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Operator: Good day, ladies and gentlemen, and welcome to TomTom's Fourth Quarter and Full Year 2025 Results Conference Call. [Operator Instructions] Please note that this conference is being recorded. I would now like to turn over to your host for today's conference, Claudia Janssen from Investor Relations. You may begin. Claudia Janssen: Thank you. Good afternoon, everyone, and welcome to our conference call. In today's call, we will discuss the fourth quarter and full year 2025 operational highlights and financial results with CEO, Harold Goddijn; and CFO, Taco Titulaer. Harold will begin with an update on strategic developments. Taco will then provide further insight into our financial results, our Automotive backlog and our outlook. After their prepared remarks, we will open the line for your questions. As always, please note that safe harbor applies. And with that, Harold, let me hand it over to you. Harold Goddijn: Yes. Thank you very much, Claudia, and good morning, good afternoon, everybody. 2025 was an important year for TomTom as our product strategy clearly matured and we gained commercial traction. We introduced several new products with our Lane Model Maps standing out as a major milestone. Orbis Lane Model Maps provide lane-level intelligence, including geometry and lane markings, but at a true urban scale. And by leveraging our AI-powered map factory, we can now produce lane accurate maps with exceptional efficiency and freshness, and this has been proven to be a differentiating capability. A strong validation is that we secured a record amount of new business, and that includes a collaboration with CARIAD where TomTom Orbis Lane Model Maps were selected as a core component of the automated driving system supporting the Volkswagen Group brands. In Enterprise, Orbis Maps broadened and diversified our customer base. In the beginning of 2025, we announced a new cooperation with Esri, through which we provide maps, traffic data to support businesses and governments with location intelligence, addressing various use cases from maintaining critical infrastructure to analyzing traffic flows. And more recently, we deepened our global partnership with Uber, expanding our collaboration to enhance on-demand travel experiences worldwide. Looking ahead to 2026, I'm confident that continued advancements in our product portfolio will further strengthen our commercial traction across both our Automotive and Enterprise business, supporting top line growth over time. We will continue to expand and enhance our product offering, and we will make it easier for developers and for businesses to access our data, which will support future growth. We see meaningful commercial opportunities emerging in automated driving and infotainment as well as in high potential verticals such as insurtech and state and local government. Thank you very much. This is my part of the presentation. I'm handing over to Taco. Taco Titulaer: Thank you, Harold. I will cover our financial performance, the key trends we're seeing, an update on our Automotive backlog and our outlook. After which, we will take your questions. Automotive IFRS revenue for the fourth quarter amounted to EUR 77 million, down 3% year-on-year. Automotive operational revenue was 12% lower compared to Q4 last year. The Enterprise business delivered EUR 39 million, a 10% decline versus the same quarter last year. Approximately half of this decline is explained by a weaker U.S. dollar versus the euro year-on-year as around 3/4 of our Enterprise revenue are U.S. dollar-denominated. The remainder of the decline reflects a continued phase out of a large customer, partly offset by a broadening of our customer base over the course of the year. Gross margin was 89% in the fourth quarter, a 2 percentage point improvement compared with Q4 2024, mainly driven by a lower proportion of hardware in our revenue mix. Operating expenses were EUR 110 million, a reduction of EUR 21 million compared with the same period last year, reflecting the combined effect of capitalizing development costs associated with our Lane Model Maps and disciplined cost management. For the full year 2025, we recorded group revenue of EUR 555 million, 3% lower than in 2024. Automotive IFRS revenue was EUR 323 million, down 2% from last year due to lower car volumes at some customers and the phaseout of certain car lines, partly balanced by new model starting production. Operational revenue in Automotive dropped 1%, staying largely stable versus 2024. Our Enterprise revenue for the year was EUR 159 million, 2% lower year-on-year. For the full year, the picture is similar as in the quarter, normalized for the currency fluctuations. Enterprise revenue showed a marginal increase compared with last year. For the full year, gross margin was 88%, an improvement compared with 2024. This continued shift away from consumer hardware structurally strengthened our gross margin from 85% in 2024 to 88% in 2025, and we expect it to move north of 90% in 2026. Operating expenses decreased to EUR 489 million, a EUR 19 million reduction, same as for the Q4 trend. This reduction was due to capitalization of our map investment, lower amortization charges and reduced personnel costs from the second half of 2025, partly offset by the reorganization charge booked in Q2 2025. Looking ahead, the quarterly OpEx run rate entering in 2026 will likely be a few minutes -- a few million euros higher than what we saw in Q4. But for the year as a whole, we expect the total operating expenses to remain below 2025 in 2026. Free cash flow, excluding the cost for the reorganization we announced halfway in the year, EUR 19 million. This was an inflow of EUR 32 million compared with EUR 4 million outflow last year. Having covered our results, let's move on to the Automotive backlog. Our Automotive backlog at the end of the year reached EUR 2.4 billion, a net increase of EUR 300 million compared with the end of 2024. Our Automotive backlog represents the expected IFRS revenue from all awarded deals. Accordingly, the backlog decreases as revenue is recognized and increases when new deals are won. Its value can also fluctuate when customers revise their vehicle production forecast and with ForEx revaluations. The increase in backlog this year was driven by a record level of new deals. Our book-to-bill ratio was well above 2 last year, partly offset by negative impact from ForEx revaluations, which has a more pronounced than usual effect on the backlog valuation. A large portion of the Automotive revenue we expect to report in 2026 and '27 is already covered by the backlog generated from prior year's order intake. The majority of the value from the 2025 order intake is expected to start being recognized from 2028 onwards. From a product perspective, we see Automotive RFQs increasingly gravitating towards Lane Model Maps, the maps that enable autonomous driving functionality and support a growing range of advanced safety features. The products accounted for approximately half of last year's order intake, and we expect this [ should ] continue to grow. OEMs are clearly increasing their product and engineering focus in this area as Lane Model Maps enable both improved vehicle performance and meaningful differentiation. Our strong positioning in this area reflects a decade of sustained investment in these capabilities, and we're now seeing those investments translate into tangible commercial results. An additional benefit is that securing Lane Model Maps deals opens the door to road model map awards for the navigation use cases, supporting further market share gains. Now let's move to the 2026 outlook. Looking ahead to 2026, our revenue will reflect the transition of some customers. However, this impact is temporary. 