HST Momentum, we've highlighted how 8020 choices can work powerfully for us to drive growth and margin at a single unit level, a collaborative small group a formal growth platform, and for a few powerful and select applications across the entire segment. 8020 analytics help us isolate the opportunity and align resources our tunable technologies allow us to quickly shift from a pressured to an advantaged area with relative ease. But it's really our teams and our culture that power this work. We carefully built and nurtured an open, engaged, and natural collaborative culture through all phases of our evolution. In fact, this work began formally before we began to apply 8020 to IDEX. Our value of trust, team, and excellence powered by a shared purpose of trusted solutions improving lives, helped our leaders unleash potential across business boundaries, with an ability to course correct as conditions warrant. We have more work to do as we move through phase three, but we're very pleased to see strong performance feedback in the areas where we've spent so much time and effort together. Look forward to sharing more of our story with you in the days ahead. That concludes our prepared remarks. And with that, I'll turn it over to the operator to take your questions. Operator: Thank you. We will 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. Our first question comes from Deane Dray at RBC Capital Markets. Deane Dray: Thank you. Good morning, everyone. Hey, Eric. Eric Ashleman: Hey, Deane. Really interested to hear your thoughts about the I don't I don't want to call it a disconnect because it's probably a lag effect here, but we finally got a PMI above 50 after eleven months. You have such an array of bellwether businesses that are usually synced to the type of inflection in the macro. You mentioned Bandit. But, just take us through how you see the demand outlook right now based upon what you have for day rates, you know, what do you see in the order size, are you getting any blanket orders. But this is really helpful to get down to that granular level, if we could, please. Eric Ashleman: Yeah. Sure. Well, look. We were happy to see that readout as well. But as we said in the, you know, in the comments here, and you know, we track about six or seven businesses that are really, really close to consumption. Rapid replenishment, you know, we'll take an order on a Monday, make it on a Wednesday, and ship it on a Friday. That's pretty typical. You mentioned a few of those businesses. Always look at them and see, you know, if they're moving together. That usually tells us we've seen some inflection. And so far, even through January, we've seen them be steady but we have not seen them inflect up yet. Now, of course, it was a, you know, weather-altered January. We'll see where things shape up in February and into March and as things warm up a bit. But as of now, happy to see the headline but don't really yet see the inflection. You know, and that's kinda the same story in the fourth quarter. Those kinda hung in there but didn't move around much. We mentioned some of the pressure sectors that we have. Those are being driven by different drivers. But I think for us, it's keeping an eye on it. As I said in my remarks, there's certainly chatter around the likelihood, you know, given the duration some of the things that are shaping up on the policy side. But haven't seen it yet. When we do, of course, as you know, we will tend to see it first. I think most importantly, you know, we can chase it without frankly, adding anything to the resource of the capital base. And our incrementals on that upside would be really, really good. Deane Dray: That's really good to hear. And just as a follow-up, I'd like to welcome Sean And I noticed you said $80.20, the requisite number of times. I know that's a full immersion, and it's gonna be ongoing here. But I'm most interested in hearing from you, Sean, is you're coming in with a fresh set of eyes. IDEX is one of the high-quality compounders, so it's you know, the opposite of a fixer-upper. But there's still items metrics that a fresh set of eyes probably sees that you have And just kinda talk us through where you are focusing, what kind of priorities that you think would be helpful for us to hear? Thank you. Sean Gillen: Yeah. Appreciate the question. As you mentioned, I mean, a couple of observations early on, you know, the incredibly strong franchise that IDEX has, as you mentioned, underpinned by 8020 and everything. That is done here. And from my standpoint, I kinda look at it in a couple of ways. You have an incredibly strong franchise with really strong financial characteristics, and I'm talking EBITDA margin and the cash flow associated with that. Which affords us nice opportunities to allocate that capital to drive growth And as I look at it, I see a continuation of a lot of things that have happened here. And then helping around the edges in kinda M&A strategy and execution as we see this next kind of, you know, three-point o in IDEX. So a lot of good to work with and, you know, bring some of my skill set and some of the things I've done in the past to help continue to move the needle. Deane Dray: Great to hear, and best of luck. Operator: We'll go next to Vladimir Bystricky at Citigroup. Vladimir Bystricky: Hey. Good morning, guys. Thanks for taking my call. Eric Ashleman: Sure, Vlad. Vladimir Bystricky: This is Maybe I don't know if I missed it, but can you just talk about how much price ended up contributing to top line overall in 'twenty five And then within your 1% to 2% organic growth outlook for '26, how much of price contribution is in that number? Sean Gillen: Yeah. Happy to take that. So in fiscal year twenty-five, price was around 3%. In Q4, it was a little higher than that in that three and a half percent range. And then as you look into the current fiscal year twenty twenty-six and the guidance, we're kind of forecasting around a point to two one to 2% in terms of price contribution coming down from the levels of last year, but still additive overall. Vladimir Bystricky: Okay. So roughly flattish volumes overall across the portfolio with positive volumes in HST and some negatives in SSDP and SMT. Is that the right way to think about it? Sean Gillen: That's exactly right. Vladimir Bystricky: Okay. Perfect. That's helpful. And then, I guess, you know, just stepping back, you know, obviously, you talked about capital allocation over the past several quarters and today here on the call. With the shift to bolt-ons versus larger acquisitions and more on buybacks, how should we think about the potential for incremental know, meaningful portfolio pruning, if you will, outside of the growth platforms. Eric Ashleman: I think right now, here in the short term, I mean, we're really focused on, you know, the cap the businesses that link to the capital that we deployed pretty aggressively over the last few years. Know, that's a look at our portfolio from top to bottom is always something that we're doing together as a team. I think on the divesting side, you know, nothing really, at least in the short term, that's beyond kind of the unit of measures that you've seen here more recently. You know, it's things that are associated with 8020 work both in a business unit or a product line spectrum. So I think most of our focus now is on capitalizing on growth, growth velocity, And then as I said in the remarks, specifically within some of the acquired business in HST taking advantage of some of the growth that's already on the board now and using it in some ways to fund some choices that we know we want to go make through a few of the recently acquired businesses. You know, how those are The run out and the disposition of those will play a part here but again in a more typical kind of smaller unit of measure here in the near term. Vladimir Bystricky: Got it. That's helpful. Eric. Thanks. I'll get back in queue. Operator: We'll go next to Michael Halloran at Baird. Michael Halloran: Hey. Good morning, everyone, and welcome, Sean. Eric Ashleman: Hi, Mike. Michael Halloran: Hey. So can we just go back to the disconnect between the strength in orders and the building momentum you're seeing in the orders and the conversion to revenue. I know there has been at least some level of shift and you've as you've reshaped the portfolio, brought on some longer site cycle application. So maybe just refresh, the disconnect, and then I guess, when do you think that starts normalizing towards each other? Right? I mean, as you said in your prepared remarks, you know, relatively short cycle tends to convert quickly. So maybe just walk through those dynamics. Eric Ashleman: Yeah. So, I mean, if you're taking a look at how revenue is gonna kinda flow from Q4 into one and back into two, which is you know, things that we've talked about here. I mean, there's kinda two components of that on the top line side. One that's pretty typical and traditional for IDEX and one that's a little newer. So on the FMT side, we've always kinda had that dynamic. Largely associated with weather. And weather's impact in our water franchises and agriculture franchises specifically. And so you kind of see that Go a little lower in Q1. It comes back in Q2. And we have that same trend in the guidance that we have here looking forward into '26. There is a small component coming out of HST now that we also referred to. You know, we're we've got some larger orders that we're capturing here. Some of them are coming from, you know, markets that we're targeting that have more of a kind of traditional fiscal spend profile that has, you know, budgets running out in Q4 and people making sure that they spend those. You can see it in the big capture number for us in Q4, and honestly, some of that came in kinda close to the end of the quarter. If you look at just where lead times on the gear that we're gonna make kind of naturally fall out, it's not unusual to see some of it moving into Q2. That's how long it'll take to get moving. So places like our materials processing technologies business, you know, it's more sophisticated CapEx probably the place where you see it the most. And so I think starting to see a little bit of an HSE dynamic there as we continue to grow within some of these spaces. We'll probably add that component onto what we would typically see from the FMT weather-related side. It's not a lot. And frankly, think of it as a V, which is again, been kind of the typical IDEX profile. You'll see it here with the HST business as well. Michael Halloran: Thanks, Ted. And then you know, maybe just the life science piece. Could you talk about what you're seeing there? And how your guide should shape out through the year and maybe put that in the context of what your client base is saying. And how they're expecting improvement through the year and kind of correlation points there, please? Eric Ashleman: Yeah. I think, you know, we saw in '25, it was kinda low single-digit growth. It was stable. It was predictable. Really, for us, kinda driven on the positive side by growth in pharma applications and then the derivations that make their way into our products. A little bit of pressure on the more academic research piece. Has that played out? The only real change there, the government shutdown, the prolonged nature of it in Q4 I think, you know, put a little pressure on that business at the end of the year and I think added a bit to the uncertainty, heading into '26. We think that'll normalize over time and we've kinda got the business still running forward at sort of low single-digit growth. Some open questions still remain on, you know, the piece related to China. The innovation, very, very strong with inside the business. Continue to work with customers on, you know, different products to support platform releases at a healthy clip. But we've got that dialed in at kinda continuing along at mid-single digits. And looking for different signs of inflection there. One specifically, I think, around some more certainty around where that academic research and support would be through the indirect lever of NIH funding. Michael Halloran: Thanks, Eric. Appreciate it. Operator: Thank you. We'll take our next question from Joseph Giordano at TD Cowen. Joseph Giordano: Hi, Joe. Eric Ashleman: Hey. So you kinda touched on this, but, like, you know, a year ago, when you were giving guidance for 2025, we got into a position where you know, full-year guidance looks fine. One q guidance looked very weak relative to where people were thinking. And it was you know, there was this need to have these kind of larger orders come through and some tough comps there now. If you think through the businesses that kind of play in that, and you kind of marry that with the orders that you saw in HST? Like, how is it know, how is how should we view this guide relative to those, like, you know, one Q4 q, progression differently than we did last year. Eric Ashleman: That's a great question, and we are in a different position. Exactly for the reasons that you talked about. So as an example, in HST, when you just look at backlog, kinda year over year, the difference with the exit last year from the year prior we've built over a $100 million of backlog. And while it you know, almost half of it is in the data center area that we talked about in the opening remarks, it's actually broadly applied elsewhere across HST. You see it coming from our materials processing technologies business. See it coming from the MSS franchises. We now have MicroLamb on the board. You know? So we've got really, really good order support here. Quite a bit more of it than we did at this time last year. Again, some of it, you know, cycles in the way I suggested around Q1 and then moves up again in Q2, but the assurance levels are quite a bit higher this year, especially in HST. Joseph Giordano: Perfect. And then if we talk about some of these newer markets like data center power, like, how large is that now? How large can it realistically get in, like, a year or two? And maybe can you speak to the capital intensity from your standpoint that is required to capitalize on this? Eric Ashleman: Yeah. I've kind of tackled it backwards. The capital intensity is actually not very different from what we typically do. It's light intensity. So think of this as a lot of critical subcomponents that we're making. We will just make more of them. On a lot of the same equipment that we have. Still pretty rare in IDEX. To be running more than two shifts anywhere. And so we've got an opportunity to flex the current capital base reasonably, and you shouldn't see a deviation there. Would have to add manpower, of course, and we are. You know? So that's something that our teams are working through, but nothing really significant on the capital side. In terms of where all this can go, I mean, that's an open question, obviously, for the whole sector. But, you know, we're playing in a number of different areas. We talked about, you know, behind-the-meter power. That's you're seeing a lot of that in the pneumatics area. That's kind of ramping as we go with you know, kind of a flagship customer during the year. But we've got a number of other areas or applications largely in the areas of thermal management, the discrete thermal management that we're working. We've got some optical switching and communications work, even in FMT, we've got some power gen support. Some of the technologies we have over there for more typical generators. So we're actually managing it This is one area that we're managing at a segment level. Just to make sure that we're coordinated across. We can see all the opportunities. To the extent we're working with similar customers, we're making sure we're coming together as one IDEX. So I think still room to run here. We're innovating a lot in the background. Very, very excited overall about the potential. As we said in the beginning here, won't need a lot of capital deployment to capitalize on it. Joseph Giordano: Thanks, guys. Appreciate it. Operator: We'll take our next question from Matt Summerville at D. A. Davidson. Matt Summerville: Thanks. Morning. Maybe could you dig into a little bit adding a little bit of geographic depth and talk about the order cadence that you saw in FMT, kind of the chem, O and G and ag side of the business? And then an HST industrial in auto. Just trying to understand you know, the a little more of the commentary around just not really seeing any sign of inflection. They just further punctuate that a little bit for us. Eric Ashleman: Yeah. Well, you mentioned some of the ones you mentioned are the more pressured sectors for us, you know, overall. So I'll speak specifically to those And I'll start with energy. We always have to scale that a bit in terms of the work that we do. We do mobility custody transfer there. We actually had a strong beginning of the year. You know, we saw a lot of truck builds and things and some optimism around the state of those markets. And I think as it played out, you take a look at where oil prices landed and some of the geopolitical stuff, that was out there, you know, we just saw a pause, kind of an unexpected pause in at the end of the year. So that really is micro exposure in the space for us. Have kind of a positive front half and a less positive second half. Now it has been a very, very cold winter, Ultimately, that typically helps that market down the road, so we'll see. The chemical side, you know, that's been pretty pressured throughout the year. You know, a lot of our exposure there is our probably lead franchise is European based. And so when we think of the state of European chemicals in particular, they really haven't been very strong. To be fair, the business is chasing international expansion. They've done really, really well in India. In our shared campus up there. But I think chemicals, we're waiting to see signs of just general recovery there. Agriculture is another. You know, that's we've been kind of in a multiyear cycle there. Our orders ebb and flow kind of cyclically around weather patterns. You know? So as just look at it, we have to look at year-over-year performance. Team is doing well, executing that business well. Certainly well-positioned, but we're still waiting for signs of recovery there. And I would say just broad industrial it's been pretty similar and kinda flattish throughout. I'd say the theme of the day is, you know, just enough orders coming through for maintaining the system, you know, replacing like-for-like components where we've had that share position for years if not decades. So that's all solid and has remained that way and held up that way in January. It's just a question of not enough expansion in more specific projects, people building out plants, and doing things that require just more confidence around customer commitments. You know, geographically, I would just say the, you know, the trends are not that different with the exception it's a smaller part of the business. But, you know, India, probably the head for us. North America, second. I would say Europe, third. Matt Summerville: Thank you for all that color. I guess, with the order activity you saw in HST, is there a way to sort of parse out how much of that may have been kind of year-end budget flush slash blanket activity and realizing 34% may not continue. But are you still seeing that forward strength in inbound order momentum now is, you know, 2026. Is kinda kicked off. And then also, is there any incremental savings from the optimization left over to be realized in '26? Thank you, guys. Eric Ashleman: Sure. I'll take the first, and I'll let Sean weigh in on the second. Actually, January has been strong as well. So while there is some phenomenon there tied to year-end, pieces that that is not you know, that that is not the majority of what's going on here. A lot of it is just it's momentum that we frankly Seen building over the last year and a half. It was strongest here in Q4. We're very happy with what we've seen initially in January. And, while kinda data centers is the headline, the broad-based nature of it also lends itself to being something that's got good rhythm, good cadence, and we're expecting it to continue into the year. Sean Gillen: And then on part two on the cost containment, as I mentioned in the remarks, we did realize about $60 million of cost savings in last fiscal year. And that was really kind of the full targeted amount. Those actions were taken early in the calendar year and so most of the benefit was realized last year. A portion of that was kind of more temporary in nature, so I would expect a portion of that, a portion of it was about $20 million in temporary temporary in nature. I expect that a little bit of that we allow to come back into the results this year. As we resource and invest in some areas, particularly the ones where we're seeing growth in the order volume that we've been talking about. Matt Summerville: Understood. Thank you, guys. Operator: Our next question comes from Bryan Blair at Oppenheimer. Bryan Blair: Good morning, guys. Welcome, Sean. To get a slightly different angle on the know, the standout HST order strength? Eric, you just said that you know, data centers were the you know, the the highlights. Are you willing to speak to how much of Q4 order growth was AI-related versus other markets and applications? Just trying to frame, I suppose, dimensionalize the drivers there. Eric Ashleman: Well, you know, it is a little tricky because of the nature of the work that we do. While we have a lot you know, the things that we do in Nomadix are clearly linked to data centers. I would even argue a lot of what's driving nice positive growth in semiconductors is, you know, is tangentially related to it as well. I would be willing to