2026 group revenue is projected to be between EUR 495 million and EUR 555 million, with Location Technology contributing EUR 435 million to EUR 485 million. We expect our operating result to improve year-on-year, while free cash flow is expected to turn temporarily negative due to the sustained investment in our Lane Model Maps. Operating margin is expected to be around 3% of group revenue. A return to top line growth is foreseen in 2027. Higher revenues combined with disciplined cost control are set to drive a further step-up in operating margin as well. To conclude, let me summarize our prepared remarks. We closed 2025 with a strong strategic momentum, marked by a record Automotive order intake and an expansion into automated driving. Despite modest top line declines driven by market conditions and customer transitions, EBIT and cash generation improved meaningfully. With an expanded EUR 2.4 billion Automotive backlog, new product launches and strengthening commercial partnerships, TomTom enters 2026 well positioned for a return to growth in 2027. And with that, we are ready to take your questions. Please, operator, please start the Q&A session. Operator: [Operator Instructions] And our question come from the line from Marc Hesselink from ING. Marc Hesselink: Yes. I have a couple of questions on the lane model. I think this is the new product versus the HD Maps that you previously had. But I think under the hood, a lot changed in the way you build your process, you build your map, how you can integrate with the client. Just if you can explain how this product currently looks like? And also how are your clients going to integrate it? And if you can also talk about what is your competitive position there? Is this now something that is really unique for TomTom that none of the competition has something like this? And if you then compare it, there's always sometimes still the debate between for this kind of functionality, do you need a map, yes or no? What's the status there also with things like the redundancy of the safety features? Harold Goddijn: Yes, Marc, thank you. Yes. So the lane model is fundamentally different from a road model map because it is a representation of the actual road and all the lines on that road and the dividers and whatnot. So you get a replica encoded of what is the road surface, what the road surface looks like. And the problem with building that map is that it's always been very expensive and not -- didn't scale very well. But with new advances in technology and new data that are becoming available, we can now produce those maps to a high degree of automation, not completely automated, but there's a high degree of automation is possible now. And that means that it's becoming economically viable to do this on all roads, not just the motorways. And it also means that you have a process for upgrading and change detection. So you can build maps that are fresher. All those capabilities are critical for self-driving and automated driving. We see that those maps are used in those systems as not only as backup, but also as a sensor. The challenge for self-driving technologies is to reduce the number of interventions of the driver of the vehicle and maps data play a very critical role in reaching that objective. Marc Hesselink: Yes. And the competition at this stage? Harold Goddijn: Well, so we don't have full visibility, but we believe that the method that we are deploying is novel, differentiating, leads to better results, scales better than what our competitors are capable of producing. Marc Hesselink: Okay. And if we look at the client side, you obviously have a big success with the CARIAD. But what about the discussions with other OEMs? Is this something that you -- I'm sorry. Harold Goddijn: Yes, go on, Marc. Marc Hesselink: Yes, I said -- and I wanted to add to -- do you speak to many other clients, including also the Chinese OEMs? Harold Goddijn: Yes. So the interest is coming from a broad range of car brands. People of carmakers want this. They can see the value of having that dataset available for the self-driving function, and that is broadly shared amongst all our customers and also potentially new customers. So we see a profound deep interest in understanding what's going on and how this technology can help them to make those cars and bring the level of automation to the next level. And next to that, we also see interest from software developers who are developing the self-driving software stack. There are a number of independent software developers who are doing this, but some based in -- mostly based in China. And they also show strong interest in understanding what this technology can bring and how it can help them to mature their own technology stack. Operator: [Operator Instructions]. Claudia Janssen: Let me -- if there's no -- I see -- if there's no further questions, let me give the opportunity to some of the analysts if they want to take the questions. If not -- no. If there's no additional questions, I want to thank you all for joining us today. And operator, you may now close the call. Unknown Executive: There is... Claudia Janssen: Oh, sorry. Andrew, sorry. Operator: I have a question that's come through now. So we are now going to take the next question from Andrew Hayman from Independent Minds. Andrew Hayman: Yes. Could you maybe give some guidance to how negative you think the free cash flow will be in 2026? Taco Titulaer: Yes. Thank you, Andrew. So 2 things I want to say about that. One is -- the second thing is to answer your question. But the first thing is that we introduced new guidance metrics in 2020. So we gave guidance on the top line and the bottom line. The top line was the group revenue and the Location Technology revenue. And the bottom line, we chose free cash flow because free cash flow at that time was the best tracker of our profitability. That had to do with the disparity -- the difference between operating and reported revenue in Automotive and the big delta between amortization and CapEx that we saw in the OpEx line resulting from the acquisition of Tele Atlas. Now both effects are kind of gone. So you also saw last year that reported revenue and operational revenue in Automotive is at parity. They're kind of almost the same. And also, we have -- we don't have any amortization left that's related to the Tele Atlas acquisition. So we want to normalize our guidance towards a revenue and an EBIT forecast. And that said, as we also have -- and then coming into your second or your primary question, the fact that Automotive is declining next year temporarily and we sustain our investment at the same level as we had last year, we will see free cash flow being negative in this year. How large it will be, I don't know exactly, but I expect it