say here is that is I kinda pointed to that backlog growth year over year. You know, just under half of it, we probably put in direct data center applications. But I would argue a lot of the other segments and pieces that are coming in, they're one or two steps over. You know, semiconductor is a segment for us. It has been strong, especially on the consumable side. A lot of it's supporting memory production. And then we've, you know, we think we're seeing some good things building as well on some of that you know, very, very critical componentry that we supply in the lithography. And so it's kind of all in within that same ecosystem. But let's say about half of the backlog build in very specific data center supported applications. Bryan Blair: Okay. That's helpful color. It'll be great if we could drill down a bit more on municipal and industrial water. Trends and outlook there. Where did revenue and order growth shake out in Q4? Then looking forward, what drives your team's confidence in sustainable mid-single-digit type growth? Whether that be, you know, external or at a market level or in terms of your team's value prop and the ability to win in those Eric Ashleman: Yeah. Well, first, you know, just on the numbers side, you just called it. I mean, we had a strong Q4 in the municipal-facing water side that was double-digit growth. We've kinda got it mapped out at mid-single-digit plus going forward. And I think it comes back to the critical nature of the work that we do here. Very, very specifically, we're doing, you know, inspection, and analytics work. So we're helping municipalities understand the state of affairs underground and where they might need capital to be vectored in to correct it. You know? So, again, we're kind of at the lead tip of the spear, if you will, on, you know, putting capital work for infrastructure, refurbishment. You kinda need our diagnostics to be able to do it, both to put that capital to work then, frankly, you need it operationally as well. So whether it's significant weather events, and we've just seen another round of those, those stress infrastructure, it's our technology that helps you understand where it's coming from and how you go mitigate it really, really fast. So it's just a testament to the criticality of what we do. It's always been a nice piece of the business. It's made even more so now that more capital is being put to work, and we absolutely seeing that continue. One last piece. When you look at water for IDEX, I just always remind people there's a side of it that's related to high purity semiconductor work. For a while now, that's been offsetting some of these dynamics on the municipal side. We saw some nice orders growth there as well in Q4. And so we'll have less need to call that out as an asterisk we go forward and talk about water as a platform. All very encouraging. Bryan Blair: Thanks again. Operator: Our next question comes from Nathan Jones at Stifel. Nathan Jones: Hi, Nathan. Let me start by saying I was late on the call. So if you've already answered my questions, tell me to read the transcript. I wanted to ask about the platforming strategy that, you know, you've been on for a year or two now. Maybe you could talk about what you're looking to accomplish with that in 2026. I know you had some restructuring expenses around that in 2025 that generated some cost savings. Are there any more of those kinds of things contemplated for 2026? Just any more color you can give us around that kind of Eric Ashleman: Yeah. Look. The optimization side, I'll let Sean take a handle at that. We got a little bit of it that flows over into the next year. He can take you through it. But the focus here is growth. I mean, so the whole idea is to get units working together in advantage markets and take the power of our innovation passion to solve customer problems and frankly, exponentially put it to work. We're seeing it work. So the growth that we're talking about here for IDEX overall, a lot of it in HSE it is disproportionately coming out of these platform environments and you can see it in applications where, generally, it's not just a single unit, but it's a couple units or a platform working together taking one piece of technology in one area and leveraging it onto another, Sometimes it's even just taking talent putting it to work to make sure we can free up capacity and assist your business. Go after data center volume, things like that. So it's this compounding power of putting things together that have long been IDEX assets putting them to work around markets that just have more favorable headwinds. So I think that's you know, that's the headline. That's the theme, and we're really happy to see it starting to bear a lot of positive fruit. We have it now, and we see it continuing as we go forward. Just got done talking about the water platform. That's made stronger because of all the technology that's now working together to provide that analytical output. When we talk about data centers, there's a number of units that are here. We actually have to coordinate it at the HST segment level. We've always had it in life sciences. To be honest, that's kind of where the original source code came from. So it's something that we're really excited about. I'll let Sean tackle a little bit more of the productivity flow through. Sean Gillen: Yep. And just on that point on the cost piece, as I mentioned, last year you had about $60 million of savings related with cost actions. 40 of that are structural, right, that will just continue. Most of that was realized last year. You might have a little bit of bleed over into this year, some incremental benefits. And then the other $20 million was kind of more temporary in nature based on the environment. Now the environment is pretty similar, so we're gonna keep most of that cost out, but expect some of that we'd allow to come back into the business as we invest particularly in these areas where we're seeing growth. Nathan Jones: But there aren't any incremental actions planned for 2026. Should request think about the guide. There's no kinda round two or anything like that on cost takeout. Sean Gillen: Okay. I guess just a quick one on course productivity that is part of the business. Nathan Jones: Got it. Then just a quick one on share repurchase. IDEX hasn't historically been a serial repurchaser that you did repurchase every quarter during 2025. Should we expect a continuation of that in 2026, and what's the plan for share repurchase 2026? And I'll leave it there. Thanks. Sean Gillen: Yeah. Yeah. Good question. And so I think you should expect a similar level of activity that you saw in the second half of last year, which is around $75 million per quarter, that stepped up, as you mentioned, last year. The first part of last year was around $50 million a quarter. Stepped it up to around 75 in Q3 and Q4. I think that's probably the right assumption. As you think about this next year. You know, be different based on M&A activity, but that'd be kind of the base amount I'd have you think about. Nathan Jones: Great. Thanks for taking the questions. Operator: Our next question comes from Rob Wertheimer at Melius Research. Rob Wertheimer: I had two, and I'll just do them both at once, if I may. Could you just share general thoughts around lithography drivers of that potential cycle? There's a lot going on obviously in various areas. And then secondly, may or may not wanna touch on this, but very strong pricing power in different aspects of data center build out. And do you have any thoughts on how your margin is trended, some of those orders flow into revenues? Thank you. Eric Ashleman: Sure. Well, on, you know, the lithography side, we have a you know, just to bracket it semi con business for IDEX is just a little under 10% overall. About half of that is consumable parts and things like filters and seals. And then kind of the other half is split between metrology. A lot of those are optics applications. And then the other half, so we're down to kind of small single digit. It's goes into this advanced lithography area that you're talking about. We only have so much exposure, and it tends to be at the very, very high end of the duty cycle. So as you know, we've been talking about it probably maybe disproportionately because one of our recent had some nice exposure here, and then we saw it you know, swing around quite aggressively because of some trade restrictions. Around that type of business. That's really kind of unchanged at this point. I think those boundaries are largely set. What has been more positively, here lately is, I think, just the general momentum around chip builds for either advanced AI some of the stuff related to memory for data center racks There's just a lot more activity and a lot more need for capital gear. So we have heard more positive comments. The only thing and some of those, you know, referencing order velocity and order capture, You know, these are high ticket items, and the lead times are very long. So for us, we have to kinda look at current inventories of components, where lead times might fall into build schedules, and things like that. Specifically around this part of the business. But we will generally be much happier with you know, positive momentum, positive headlines, and we've seen more for those for those reasons. You talked about pricing power specifically within data centers. I would argue with this is it doesn't really work differently for us than it does through much of the rest of IDEX. We, you know, we typically are entering with high critical items pretty low on the bill of materials. Know? So the work that we're doing here is not atypical for IDEX. And so the way that we think about pricing is material input come up and the recovery arguments that we make there. I wouldn't argue they're very different than they are anywhere else. Sure. The market is growing, and everything there is mission critical and delivering on those has to be know, has to be perfect. That's not different from all the business that we do on IDEX. So I think we have actually similar pricing dynamics. And as we have started to ramp up that business, the flow through on our business has been very good. Rob Wertheimer: Perfect. Thank you. Operator: And next, we'll move to Andrew Buscaglia with BNP Paribas. Andrew Buscaglia: Hey. Good morning, everyone. Eric Ashleman: Hi, Andrew. Andrew Buscaglia: Wanted to if you can parse out a couple of things within your segments. First off, with FMT, you know, I would think that this business would see strong accelerating orders in the event production recovery if that were to happen this year. Orders were okay this quarter, but my question is is is there anything that's changed or evolved within FMT that makes it that would make it act a little bit longer cycle over you know, its typical short cycle history. I just know, like, a lot of change in the