will be above EUR 10 million, but not much more than that. And then if our revenue, our top line is recovering in 2027, I expect that free cash flow will be positive again as of 2027 onwards. But an official guidance will follow in 12 months from now about that. So we'll continue to provide direction about free cash flow, but the primary guider or primary KPI for profitability will be EBIT. Andrew Hayman: Okay. And then in terms of the bookings that came in, how much of that is new customers? And how much is just more business from existing customers? And then maybe just tied in with that, how does the funnel of business look for 2026? Is there going to be -- is it a bit quieter after so much activity in 2025? Taco Titulaer: Well, yes, so if you look at order intake, you can make a 2x2 matrix. In the horizontal, you say existing customers and new customers. On the vertical, you say lane model or road model, where lane model is the automated driving and safety use cases and where road model is more for the driver itself to navigate from A to B. What I already mentioned in my prepared remarks is that what we've seen is that if you break down the order intake of last year that roughly half of that order intake is related to lane model. And that percentage will only grow further. So also for 2026, we think that the proportion of lane model RFQs and potential wins will be tilted towards lane and not so much road. Road models can be a tag-along deal. Increasingly, OEMs want to focus on securing the right quality and the right vendor of lane models. And also that gives us opportunities to also secure extra deals in road modeling. The majority -- yes, CARIAD is an existing customer, of course, because we already do software with them. So in that sense, the majority of the order intake was with existing customers. Harold Goddijn: But I want to add to [Audio Gap] first time that we deliver map data at scale to the VW Group. Taco Titulaer: Yes, that's different. But before it was navigation software and traffic, et cetera, but now it is also including map data. Andrew Hayman: Okay. And how does the funnel of potential sales look for this year? Because it looks like -- I mean... Harold Goddijn: There's a broad and deep book of opportunities out there, not dissimilar from 2025. So the activity is really -- is there from what we can see now. But what we also have seen in 2025 is that timing is very difficult to predict also because of ambiguity in product planning in all sorts of market conditions. But I think the way we look at it now, there is substantial opportunity available again in 2026 for further building of the backlog. And there are also opportunities available to us for extending and growing our market share. Operator: And the questions come from the line of Marc Hesselink from ING. Marc Hesselink: A follow-up. One on the Enterprise segment. I think in previous calls, we've discussed a lot about the momentum for the small clients being quite good. But then for the bigger, longer sales cycles, is that still ongoing? Are you still talking to these bigger potential clients? And would we expect something beyond '26 in the '27 period? Is that likely? Harold Goddijn: I don't think there's -- we don't anticipate a big shift in market opportunities in 2026. No extraordinary, but we think that the momentum we have to an extent in the long tail opportunities, that will continue throughout 2026. The composition -- yes, so there's a lot to go after in -- also in the Enterprise sector. Marc Hesselink: Okay. And -- but the big clients, they sort of stick to their own products or... Harold Goddijn: Well, we have a good market share with the big tech companies already. There are not that many of them, but our market share there and our representation with big tech is significant. So the growth and the expansion need to come from companies below that tier. There's a lot of them in the EUR 10 million kind of category. There are a lot of them in the -- between EUR 1 million and EUR 10 million category that are available to us to win. Marc Hesselink: Okay. Okay. That's clear. And then the second follow-up was on -- you mentioned also for next [ year, so '27 ] to be cautious on the cost side. And I just want to understand that a bit because I think that you say you're moving towards the more automated process. It's almost now already almost fully automated. Is that something that you can still take a bit of steps there to further automate it and at that stage, decrease the cost a bit? Harold Goddijn: Yes. Well, we -- so there's a number of things that we can achieve through -- on the cost side. I think the most important one is that our product portfolio is maturing and coming together. And we're more product-driven than in the past. And that means that we can do things more effectively, better at higher quality and we can leverage that software much better than we've ever been able to do in the past. We see also opportunities to further leverage the power of AI, especially in the engineering side. We're making some meaningful progress in that area. So the combination of a simpler product portfolio at a higher quality that is reaching completeness now after a long period of transition, those are all indicators that we can do things more faster at higher quality, but also with -- allow us also to keep a lid on the cost and not let that grow. There will be additional costs in maturing lane level product, as Taco already indicated. But all in all, I think we are in a good position not to let the cost and the OpEx run away from us, but rather contain it and manage it carefully without that giving strong limitation on our ability to get things done. Claudia Janssen: Okay. With that, I want to thank you all for joining us today. And operator, now you can really close the call. Thank you. Operator: Thank you. This concludes today's presentation. Thank you for participating. You may now disconnect.
Operator: Welcome to the fourth quarter investors conference call. Today's call is being recorded. Legal counsel requires us to advise that the discussion scheduled to take place today may contain forward-looking statements that involve known and unknown risks and uncertainties. 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 U.S. 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. D. Patterson: Thank you, Tanya. 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 will 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 modestly better 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 to 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 and 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 results 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 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 will have little impact to 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 Onsite 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 continues 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 verticals 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 has 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 5 months of sequential decline. As I set 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 in the last several weeks is flat to slightly down with 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 quarters. Let me now call on Jeremy to review our results in detail and provide a consolidated look forward. Jeremy Rakusin: Thank you, Scott, and good morning, everyone. 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 were 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 5%, 10%, and 15% top to bottom line annual growth profile reflects the exceptional efforts of our operating leaders across every brand. As they emphasized efficient job execution in the face of market challenges and drove margin improvement where possible. Turning now to a segmented walk-through of our 2 divisions. 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 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 prior year. As a result, our full year Brands margin remained in line with the prior year at 11%. Finally, 2 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 non-cash foreign exchange movements largely reversing the negative impacts we saw in 2024. Second, our annual interest costs were 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 U.S. 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 1.6x net debt to adjusted EBITDA, down from 2x at prior year-end. With cash on hand and undrawn capacity within our bank revolving credit facility aggregating to $970 million, we maintained significant liquidity to direct towards attractive investment opportunities as they emerge. Finally, in terms of 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. You can now open up the call to questions. Thank you very much. Operator: [Operator Instructions] Our first question will be coming from Frederic Bastien of Raymond James. Frederic Bastien: Scott and Jeremy. Just want to talk about M&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. 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, where it was 3, 6, 12 months ago? D. Patterson: We haven't seen it yet, Frederic. It's definitely a slower market than, say, 12 months ago, particularly in roofing, but really across the board. 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. I'm just thinking about it. Really, it's, we haven't seen it yet, I would say, Frederic. Frederic Bastien: 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 go back to the more long-dated franchises like California Closets. I know you bought like the 20 or so largest franchises in the early probably 10 years ago -- 5, 10 years ago, where do you stand on potentially consolidating the rest of the California Closets franchises? D. Patterson: Yes. I mean definitely, we want to own the major markets over time, particularly if they're underperforming. But it's -- that will be sort of one step at a time as those families are ready to sell. It's been a few years since we pulled in our 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, 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 1 or 2 of those a year as well. Otherwise, it would be tuck-under 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 there aren't a 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. Operator: And our next question will be coming from Stephen MacLeod of BMO Capital Markets. Stephen MacLeod: I just wanted to just focus in on the margins a little bit with respect to the outlook. Would it be fair to say that your margin outlook in kind of both segments is sort of flattish through the year? Presumably, it 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: Stephen, it's Jeremy. Correct. Full year, both divisions are roughly in line and hence, the consolidated margin in line. The first quarter, we expect residential margins to be roughly in line, again, consistent with the full year and 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. So Brands margin a little declining and then picking up in sequential quarters as we see a commensurate uptick in revenue growth. Stephen MacLeod: And then just with respect to Scott, you talked about just the recent freeze that we saw through North America and potentially an uptick in activity. I know early days, but is there any way to kind of quantify what that potentially could look like as the year progresses? D. Patterson: No. It's still very early in taking shape and some of the areas are impacted, they're still frozen. So there is an opportunity when the thaw starts, but very hard to quantify at this point. I mean we've attempted it for Q1 just based on some of the activity. As I said, we expect our revenues to be up modestly. Our backlog at year-end was down because we didn't have a carryover from Q4 storms, which was pointing to a soft Q1. We do think the activity will take us back to -- through prior year modestly. But mitigation work comes in, we respond and move on. And for the most part, the jobs are smaller at this point. And the unknown is the reconstruction. Will there be any? Will we get to work and how much revenue will it generate? So that will evolve in the coming weeks and months, but it's still too early to really give you any more than that. Stephen MacLeod: Yes, that's fair. I figured that would be the case. And would it be fair to assume that like in Q4, you had basically 0 revenues from named storms relative to $60 million last year. Is that right? D. Patterson: Yes. Stephen MacLeod: And then maybe just finally, just speaking of capital allocation, would you consider sort of being active on the buyback given where the stock is and given the NCIB you have outstanding? D. Patterson: That is not something that we've discussed. That would be a Board level discussion and it hasn't come up. Operator: And our next question will be coming from Stephen Sheldon of William Blair. Stephen Sheldon: First, just 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. So can you unpack some of the levers driving that? Is that still mainly being driven by some of the offshoring and AI leverage and I think you talked about accounting and call center operations. And has your thinking on the margin trajectory over the next few years changed at all? I mean, you already talked about kind of flattish for 2026. But is there an opportunity down the road you think you could potentially get the margin in residential into the double-digit range above 10%? Jeremy Rakusin: Yes, Stephen, Jeremy again. The progression, 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. So a lot of the -- you saw the margins start to taper towards the margin expansion start to taper towards the back end of the year, which is indicative that we've squeezed a lot of the low-hanging fruit. Team is always working on related initiatives 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%, yes, that's an opportunity over a multiyear time horizon for sure. And we'll continue to evaluate the team's progress in that and then call out the opportunities as we see them coming through. Stephen Sheldon: And then I wanted to ask about just the roofing side. And I guess from your view, I guess, the new construction piece, that's something that you can look at permits and starts and that's -- it's been very weak and not a lot of pickup that we're expecting here over the next year or 2. But I guess on the reroofing side, what could it take for that to pick up? I guess the question would really be how long can commercial properties wait and push out reroofing as I would assume that, that