last five years post-COVID. So wondering if you could comment on that. Eric Ashleman: Yeah. Nothing different within those markets. You know, these are franchises, some of which are over a 100 years old. The positions that we have with customers are you know, decades. And the work that we're doing, a lot of the business is like-for-like replacement. And that really hasn't changed. So if you just brought this down and started to think about it as a story, you know, today, we're seeing order rates that suggest if it's pumps in a factory that they're still running and they're running the same number of shifts and they still need the, you know, replacement, levels to be the same, if things were to vector up, would probably say that we're gonna put more maintenance on the shelf or we might expand you know, part back end of our plant, and we'd need more pumps. So that we're at we're we're kind of as we always have been, laid out there. Our fulfillment rates are the same. We're still know, have the same level of relationships, and, frankly, just share doesn't move around very fast in this market. So with acceleration, we would see really no different And what we should expect on our side in terms of both capture rates as well as really nice flow through on the incremental volume. Andrew Buscaglia: Yeah. Okay. And kind of a similar question with with an FM and HST. You know, I get sometimes I listen to the call. You get excited over portions of the business that seem to be doing well, data center, space and defense. Biopharma. And you do a little work on it, you realize you're kinda talking about percentage of sales or so or like that or in that ballpark. Maybe if you could bucket together these kinda higher growth areas between FMT and HST as a portion of those segments, could help? I don't know if you have an estimate then and how much we're about here when you kinda jumble it all together in each segment. Eric Ashleman: Well, I mean, you know, if we a lot of what we're referring to particularly on the growth and momentum side is in HST. And, you know, we were talking about this this morning. It is interesting that, you know, we made a mention here that the industrial and automotive side of HST is now 20%. And there were days long past where that was almost half of the segment. Our life sciences piece, you know, which is kinda life classic life sciences, analytical instrumentation, and pharma exposed markets, that's about a third. That, at one time, was a significant more significant piece of this as well. So the diversification of HST has come a long way. Over the last few years. And so if you think of kind of the markets that we've been talking about here, it's a significant percentage of HST We're talking about pneumatics with a lot of the data center explosion. Everything happening within the MS and MSS. I mean, that platform in Q4 was double-digit growth. And so we're just seeing nice broad diversification across these target advantage markets and you're seeing that kind of relative pie graph start to tilt in the right direction because of the capital that we've deployed there. And I think FMT is pretty similar profile than, you know, maybe the water growth has changed it to a slight degree, but that's long been kind of a broad industrial exposed area. Some discrete call outs in chemicals and agriculture, and we talked about some of the pressures we have there. Andrew Buscaglia: Yeah. Okay. Thank you. Operator: And that concludes our Q and A session. I will now turn the conference back over to Eric Ashleman for closing remarks. Eric Ashleman: Well, thanks very much, and I want to thank everybody for joining today as we close out the year and launch into 2026. I really think today, three headlines and takeaways. Number one, our growth platform strategy is working. And it's really powered by the cross-business collaboration and innovation that we talked about through the questions today. Our strongest growth is coming out of our growth platforms. We're really, really happy with the work that's happening there and the things that lay ahead for us. Number two, HST as a segment overall is doing very, very well. The teams are working phenomenally across the businesses and across the units. You know, on the growth side and feel good about the margin expansion and some of the things we're gonna drive there as well in a focused way in '26. Then we've touched on it a lot. I think our industrial businesses are really well set up. To capitalize on growth, you know, at the first sign of inflection. I'll just remind you that when that when it does move, we will see it. We'll see it early, and we'll jump on it quick. And then the incremental performance as we do that will be very good. As we're able to chase significant upside without really any change to the resource capital base of the company. So with those headlines in mind, I wish you all a great day, and thanks for your support and joining us today. Take care. Operator: And this concludes today's conference call. Thank you for your participation. You may now disconnect.
Operator: To all sites on hold, thank you for your continued patience. Your meeting will begin shortly. If you need assistance at any time throughout the call, please press 0 and a member of our team will be happy to help you. Good morning, and welcome to the Bio-Techne Earnings Conference Call for 2026. At this time, all participants have been placed in listen-only mode. The call will be open for questions following management's prepared remarks. During our Q&A session, please limit yourself to one question and one follow-up. I would now like to turn the call over to David Clair, Bio-Techne's Vice President, Investor Relations. Good morning, and thank you for joining us. David Clair: On the call with me this morning are Kim Kelderman, President and Chief Executive Officer, and James T. Hippel, Chief Financial Officer of Bio-Techne. Before we begin, let me briefly cover our Safe Harbor statement. Some of the comments made during this conference call may be considered forward-looking statements, including beliefs and expectations about the company's future results. The company's 10-Ks for fiscal year 2025 identify certain factors that could cause the company's actual results to differ materially from those projected in the forward-looking statements made during this call. The company does not undertake to update any forward-looking statements because of any new information or future events or developments. The 10-Ks, as well as the company's other SEC filings, are available on the company's website within its Investor Relations section. During the call, non-GAAP financial measures may be used to provide information pertinent to ongoing business performance. Tables reconciling these measures to the most comparable GAAP measures are available in the company's press release issued earlier this morning on the Investor Relations section of the Bio-Techne Corporation website at www.biotechne.com. Separately, in the coming weeks, we will be participating in the Cowen and Leerink Healthcare Conferences. We look forward to connecting with many of you at these upcoming events. I will now turn the call over to Kim. Thank you, Dave. And good morning, everyone. Welcome to Bio-Techne's second quarter earnings call of fiscal 2026. Kim Kelderman: Our second quarter performance was largely in line with our expectations. Continued strength from our large pharma customers was offset by a soft yet improving biotech end market and a soft but stable US academic end market. As anticipated, order timing impact from two of our largest cell therapy customers receiving FDA Fast Track designations also created a temporary headwind. Taken together, these factors resulted in flat organic revenue growth for the quarter. Overall, these end market dynamics combined with solid execution across the organization drove sequential year-over-year organic revenue growth improvement in most of our product categories. I would like to mention the following highlights. Our core reagents and assays, proteomic analysis instruments, and diagnostic kits all grew modestly more in Q2 than during Q1. Cell therapy, excluding our two largest FDA Fast Track customers, delivered strong sequential improvement in year-over-year growth. In our spatial biology franchise, we saw a meaningful acceleration in bookings for our automated Comet platform. In addition, we delivered our third consecutive quarter of growth in China, alongside notable strength across the rest of Asia. The team delivered these top-line results with a continued focus on our sector-leading profitability profile. Adjusted operating margins expanded, like in our first quarter, by approximately 100 basis points year-over-year to 31.1%. This performance reflects our disciplined approach to productivity and cost management while continuing to invest in the strategic growth verticals that will continue to shape Bio-Techne's future. These four strategically important growth verticals—cell therapy, proteomic analytical instrumentation, spatial biology, and precision diagnostic tools—now represent 47% of our total revenue, up from 32% in fiscal 2020, and with that, delivering an upper teens CAGR over the past five years. Notably, our core portfolio of reagents, assays, and diagnostic controls delivered a competitive mid-single-digit CAGR over the same period. Calendar 2026 is a milestone year as we celebrate Bio-Techne's fiftieth anniversary. Several events are planned to mark the occasion, including ringing the Nasdaq closing bell on February 25. Over the past five decades, we have built one of the most durable and differentiated portfolios in life science tools addressing high-growth, high-value applications aligned with global healthcare megatrends. We recently highlighted several of these high-value applications during our presentation at the JPMorgan Healthcare Conference. As a case in point, we often emphasize the essential role our GMP reagents and proteomic analysis instruments play in enabling cell therapy workflows. But these capabilities extend well beyond cell therapy as our tools support development and manufacturing across a broad range of advanced therapies. Our ProteinSimple franchise, for example, is an essential component in the development, manufacturing, and quality processes of monoclonal antibodies, antibody-drug conjugates, and other advanced biological treatments. Turning now to the performance of our end markets in the most recent quarter, beginning with the biopharma customers. Excluding cell therapy, the divergence between large pharma and emerging biotech persisted in Q2, although the gap narrowed. Revenue from our large pharma customers remained strong, increasing low double digits for the fourth consecutive quarter. In contrast, emerging biotech declined mid-single digits, reflecting continued pressures stemming from negative funding conditions during 2025. While growth from these smaller biotech customers remained challenging, we did see sequential improvement. As many of you know, biotech funding rebounded meaningfully in 2025, positioning this end market for improvement going forward. In academia, stabilization in the US continued with constructive developments on the federal funding front. Both the House and Senate appropriation bills include roughly a 1% NIH budget increase, maintaining indirect funding rates, and capping multiyear grants at fiscal 2025 levels. While these bills must still be reconciled, the proposals are far more supportive of academic research than originally feared. For Bio-Techne, a modest decline in our US academic business was partially offset by stable growth in Europe, resulting in a low single-digit decline for this end market overall. Shifting to performance by geography, the Americas declined high single digits. However, after adjusting for cell therapy order timing headwinds, revenue in the region grew low single digits. EMEA was flat against a strong double-digit comparison from the prior year as strength in diagnostics was offset by order timing dynamics. China grew mid-single digits, marking its third consecutive quarter of growth supported by R&D investments from CDMO, CRO, and biotech customers working on advanced therapies. This activity level is driving demand for reagents and proteomic analytical tools. Across the APAC region, we saw strong, broad-based performance with growth approaching 20%. We remain encouraged by the momentum in both China and APAC and believe that these regions are well-positioned for continued growth. Let's now turn to our segments, starting with the Protein Sciences segment, which declined 1% organically. As expected, Fast Track designation from the FDA for our two largest cell therapy customers reduced near-term GMP reagent demand, given that these customers had already secured the materials necessary to complete their clinical programs. Therefore, the revenue in our cell therapy business declined over 30%, including a 50% drop in the GMP reagents specifically. However, excluding the two customers that are progressing through priority review with the FDA, GMP reagents grew nearly 30%, which underscores the strength of our offering and improving end market demand. Sticking with cell therapy, I'd also like to give an update on Wilson Wolf. As a reminder, Wilson Wolf manufactures the market-leading G-Rex line of bioreactors used to efficiently and economically scale cell therapies. We currently own 20% of Wilson Wolf and will complete the full acquisition by the end of calendar year 2027 or sooner based upon achievement of certain milestones. Wilson Wolf's G-Rex bioreactor remains highly synergistic with our cell therapy offering. This single-use system requires media and GMP proteins to efficiently scale cell therapies and is fully compatible with our closed POPAC cytokine delivery solutions. Wilson Wolf performed exceptionally well, delivering 20% organic revenue growth in the quarter and upper teens growth on a trailing twelve-month basis. We also continue to advance our organoid initiatives during the quarter. Organoids, lab-grown 3D representations of human organs, depend heavily on cell culture matrices, small molecules, growth factors, and cytokines, all of which are longstanding strengths for Bio-Techne. The FDA's recent validation of organoid solutions as acceptable replacements for animal-based models further underscores the rising importance of these cell-based systems. To support this shift, we recently launched Culturex Synthetic Hydrogel, a fully defined synthetic matrix designed to reduce variability relative to traditional animal-based products and to align with the growing adoption of non-animal-derived models. Now let's discuss our proteomic analytical instruments collectively marketed under the ProteinSimple brand. The productivity and precision these platforms deliver across research, biopharma manufacturing, and QA/QC applications continue to resonate strongly with customers. Even in a challenging capital equipment environment, particularly among biotech and academic laboratories, instrument sales grew upper single digits in the quarter with strength across all three major platforms. We continue to advance innovation across our instrumentation portfolio, highlighted by the introduction of ultra-sensitive assays on our automated multiplexing immunoassay platform called Ella. These new assays enable fentogram-level detection of low-abundance biomarkers in blood, which represents a 2-5x improvement in sensitivity over legacy Ella assays. We launched the first application of this enhanced capability for research use only, supporting the detection of neurological biomarkers. Within our Simple Western franchise, demand for LEO, our next-generation high-throughput, automated western blot system, remains exceptionally strong. LEO exceeded our expectations once again, driven by continued robust adoption and an expanding order funnel. This past quarter, we further enhanced the platform by adding fluorescence detection, enabling multiplexing workflows and providing deeper insights into protein expression and pathway characterization. These enhancements meaningfully broaden LEO's utility in advanced proteomic applications and address significant needs in the biopharma end markets. Wrapping up Protein Sciences, our core reagent and assay portfolio, which includes more than 6,000 proteins and 400,000 antibody types, delivered low single-digit growth for the quarter. The portfolio's lot-to-lot consistency, high bioactivity, and broad catalog continue to differentiate this offering. Stabilization across US academia and biotech combined with ongoing strength in pharma supported overall performance in the quarter. Now let's turn to our Diagnostics and Spatial Biology segment, which delivered 3% organic growth. Within spatial biology, our RNAscope product suite generated low single-digit growth. RNAscope enables researchers to detect and visualize RNA sequences at single-cell resolution within intact tissue samples, offering best-in-class specificity and sensitivity. Customers are increasingly leveraging RNAscope and microRNAscope probes and assays to assess biodistribution and toxicity for nucleic acid-based therapeutics, including antisense oligonucleotides and small interfering RNA therapies. Adoption of RNAscope in our diagnostic settings, which we do through our platform partners, also continues to expand rapidly, with growth exceeding 20% for both the quarter and the first half of the fiscal year. Momentum also continued with our Comet instrument, which delivered nearly 40% growth in bookings, marking the second consecutive quarter of strong booking activity. Comet's fully automated multi-omic capabilities are increasingly valued by both academic and biopharma customers as a powerful tool for uncovering novel biological insights. Spatial biology remains the business within our portfolio with the highest academic concentration and a meaningful presence in biotech. Despite ongoing challenges across both of these end markets, we remain encouraged by the sustained momentum in this franchise. Lastly, our diagnostics business delivered high single-digit growth supported by balanced performance across both clinical controls and molecular diagnostic kits. Recent innovation within our molecular diagnostics portfolio is driving increased customer interest, evaluation, and adoption, particularly among oncology and carrier screening reference laboratories. This includes our ESL One exosome-based mutation kit, which is used to monitor resistance to breast cancer therapies, as well as our Amplidex Carrier Screening Plus kit, which interrogates 11 of the most common genes associated with elevated risk for genetic disorders. In summary, the Bio-Techne team continues to execute extremely well while navigating an end market environment that is stabilizing but still challenging. Our disciplined focus on productivity and cost management remains a key driver of our operating margin expansion. Operator: And although funding uncertainty has influenced Kim Kelderman: customer behavior in emerging biotech and US academia, recent strength in biotech funding activity and the favorable fiscal 2026 US appropriation bills position both these end markets for continued stabilization and gradual improvement. As we enter our fiftieth year as a company, I remain confident in the durable moats surrounding our core portfolio and in our competitive positions across our fast-growing verticals of cell therapy, proteomic analysis, spatial biology, and molecular diagnostics. With that, I'll turn the call over to Jim. Jim? James T. Hippel: Thanks, Kim. I'll begin with additional details on our Q2 financial performance, followed by thoughts on our forward outlook. Adjusted EPS for the quarter was $0.46, up 10% year-over-year, with foreign exchange having a favorable impact of $0.04. GAAP EPS came in at $0.24, up from $0.22 in the prior year period. Total revenue for Q2 was $295.9 million, flat year-over-year on both an organic and reported basis. Foreign currency exchange contributed a 2% tailwind, while businesses held for sale created a 2% headwind. Excluding the timing impact from our two largest cell therapy customers, who received FDA Fast Track designation, organic growth was 4% for the quarter. From a geographic lens, North America declined upper single digits as strength from large pharma was offset by order timing in cell therapy, continued funding pressure in biotech, and soft but sequential stabilization from our academic customers. In Europe, revenue was flat against a very strong prior year comparison, with low single-digit growth in academia offsetting a modest decline from biopharma in the region. We are encouraged by the third consecutive quarter of growth in China, where revenue increased mid-single digits. APAC, excluding China, increased almost 20% as the Asian geography continues to show signs of sustained momentum. By end market, biopharma declined mid-single digits overall. However, excluding our largest cell therapy customers, biopharma grew mid-single digits, driven by strong pharma demand but partially offset by emerging biotech softness. Academia declined low single digits, with low single-digit growth in Europe partially offsetting low single-digit declines in the US. Below the revenue line, adjusted gross margin was 68.5%, down from 70.5% last year. The decline was driven by unfavorable product and customer mix, which we expect to gradually improve as the calendar year progresses. Adjusted SG&A was 29.6% of revenue, down 240 basis points compared to 32% last year. R&D expense was 7.8% compared to 8.5% in the prior year. The operating leverage reflects the benefits of structural streamlining and disciplined expense management, partially offset by targeted