can only be delayed for so long before that owner or manager takes on bigger risk related to it with a bigger loss potential. So I guess, how long can reroofing really stay kind of depressed? D. Patterson: Yes, certainly, it can't be deferred for long, Stephen. And we do think the market has stabilized. Our backlog certainly has stabilized, and it's heavily weighted towards reroof as you would expect. Historically, we've been 2/3 reroof and 1/3 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 generally, we 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 will continue to invest in the platform this year and hopefully in further tuck-under acquisition. So we're feeling optimistic that we'll start to see quarter-over-quarter and year-over-year growth from here. Operator: And our next question will be coming from Erin Kyle of CIBC. Erin Kyle: I just want to stick on the Roofing Segment here. Maybe start with more of a macro question. I guess your views as it relates to the new construction cycle in the U.S. And the question is kind of on the basis of if new construction remains depressed here, as it's looking to be -- do you anticipate competition in like the reroof segment to intensify further than it's already been? Or I know you mentioned it's stabilizing, but just anything you can add to speak to just competition in that space would be helpful. D. Patterson: Yes. I mean the competition has intensified. Certainly, there are fewer opportunities and more companies bidding, and it has compressed gross margins. And so we don't expect that to alleviate in the near term until there is an uptick in the new construction market. And 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&A as well. And you mentioned it in response to your previous question. But for 2026, is roofing still a focus area for tuck-in M&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 larger M&A? D. Patterson: I think we're focused primarily on tuck-under right now and certainly roofing is an area where we're committed to. Again, I said we're picking our spots. We're very patient and it's about the leadership and the partnership. We're open-minded to larger acquisitions, certainly, and it would be an adjacency. And I'm not sure it 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 open-minded certainly, but also being cautious around valuation and in a market that's still, in our mind, overheated. Operator: And our next question will be coming from the line of Tim James of TD Cowen. Tim James: My first question, going back to M&A for a minute. I appreciate the comments on kind of the competitiveness in that market. Can you talk about if valuations do remain high, whether it's through '26 into '27. Does that change your approach at all? And what I'm thinking about rather simplistically is, do you change the risk profile of the businesses you buy? Or do you pay higher valuations. How do you approach it as multiples and as the competition for M&A remains relatively elevated? D. Patterson: We would approach it the same way we did this past year. As Jeremy said, we allocated over $100 million on tuck-under, but these are solid good add-ons with great leadership that fills white space for us or adds to our service line. And these are at valuations that we're comfortable with. And in most cases, we were able to differentiate ourselves from private equity. 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 forever owner. And so we're seeing more opportunities like that. And so I would -- we're not going to change our risk profile unless the returns change to hit our hurdle rates. We'll continue to work hard. And I would think that in 2026, it may well be a capital allocation year similar to '25, and we're comfortable with that. Tim James: And then is there any sort of silver lining here potentially in the roofing business with -- you talked about it being very competitive gross margin pressure. Are you seeing any silver lining in that, that maybe is kind of shaking out some businesses to look for a sale opportunity? Or is it too early to see that yet in the marketplace. D. Patterson: No, I think that's true. I think that's true. There are -- we're seeing opportunities that they're reluctant to transact because their revenue and EBITDA may be down from previous years, but it's -- the market is not going to change dramatically in '26, certainly. And so we are seeing opportunities where the seller comes to grips with a lower valuation based on results that are lower than the past few years. Operator: [Operator Instructions] Our next question will be coming from Daryl Young of Stifel. Daryl Young: Just wanted to circle back on margins for a second. I might have expected to see more margin expansion as opposed to 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 in some of your end markets and maybe giving away some price in order to keep the growth going. Is that the right way to think about it? Or is there something else going on that's keeping margins, call it, lower for longer? Jeremy Rakusin: Daryl, I assume you're talking more on the Brand segment? Daryl Young: Well, even within resi as well. Jeremy Rakusin: Okay. Well, I'll touch on Brands. Scott touched on it in Roofing. The competitive environment, a lot of our competitors that were accustomed to getting a lot of new construction work migrating to reroof and putting pressure on bidding and gross margin. So we're going to see roofing margins, notwithstanding the uptick in the top line through the year, a compression in margins in that business. And that will be offset in the Brands segment by 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 Brands. And then in residential, we don't get a lot of pricing in that business. It's a very high variable cost business. So growing revenues and EBITDA in lockstep is the typical path we happen to garner a lot of efficiencies in '25 in the areas that we've spoken about through the year, and we're starting to lap that now. Again, I mentioned it earlier, we'll continue to look at other opportunities for efficiencies, but I wouldn't be baking in a lot of that into the baseline model for 2026. Daryl Young: And then you touched on data centers in one of your remarks. Are these projects getting big enough and fast enough that you could potentially have a cross-sell or a go-to-market approach between, say, Century Fire and Roofing and maybe even restoration where you kind of create national account strategy across all of your divisions to tackle the data center build-out? D. Patterson: No, we're not approaching it that way, Daryl. Century has long-term relationships with a few large general contractors that are involved in new construction of warehouses and also engaged in data center construction. So Century is benefiting from the data center boom. But definitely picking their spots and being cautious about balancing this work in these customers with other day-to-day customers. And I don't see us tilting more to data centers than the current mix reflects. Roofing doesn't have the same relationships. And I think we're very cautious about really leaning in rather than focusing on durable, sustainable growth. We've seen a few of our competitors jump in, and it really consumes them and they've let down their day-to-day customers. So we're approaching it in a different way and only at Century Fire at this point. Operator: And this concludes today's program. Thank you for participating. You may now disconnect.