investments in strategic growth initiatives. Adjusted operating margin reached 31.1%, up 100 basis points year-over-year. This improvement was fueled by the Exosome Diagnostics divestiture and productivity gains, partially offset by unfavorable product mix. Our better-than-expected margin reflects deliberate management of productivity and cost containment measures aimed at maximizing operating leverage in a dynamic environment. Below operating income, net interest expense was $1.1 million, up $500,000 year-over-year due to the expiration of interest rate hedges. Bank debt at quarter-end stood at $260 million, down $40 million sequentially. Other adjusted non-operating income was $1.9 million, up $3.2 million from the prior year, primarily due to non-recurring foreign exchange losses in the prior year related to overseas cash pooling arrangements. Our adjusted effective tax rate was 22.3%, up 80 basis points year-over-year driven by geographic mix. Turning to cash flow and capital deployment, we generated $82.4 million in operating cash flow, with $5.9 million in net capital expenditures. Also during Q2, we returned $12.5 million to shareholders via dividends and ended the quarter with 157 million average diluted shares outstanding, down 2% year-over-year. Our balance sheet remains strong with $172.9 million in cash and a total leverage ratio well below one times EBITDA. M&A remains a top priority for capital allocation. Now let's review our segment performance, beginning with Protein Sciences. Q2 reported sales were $215.1 million, an increase of 2% year-over-year. Organic revenue declined 1%, with a 3% benefit from foreign exchange. Excluding cell therapy timing impacts from our largest customers, organic growth was 4%. Growth was led by our proteomic analytical tools franchise, with notable strength from large pharma customers, as well as low single-digit growth within our core portfolio of research reagents and assays. There was also a large reagent order from an OEM commercial supply customer in Q2 that historically was placed in our fiscal Q3. The timing of this order added an additional 1% growth to Protein Sciences and the company overall. Protein Sciences' operating margin was 39.3%, down 190 basis points year-over-year, primarily due to unfavorable product mix, partially offset by ongoing profitability initiatives. In our Diagnostics and Spatial Biology segment, Q2 sales were $81.2 million, down 4% year-over-year. The divestiture of Exosome Diagnostics negatively impacted reported growth by 8%, while foreign exchange had a favorable impact of 1%, resulting in 3% organic growth for the segment. Diagnostics products grew upper single digits, while spatial biology was relatively flat. It's worth noting that this segment grew low double digits organically in the prior year, creating a challenging comparison. And as Kim already highlighted, our Comet instruments saw solid double-digit growth in bookings for the second consecutive quarter. Segment operating margin improved to 10.4%, up from 3.9% last year, driven by the Exosome Diagnostics divestiture and productivity initiatives, partially offset by unfavorable mix among our OEM customers. We expect continued margin expansion as our Comet spatial biology platform scales. In summary, the team delivered strong second-quarter execution in a stable market, with improved biotech funding as well as further progression towards more favorable NIH funding outcomes, giving us reasons to believe that customer sentiment should be gradually improving as we progress through the calendar year 2026. We remain excited about the FDA Fast Track designation awarded to our largest cell therapy customers. These designations accelerate clinical timelines but reduce near-term reagent demand. Following strong ordering in fiscal year 2025, these customers are now progressing through Phase III trials, resulting in a temporary pause in GMP reagent Kim Kelderman: purchases. James T. Hippel: We expect this headwind to moderate slightly in Q3, impacting growth by approximately 300 basis points year-over-year, before moderating further in our fourth quarter and then being completely out of our year-over-year comparison in fiscal 2027. Also, as I mentioned in my Protein Sciences commentary, Q2 benefited from the timing of a large commercial supply order from one of our OEM partners that was originally expected in Q3. This timing benefit in Q2 will now be a 100 basis points headwind to Q3. Taking these customer-specific headwinds into account, we anticipate overall Q3 organic growth to be consistent with Q2. However, excluding the customer-specific cell therapy and OEM headwinds, we expect underlying growth for the remainder of our business to be mid-single digits. This outlook tracks with the stabilization of our end markets and improving customer sentiment. You'll recall that in our fiscal Q1, our underlying organic growth excluding the largest cell therapy customers was 1%. In Q2, the underlying growth was 3%, and also backing out the favorable timing of the Protein Sciences OEM customer supply order. This near-term outlook also sets us nicely for continued improvement in Q4 and a great start to fiscal year 2027 as improved biotech funding translates into higher spending, resolution of US academic budgets is reached, our company-specific headwinds start to abate, and we begin to lap lower year-over-year comps. From a margin perspective, we remain focused on balancing growth investments with operational efficiency. We're pleased with the upside delivered in Q1 and Q2, and remain on track to achieve 100 basis points of operating margin expansion for the full fiscal year. This concludes my prepared remarks. I'll turn the call back over to the operator to open the line for questions. Kim Kelderman: Thank you. Operator: Once again, that is star one to ask a question. Our first question comes from Matthew Richard Larew with William Blair. Your line is open. Matthew Richard Larew: Hi, good morning and thanks for taking the question. So Jim, just following up on growth cadence. So 1% ex items in fiscal Q1, then 3%. Operator: And you're saying mid-single Matthew Richard Larew: in fiscal Q3, James T. Hippel: And I believe there's a 100 bps headwind in fiscal Q4. So if I'm reading this through, you're expecting sort of for the calendar year '26 ex these items mid-single-digit growth with improvement throughout the year. Is that the message? James T. Hippel: Make sure. Yeah. So, like, we haven't come off our low single-digit view for the full year. And that would require mid-single-digit growth in Q4 at least. Yes. Kim Kelderman: And I think, Matt, good morning. What you're trying to ask is if you take these two large customers from the GMP headwinds out, would that be the underlying growth? And I think that's in the ballpark. Matthew Richard Larew: Okay. Very good. And then just following up on gross margins, the year-over-year step down makes sense because of your two large customers. The quarter-over-quarter initially was less clear, but perhaps it's that large OEM order that shifted fiscal Q3 into fiscal Q2. So Jim, maybe just give a sense for why on a sequential basis, gross margins were down and how those should trend for the balance of the year. James T. Hippel: Yeah. I mean, unfortunately, it was really driven by an unfavorable mix on a number of fronts. Unfavorable mix in terms of our reagents versus our instruments. We talked about the strength in our ProteinSimple franchise. Great margins, but still less than our reagents. And we also had some margin pressures in our diagnostics and spatial segment there where we had, of course, spatial underperforming the diagnostic side that has higher margin pull-through, so you got mix issues there. But in addition, within the diagnostics orders, a lot of different OEM customers have different margin profiles, and it just so happened that we had a larger influx of lower margin customers this quarter. But we again expect the overall mix, both within protein factors as well as in diagnostics, to gradually improve as those mixes start to unwind more favorably in Q3 and Q4. Matthew Richard Larew: Okay. Thank you. We'll move next to Daniel Leonard with UBS. Your line is open. Daniel Leonard: Thank you very much. Maybe I'll take up that gross margin question. Jim, what's the driver of a more favorable unwind on gross margin? Presumably, you still expect ProteinSimple to be strong and in Spatial, it sounds like it ought to recover. Given the, you know, growth in bookings. James T. Hippel: Yeah. So with the overall meeting market gradually improving, and our core has been improving. The margins of our high margins of our reagents will start to flow through more. Again, the customer mix within diagnostics, we know we have visibility to what's flowing through there. We believe that will improve as well. So it truly is more of a mix scenario than anything else. And based on our current view and outlook and what we see ahead of us, we see that mix again, gradually improving in the back half of the year. Daniel Leonard: Okay. Thank you. And then a high-level question. Given the times we're in, I would be curious for your team's thoughts on AI's impact on demand for Bio-Techne, just given the number of times Patrick Donnelly: Pfizer mentioned yesterday, AI is a cost-saving and productivity enhancer in R&D. Kim Kelderman: I can give you a high-level view on that, Dan. Overall, we do believe that AI is a great enabler not only for our customers but also for us, obviously. Our customers will use AI to better understand and to better drive their programs forward. Highly likely AI will help them to be more specific in what kind of materials they want. And highly likely because of the capabilities, the molecules, and the ingredients that they will want to use are going to be more complex. And you know, we've worked for fifty years honing our capabilities in designing but also manufacturing. In a reproducible way these ingredients in very high-quality formats and we believe that these trends will therefore play into our cards, into the strengths that we have built as a company. And overall, are going to be a tailwind. Daniel Leonard: Appreciate that. Thanks, Kim. We'll move next to Puneet Souda with Leerink Partners. Your line is open. Puneet Souda: Yes. Hi, guys. Thanks for the questions here. Kim Kelderman: So, first one, I mean, I appreciate the meaningful step up that needs to happen in the fourth fiscal quarter here. In organic growth. I think you gave some underlying drivers to that. But just wondering if you could maybe point out a number that we should be thinking about exiting the year. And then on '27, I know it's just two quarters away for you. After the guide. I was wondering if you're willing to share any thoughts on potentially reaching high single-digit or is that visibility not clear yet just given all of the moving