Bård Pedersen: Good morning to all, both here in the room in Oslo and to all our participants online. Welcome to the presentation of Equinor's Fourth Quarter and Full Year Results for 2025. My name is B�rd Glad Pedersen. I'm Head of Investor Relations in Equinor. To those of you who are in the room, I want to inform you that there are no emergency drills planned for today. So if there is an alarm, we will evacuate and follow instructions. Today, we will have a presentation first from our CEO, Anders Opedal, followed by a presentation from our CFO, Torgrim Reitan, before we start the Q&A. [Operator Instructions] So with that, I hand it to Anders for your presentation. Anders Opedal: And thank you all for joining here in the room, and thank you for participating on digital. So for Equinor, 2025 was a year of strong deliveries, but it was also a year of increased geopolitical tension and market uncertainty. Our job is to ensure we allocate our resources in a way that maintain a competitive business, creating value at all times. Today, Torgrim and I will show how we take the necessary measures to further strengthen our competitiveness, cash flow and robustness. This makes sure that we can navigate through and leverage market volatility and the current macro environment. So we have 3 key messages for you today. First, we are well positioned for maximizing long-term shareholder value. Today, we will share how clear strategic priorities guide capital allocation for 2026 and '27, and we will revert at our Capital Market Day in June to present our strategy towards 2030. Second, we take firm actions to strengthen free cash flow. We reduced our CapEx outlook with $4 billion and maintain strong cost discipline. This makes us more robust towards lower prices and ensure that we can maintain a solid balance sheet through the cycles. And third, we continue to develop an attractive portfolio, delivering oil and gas production growth. With this, we are prepared for volatility ahead. The energy transition is shifting gears in many markets with governments and companies changing priorities. Current oil prices are supported by geopolitical risk, but we are prepared for strong supply combined with moderate demand growth, putting pressure on the oil price in the near-term. For gas, the European market has seen cold weather and high draw on storage in late December and in January. Storage levels are now around 40%, significantly below average for the last 5 years and also lower than last year. We expect continued volatility ahead and more LNG coming into the market. In the U.S., low temperatures have driven up local demand and reduced exports of LNG. But before I progress any further, I will always start with safety. Despite fewer people being hurt and our safety numbers moving in the right direction, we still have serious incidents and need to improve. In September, our colleague was fatally injured during a lifting operation at Mongstad. A stark reminder that we cannot rest until everyone returns safely home from work every day. Our safety trend reflects years of good work from the people in our organization and our suppliers. Safety remains our first priority. Throughout 2025, we have delivered strong performance despite geopolitical uncertainty, high inflation in the supply chain and lower commodity prices. This results in all-time high record production, thanks to good operational performance and new fields on stream. We have matured a competitive project portfolio across the Norwegian continental shelf and internationally. With Johan Castberg on stream, we opened a new region in the Barents Sea. In Brazil, we started production from Bacalhau, the first pre-salt operator ship awarded to an international company. We continue high-grading our portfolio, and we maintained cost and capital discipline. All this has enabled us to deliver industry-leading return on average capital employed of 14.5% and $18 billion in cash flow from operations after tax. We have delivered $9 billion in capital distribution to our shareholders, as we said at the start of the year. Last year, we received 2 stop-work orders for Empire Wind. In our view, both are unlawful. The first one was lifted by the UN administration in May. The second stop-work order came just before Christmas. This cited national security reasons, already a central part of an extensive approval process where we have complied with all requirements. In January, we were granted a preliminary injunction allowing us to resume construction. There will be a continued legal process, and we remain in dialogue with U.S. authorities to resolve any issues. Despite the significant challenges caused by the stop-work orders, the project execution is according to plan. The project is now over 60% complete. We have successfully installed all monopiles, the offshore substation and almost 300 kilometers of subsea cables. The total CapEx for Empire Wind is now expected to be around $7.5 billion. Around $3 billion is remaining, and we, like other companies, remain exposed to uncertainty when it comes to possible future tariffs. The project qualifies for tax credits as decided by the U.S. Congress. The cash effect of these is expected to be around $2.5 billion. So far, we have drawn $2.7 billion from project financing. We expect to draw the remaining $400 million this year. For 2027 and '28 combined, we expect around $600 million in cash flow from operations. Combined with the ITC, this covers the remaining CapEx in the period. We have continued high-grading our portfolio. We announced the latest move earlier this week, divesting onshore assets in Argentina for a total consideration of $1.1 billion, unlocking capital for high value creation opportunities. The establishment of Adura was a major milestone last year. Our joint venture with Shell has created a leading operator on the U.K. continental shelf, fully self-funded, covering all Rosebank CapEx and well positioned for growth. The JV company expects to distribute more than 50% of cash flow from operation to its shareholders, starting from the first half of 2026. Based on Adura's plans, we expect total dividends of more than $1 billion for 2026 and '27 combined with growth from '26 to '27. This moves our U.K. portfolio from being cash negative due to CapEx to cash positive from dividends. These 2 transactions build on previous high-grading of the portfolio, divesting mature assets and invest more in long-term gas production onshore U.S. Through this, we have created a more future-proof international portfolio, focusing on prospective core areas, increasing free cash flow, strong production, lowering cost and a portfolio with low carbon intensity. Now on to our strategic priorities for 2026 and '27 and how they guide our capital allocation. The world is changing, but one thing remains firm. Energy demand continues to grow. We are well positioned to contribute to energy security, affordability and sustainability. So first, after more than 50 years of developing the Norwegian continental shelf, we are uniquely positioned for value creation here, and we continue to invest. The Norwegian continental shelf remain the backbone of the company. In 2026, the NCS will contribute to our production growth, and we work to maintain strong production well into the next decade. In the future, as you know, we expect to make more but smaller discoveries. To ensure commerciality, we will work with partners, suppliers, authorities and unions to change the way we operate on the Norwegian continental shelf. We will develop future discoveries faster, become more efficient and increase return while improving safety further. Next, we are set to deliver strong production and cash flow growth from our high-graded internationally -- international oil and gas portfolio. We are progressing project execution and exploration across key geographies, adding new volumes and opportunities for longevity in the portfolio. On power, we combine our renewable portfolio with flexible power to build an integrated power business and strengthen our competitiveness. We are value-driven in all we do and disciplined in execution and capital allocation. The main focus for '26 and '27 deliver safe operations and strong project execution of already sanctioned portfolio. All this, Norwegian oil and gas, international oil and gas, power are tied together by our marketing and trading capabilities, creating value uplift across our business. We are positioned to create value within low carbon solutions like carbon capture and storage, but markets are developing at a slower pace than anticipated. In addition to the execution of Northern Lights and Northern Endurance, we will continue to mature a few selected options and markets at low cost. We will be positioned to invest as markets develops, customers are in place and returns are robust. We grow our production to even higher levels in 2026 from a record high production level in 2025. For the year, we expect a production growth of around 3%. We are ramping up new fields, which more than offset divestment and natural decline. We are replenishing our portfolio and have 3-year average reserve replacement ratio of 100%. On the NCS, we made 14 commercial discoveries last year, mainly close to existing infrastructure, adding to longevity. And we continue to explore. We have added attractive acreage in Norway, Brazil and Angola, where we expect to drill around 30 exploration wells in 2026. We expect to reduce our unit production cost to $6 per barrel. We continue to focus on delivering a carbon-efficient portfolio with a CO2 upstream intensity of 6.3 kilo per barrel. We take firm actions to strengthen our cash flow and further increase resilience facing higher market uncertainty. In 2026, we expect around $16 billion in cash flow from operations after tax. This reflects a lower price outlook and is also impacted by the tax lag effect in Norway. A flat price assumptions is growing to around $18 billion in 2027. We have strengthened our investment program for 2026 and '27, reflecting market realities. We have reduced our CapEx outlook for these 2 years with around $4 billion, mainly within power and low carbon. This also influenced our net carbon intensity reduction for 2030 and 2035, no change to 5% to 15% and 15% to 30%, respectively. We maintain a stable investments of around $10 billion annually to oil and gas. Our CapEx guiding for 2026 is around $13 billion. This includes Empire Wind, where we, in 2027, expect to monetize investment tax credits for around $2 billion. With this, we indicate CapEx of $9 billion for 2027. In the current situation for the offshore wind industry, we are focusing on projects in execution and have a high bar for committing capital towards new offshore wind projects. This includes our ownership in �rsted. We will continue driving cost improvements, including the portfolio high-grading we have done. We aim for 10% OpEx reduction in 2026, even while growing production. We continue with strategic portfolio optimization to strengthen future cash flow. Proceeds from the divestment of Peregrino and onshore Argentina assets is expected to contribute more than $1.1 billion this year. The action we take to strengthen our cash flow and robustness support sustainable, competitive capital distribution. This is important to me and a priority for the Board of Directors. The starting point is the cash dividend. We have set an ambition to grow the quarterly cash dividend with $0.02 per share on an annual basis. We continue to deliver on this. It represents an industry-leading increase of more than 5%. We also continue to use share buybacks to deliver competitive total distribution. For 2026, we announced a share buyback program of $1.5 billion, including the state share. The first tranche of $375 million starts tomorrow. As previously communicated, we see true timing effects like the tax lag in Norway and the phasing of Empire Wind and lean on the balance sheet to deliver competitive capital distribution in 2026. In 2027, we have taken action to deliver stronger free cash flow. This is important to ensure that we can deliver competitive capital distribution in a long-term sustainable manner. So with our guiding in the background, I will give the floor to Torgrim that will take you through -- further through the details. And then I look forward to questions together with Torgrim when he is finished. So Torgrim, please. Torgrim Reitan: So thank you, Anders, and good morning and good afternoon, and thank you for joining us here today. So 2025 was a good year for Equinor. We delivered strong performance and record high production. But before we dive into the financial results, I want to expand on how we will manage through a period of volatility. So we are prepared for lower prices with a strong balance sheet, lower cost and CapEx and an attractive project portfolio. Our financial framework sets the boundary conditions for how capital allocation -- for our capital allocation and how we manage our company. So to start, our highest priority will be to deliver a robust and a growing cash dividend, in line with our dividend policy, and this reflects growth in our long-term underlying earnings. Then we will continue to invest in an attractive and high-graded investment portfolio with low breakevens and strong returns in line with the following priorities. First, our unique position on the Norwegian continental shelf gives us competitive advantages. And this is why we will continue to prioritize developing this area and allocating almost 60% of our investments to an area we know better than anyone. In '26, we have 16 projects in execution in Norway. Many of these are tie-ins to existing infrastructure with low cost and very low breakevens. Then we will allocate 30% of our capital to our international oil and gas business. This is mainly to sanctioned projects, and we expect to increase production to more than 900,000 barrels per day in 2030. And then around 10% of our capital will be allocated to building an integrated power business where the main focus is on delivering our offshore wind projects in execution safely, on time and on cost. Outside these 3 areas, we expect limited investments over the next 2 years. As you know, we will prioritize having a strong balance sheet and liquidity necessary at all times. And this is important to manage risk and to continue to deliver value. Over the next 2 