parts and the end market. Kim Kelderman: Yeah. Puneet, let me begin your first question with the underlying business trends, and I'll let Jim talk to what that means for the numbers. But if you look at our last couple of quarters, and I'll segment it in the way we usually do it, we have our core business, which is a little over half of the company. Where we can clearly see a recuperation increase of our run rate business. Right? You see the underlying business accelerating, and that bodes well for the activity levels in the markets overall. And if I then double click on the performance in our four growth verticals in cell therapy, obviously, two Fast Track designation accounts play a big role in that. But if you take those out, the business has been growing 30%. And that's in line with where we expect it to be even in tough markets. We have fantastic traction in organoids, which is a strong up-and-coming end market for us. The proteomic analysis obviously, business too. We're now sitting back in the mid-single digits. Accelerating spatial two times in the black where we are flattish, but back in the positive growth territory for the lesions. Sorry, for the reagents and instruments coming along because we have strong order bookings. Sprinkle on top of that the new product introductions where we have basically every month introduced a significant new feature for every business. And then you know, not that we're banking on it, but we've seen very positive trending in our end markets. China and APAC for the third time, China in positive growth. And accelerating. APAC is turning even stronger. And then as you know, tough markets in academic and biotech, but we've talked about some of the indicators why there are positive opportunities there when it comes to the overall end market health. So that is the underlying dynamic, and Jim can actually translate that in numbers. James T. Hippel: Yeah. So, Puneet, let's just start with, you know, the comps we're facing, from Q3 versus Q4. So we grew 6% of the company in Q3 of last year, and we grew 3% in Q4. That decrease in growth rate you know, from a comp perspective, a combination of from a headwind or tailwind perspective, a combination of lower headwinds from these two cell therapy customers we've talked about. But also, you know, easier comps within our both academic and small biotech starting in February. So there's a 3% tailwind sequentially just right there as a combination of those three things. Kim Kelderman: And then as Kim talked about in terms of the underlying momentum we're seeing in our whole entire rest of our business, as I mentioned in my comments, if you exclude these two customers and this one OEM timing that we had, our underlying growth was 1% in Q1, 3% in Q2. Our implied guidance would suggest a slight step up in Q3. And so you see this momentum building within our baseline business. And so we think that will continue to build as we exit the year in Q4 and that's on top of the, you know, the 3% tailwind we have from a comp perspective. So that's how we're thinking about exiting the year, which is obviously a very, you know, very strong momentum as we an underlying base business growth as the final headwinds from these customers go away at the start of our fiscal year '27. So not giving any fiscal year '27 guidance, obviously, at this point, but the momentum of business is very encouraging right now. Puneet Souda: Got it. That's helpful, Jim. And then on China, you pointed that out a couple of times throughout the call. What's clearly interesting here is you're growing ahead of the peers. Indeed consistently. So just could you dive a bit deeper into that? And what's driving this trend, the end market, the customers, what's different here? Versus for Bio-Techne versus some of the peers? Thank you. Kim Kelderman: Yeah. You're welcome. Yeah. China, it's the third quarter. We are in a positive territory, and the growth is accelerating. I think the China market is overall gaining momentum. They have approved their fifteenth five-year funding plan in which life science is, again, a high priority. And we've seen successes from local biotech companies having exits in the form of M&A or through licensing, and you can clearly see a peak of deals done in a with China Biotech. Overall activity in CDMO and CRO is also improving, and I think we're well-positioned to capitalize on that. And that's really have been driving our results. Operator: Got it. Okay. Thank you. Patrick Donnelly: We'll take our next question from Patrick Donnelly with Citigroup. Your line is open. Patrick Donnelly: Helpful rundown there kind of moving pieces as we head into year-end and next year. I just wanna kind of zone in on a few. It sounds like, again, the message here is mid-single-digit underlying growth if you back out the customers or at least that ballpark. For '26 And then as biotech improves and then these customers flip, you have something to build on as you get into '27. You talk about the biotech piece in particular? Again, still declining for you guys, but sounds like all the conversations are improving. Obviously, we see the funding numbers, which were quite strong in calendar 4Q. What are you hearing from that customer base? And what's the right way to think about the timing of that funding improvement showing up for you guys in terms of revenue? Is it kind of that six-month type lag that you've talked about before? What's the right way to think about the path forward on the biotech for you guys? Kim Kelderman: Patrick, thanks for the question. James T. Hippel: Sure. Kim Kelderman: Biotech has been a tough end market. Right? Obviously, the '25 funding was dismal. That resulted for us in a negative high single digits Q1 and a negative mid-single digits Q2, improving but still not very good. Now we are encouraged because we've really made sure that we are addressing the market with the right products and the right teams. We also make sure that we're launching new product introductions and continuously fit for that end market and we, of course, keep a close eye on the overall health of the end market. Primarily through the funding. And just mentioned that Q3 calendar Q3 funding stabilized, slightly increased, but funding in Q4 increased significantly. And we've also seen very healthy numbers for the first month of the new calendar year. Overall, M&A activity is an important indicator and has been trending positive in that market. Licensing has been positive and trending in the market. Lower interest rates are important to funding of that market and are doing well. And then you know, assuming that there will be access to capital, yes, you're right. Typically, the delay of the funding coming trickling through in life science tools is six months. There's quite some underutilized infrastructure in place. So you know, we are anticipating the bell curve to sit at six months to let's say two quarters plus minus one. And that goes from companies switching on or accelerating their programs and ordering a little bit earlier especially in the reagent side that can go relatively quickly. But then CapEx takes a little bit longer, and that will be the back end of that bell curve. And that's how we look at the dynamics. Patrick Donnelly: On the cell therapy piece, it sounds like, again, ex those customers are seeing pretty good growth. Can you help us size up? I think at our conference when we were chatting, we were talking about at the peak, those two customers were maybe as much as 40% of the GMP business. Again, you talked about the GMP business down 50%, so that makes sense. Are we to kind of expect this the GMP business normalizes as we get into one Q fiscal one Q twenty-seven for you guys? And then gets back to that you know, over 20% growth as a business, just want to make sure we're thinking about clearly the impact of these customers, when it can flip, and, again, what the right way to think about the sizing of that business is before the customers after and the right baseline. Thank you so much. Kim Kelderman: Yeah. Patrick, thanks for the question. We're excited that these two customers have their Fast Track designation, obviously an indication for the importance of the treatment, and we've talked about it extensively, so I'll keep that part short. Underlying 700 plus customers, 85 in clinical studies, and six in phase three. But overall in much more evenly sized customers, so it's not gonna be as lumpy as the two that we are now working through this specific air pocket we talked about. But yes, the air pocket was indeed a 200 basis headwind for Q1, 400 for this quarter, Q2. And then we're thinking of the impact to be 300 basis points and then somewhere around a 150 but anywhere between a hundred and two hundred for Q4 and then a total reset. So your conclusion is right that from there, we will go back to normalized growth, as I just mentioned in the pre the first question, underlying growth in that business was 30%. This last quarter, and that is actually a growth that we would expect from this business. But take into account that that is still under very constrained conditions if you look at academic and biotech markets. Daniel Leonard: So, overall, Kim Kelderman: we have a very positive view on the end market in particular. Knowing that our comparables will be flushed out, Q1 twenty twenty-seven, also knowing that the number of clinical studies have increased in a healthy pace, and knowing that the mix of clinical studies has tilted towards cell therapy-related treatments, that really plays into our strengths and reads much better on our portfolio. So overall, a very positive about this division going forward into the new fiscal year. Operator: We'll move next to Daniel Anthony Arias with Stifel. Your line is open. Daniel Anthony Arias: Good morning, guys. Thank you. Jim, I'm sorry, I just want to go back to the outlook one more time if I can. Is the picture that you're kind of sketching out for the end of the fiscal year, the mid-single-digit growth in 4Q, does that assume that both academic and biotech are growing at that point? Or is it what gets you there really just continued pharma strength and then normalized spending from these two GMP customers? James T. Hippel: Yeah. Because of the easier comps we can get there to largely without seeing much of a step up in those two customers. Daniel Anthony Arias: But, you know, but, again, I think any significant improvement in spending to those two partners could be upside. Okay. Daniel Anthony Arias: And then maybe on the spatial biology side, you have the academic exposure that obviously impacts the instrument side of the equation. But on consumables, how are you thinking about the pull-through rate for LUNIPOR this year? Is that something that you think can grow as an average? Kim Kelderman: Yes. Dan, thanks. Thanks for always keeping a keen eye out on the spatial side of business. I appreciate it. Daniel Anthony Arias: Yeah. Listen. It has indeed a larger proportion of revenue linked to the academic performance. Academic performance has stabilized, and what we're really pleased to see is that the mix of the grants has tilted from some research areas more to oncology and neurology, and a preferred tool for those research end markets is spatial. So you do see even though the market is on pressure, that our cons revenues have gone back into positive growth territory, which we are very happy to see in constrained markets. And therefore, this mix is really playing in our favor. Very similar story for biotech. And as you know, we are very happy with our competitive position of the Comet. Our fully automated multiomic instrument. We're really happy to see that our win-loss rates are very high right there where we won them. To be. And the pull-through now is about 45k per instrument per year. But we are working hard on getting the multiomic capabilities rolled out and customers trained on it. And that will drive pull-through for my reagents. And we're actively working on broadening our antibody portfolio for spatial analysis as well. And as you know, we have a broad portfolio of probes in the RNA detection side. Will now have a very broad capability and offering from the protein detection side and we're one of the few that offer true parallel multiomics, and therefore, we are aiming that over time, the pull-through per box under the agent side would be more in the 90k per box per year area. So, certainly, a pull-through play that will definitely help driving growth, but also drive margins. Daniel Anthony Arias: Okay. But do you think by the end of this calendar year, you're higher than that 45k? I mean, 90 you know, doubling the pull-through rate would be great. But, I mean, it's twenty twenty-six a year where it's up Kim Kelderman: We will certainly be able to see the start of that trend. But that's a multi-quarter or maybe even more than a year play that I just talked about. That's a true adoption of Multiomics in the space. The space is nascent, but we'll certainly continue to keep pushing forward to the ability and the capability that we will offer our customers. And there's certainly demand for it. So that's a longer-term play. But, yes, the trend will improve quarter by quarter. Daniel Anthony Arias: Yeah. Okay. Thanks, Kim. Operator: We'll move next to apologies. We'll move next to Steven McLaurin Etoch with Stephens Inc. Your line is open. Steven McLaurin Etoch: Hey, good morning and thank you for taking my questions. Maybe just given the FDA's focus on reducing animal models, like to just get an update on how interest has trended for your organoid offerings in can you just give us a sense for how much revenue that's generated from these product lines in the quarter? Yeah. Organoids obviously, is a very interesting trend that we picked up on early couple of years ago. It's a $1.4 billion market growing at mid-teens, and certainly something that we want to play in. Especially because of our broad portfolio of products that are very essential in growing cells and not different for organoids. It's about a $50 million run rate business right now. And yeah, we're definitely aligning our product portfolio or marketing materials and also our new product introductions in favor of that capability, because if you think at the end of it, it's not only the reduced use of animal models but also the organoid model as such gives you a much better result, much more related to an actual human result than an animal model would. So not only is the quality and the consistency of the data you generate from organoids better, it's also a more humane method of getting that data. So overall, a win-win, and that's also one of the reasons why we just launched our Cultrix Coltrex synthetic hydrogel, which is, you know, a gel that helps you grow organoids. And even that gel is now animal-free. And that makes consistency much easier of this medium. And it's also much better to analyze. There's less background noise in any of the analytical methods you would use in organoids. So overall, a very interesting fast-growing market that makes sense to have a strong adoption in the end markets. And then it's not only our cell therapy reagents that read on the opportunity. It's also spatial, the spatial capabilities to interrogate these the organoids. And then Maurice and Ella in our protein analysis business also are tools utilized in the analysis of organoids. So overall, a real boost for our Bio-Techne product portfolio. Steven McLaurin Etoch: Appreciate the color there. And then secondly, you've also, you know, consistently discussed M&A as a core capability. How are you thinking about valuations in the pipeline in front of you today? And are there any particular footholds you think an acquisition might slot you in a little bit better? Kim Kelderman: Yeah. M&A has been and will continue to be a core focus for us. We've been very, very busy, not been able to pull a deal off yet. But certainly very interested in deploying our capital that way. We don't really care if it's private or public. We are really looking at where is the best strategic fit. If you think about it, our core specifically around novel antibodies, we wouldn't mind at all adding to those capabilities. Cell therapy is obviously an area that we address really well, but we wouldn't mind broadening our portfolio. And then in the proteomic analysis, we're also keen on adding capabilities that would benefit the company and fit our strategic model. So overall, we are very interested. And in the meantime, as you know, we already have kicked off the Wilson Wolf acquisition. We own 20% of it currently, and we will finalize that acquisition at the latest a little bit less than eight quarters from now at the end of calendar twenty twenty-seven, and as you know, this is a business that fits really nicely with the Bio-Techne cell therapy business and has a fantastic synergy between our product lines. It grew 20% this last quarter. Has 70% plus EBITDA margins, so immediately accretive. So we're very excited that if nothing else, we will be working on that integration and completing that acquisition. We're very interested in doing something in between if possible. Steven McLaurin Etoch: Appreciate the color. We'll move next to Brandon Couillard with Wells Fargo. Your line is open. Brandon Couillard: Hi, thanks. Good morning. Jim, it looks like you're kind of outperforming on operating margin expansion in the first half of the year even though mix is kind of working against you. As you talked about? You're sticking with the 100 basis points for the full year. But you previously talked about maybe exiting up 200 bps year-over-year. So is there some reinvestment that's happening in the back half of the year that kind of brings you back to the original goal? And kind of unpack how you expect margins to bear or trend in the second half? Yes. So if you look at the second half so we have a bit of an anomaly in Q3. I mean, if you kind of look at from Q2 to Q4 sequentially last year, we went from roughly 30% operating margins, jumped to 30%, almost 35 operating margins, and then in Q4, we were back down to 32. There were some timing of expenses, as well as some mix, but mostly timing of expenses that occur between Q3 and Q4, which kind of caused that lopsidedness. Now how we're thinking about it is that from a sequential perspective, we'll see continued improvement in gross margin as that mix, negative mix starts to unwind. And we'll see sequential revenue growth, which we always do seasonality-wise, from Q3 to Q2 to Q2 to Q3, and usually even a little bit of a step up from Q3 to Q4 beyond that. So how we're thinking about it is that sequentially, the margin will continue to expand roughly half of that expansion will come from the gross margin improvement throughout the back half of the year. And the other half will come through the higher revenue so that we expect to have in the second half of the year. Brandon Couillard: How that plays out by quarter is Q3 will be a tougher comp on an operating margin perspective, but Q4 will be an easier comp. And when it's all said and done, James T. Hippel: think it will be 100 basis points of improvement. For the second half. Brandon Couillard: Okay. And then just a question on operating cash flow down pretty meaningfully. In the first half. I mean you typically do just under half of the full year operating cash flow in the first half. So is there something going on in terms of a timing dynamic that you'd like to call out? And where do you see cash flow shaping out for the full year right now? Yeah. And I may we may have mentioned the last earnings call, but I'll mention it again. So first of Q2 cash flow was very strong. It was on par with last year. As you'd expect, with our revenue being on par. It was really a Q1 issue, and it was really two main drivers. The first one being the amount and timing of our bonus accrual payouts. For incentive compensation purposes. James T. Hippel: If you go back a year ago, Q1, we had you know, a very low payout in our bonuses. And in the fiscal year '25, we had a more normal payout. So that it that turned out to be a much larger cash outflow and bonuses from a year-over-year comp perspective in our first quarter. We also had some timing of tax payments that impacted Q1. And that timing of tax payments will gradually unwind throughout this fiscal year. Some of it already did in Q2. Brandon Couillard: But, the more permanent timing difference for the year will be that Q1 payment of incentive cash bonuses to employees. James T. Hippel: Thanks. Thank you. Operator: At this time, we've reached our allotted time for questions. I'll now turn the call back over to Kim Kelderman for any additional or closing remarks. Kim Kelderman: Thank you everyone for joining today's call. I want to acknowledge the team's outstanding execution amid a complex and continually evolving market environment. The new momentum in biotech funding, progress around the US economic budgets, and strong engagement with our large pharma customers all reinforce our confidence in the ongoing recovery of our end markets. As we enter our fiftieth year, we do so with a portfolio that is more durable, more differentiated, and more strategically aligned with the future of science and medicine than at any point in our history. The strength of our durable core portfolio combined with our continued investments across cell therapy, proteomic analytical instruments, spatial biology, and precision diagnostic tools positioned Bio-Techne exceptionally well for the opportunities ahead. Thank you again for your interest in Bio-Techne, and we look forward to updating you on our progress next quarter. Operator: Thank you. This brings us to the end of today's meeting. We appreciate your time and participation. You may now disconnect.