years, we will see through the timing effects such as the NCS tax lag and the tax credit on Empire Wind impacting our cash flow from operations, and we will lean on the balance sheet. We will lean on the balance sheet in 2026 to cover CapEx and distribution. Next year, in 2027, cash flow from operation is stronger, and we have lowered CapEx, significantly improving the free cash flow. So we will manage the balance sheet through this period and continue to deliver competitive capital distribution, including share buybacks. For more than a decade, we have consistently delivered an industry-leading return on capital employed. And if you ask me, that is a premium KPI that we hold very high in our company. And with this financial framework, we expect to deliver around 13% over the next 2 years, now using a lower price deck than what we have used earlier as such. So that is comparable to what we have said earlier. We are used to managing volatility and deliver value through cycles. First, to manage cycles, we have to run with a strong balance sheet and a robust credit rating, and we have that. We have that. And having liquidity available is key. We have close to $20 billion for the time being. Second, a low cost base is important to ensure that we make money at low prices, and we continue to reduce our costs. We have a low unit production cost. And in 2026, we will further reduce it by around 10% to $6 per barrel. We are the lowest cost supplier of pipe gas to Europe with our all-in costs of less than $2 per MBtu, and we are sure that we will create significant value in any price scenario in Europe. Through strong cost performance and portfolio high-grading, we aim to reduce OpEx and SG&A by 10% in 2026. This corresponds to a flat underlying cost development, overcoming inflation while growing production. We are addressing costs in all parts of the organization. And I want to highlight that in 2025, we brought down OpEx and SG&A in renewables by 27%, mainly due to reductions in early phase costs. And then thirdly, it is key to have a competitive project portfolio that makes sense at lower prices. And we operate a majority of our projects, giving us the flexibility needed to adjust when we want to do that. Through portfolio flexibility and high-grading, we have reduced CapEx over the next 2 years by $4 billion, made divestments totaling more than $6 billion since 2024 and strengthened the quality of our portfolio. Our average breakeven is around $40, and we see an internal rate of return of 25% in the portfolio at $65 oil. We remain a leader on CO2 efficiency and an average payback of 2.5 years. So I will call this a robust, low-risk and high-value project portfolio that will create value also at low prices. In periods of volatility, our NCS position and our international portfolio complement each other. In Norway, we are more robust to lower prices, while internationally and particularly in the U.S., where we have strengthened our gas position, we have a large exposure to upside in prices. So Norway first. We have immediate deductions for CapEx against the special petroleum tax. And with full consolidation between fields and no asset ring-fencing, our pretax CapEx of around $6 billion translates into an after-tax investments of less than $1.5 billion. And when prices change, 78% of the effect on the revenue is absorbed by reduced taxes. So this makes the NCS less exposed to lower prices than other basins. So what happens if prices change? With a $10 move in oil prices, the cash flow is only impacted by $1.2 billion, and this is across the global portfolio and adjusted for tax lag. For European gas, a $2 change equals $800 million. What is particularly interesting is the U.S. gas, where the production is now 1/3 of our Norwegian gas position. But still, a $2 movement in gas price has a similar effect on cash flow after tax as in Norway. So let me elaborate more on the U.S. gas as that has become even more important to us. So in 2025, we delivered around $1 billion in cash flow from operations out of that asset. Production increased by 45% on back of well-timed acquisitions to around 300,000 barrels per day, capturing gas prices that were more than 50% higher than in 2024. We have a low unit production cost for U.S. gas around $1 per barrel, and we are well positioned to benefit from robust power load growth and increased demand in the Northeast. We are marketing our gas ourselves, and we are able to add value through trading, pipeline capacity and access to premium markets such as New York City and Toronto. So in January this year, gas prices in the Northeast reached very high levels driven by the winter storms, and we used our infrastructure and trading to capture quite a bit of value out of that volatility. Okay. So now to our fourth quarter and full year results. These slides sums up the key numbers you heard from Anders. Safety is our first priority. We see strong safety results, but we need to continue improving with force. Return on average capital employed in '25 was 14.5%. Cash flow from operations after tax came in at $18 billion, and earnings per share was strong at $0.81. For the year, we produced 2,137,000 barrels per day. This is record high and up 3.4% from last year, driven by ramp-up on Johan Castberg and Halten East on the NCS, U.S. onshore gas and new wells coming on stream. In the quarter, production was up 6% despite some operational issues in Norway and in Brazil. On the NCS, Johan Sverdrup had another strong year. For power, we produced 5.65 terawatt hours and renewables power generation was up by 25%. So then to financials. Adjusted operating income from E&P Norway totaled $5 billion, driven by increased production at lower prices. Depreciation was up compared to last year due to new fields on stream. Our E&P International results were impacted by portfolio changes and an underlift situation in the quarter. In the U.S., results were driven by significantly higher gas production, capturing higher prices. And in our MMP segment, results were driven by gas trading and optimization and a favorable price review result in January. So the result of this price review explains the difference from the MMP guidance. So this is a one-off. However, important enough, and the cash flow impact will be somewhat higher than the accounting effect, and it will come in 2026. On a group level, we had net impairments of $626 million and losses on sale of assets of $282 million. These do not impact adjusted numbers. A significant part of this relates to the Peregrino and the Adura transactions, and they are mainly driven by accounting treatment of these transactions, more of a technical nature. Adjusted OpEx and SG&A was up 7% compared to the same quarter last year and up 9% for the year. These are driven by transportation costs, insurance claims and currency. For the year, underlying OpEx and SG&A was up 1%. And if you adjust for currency headwinds, it was actually slightly down. For the year, our cash flow from operations came in at $18 billion after tax, in line with our guidance when we adjust for changes in prices. Organic CapEx for the year was $13.1 billion, also in line with what we said. Our net debt to capital employed ended at 17.8%. This increase from last quarter is mainly driven by NCS tax payments and �rsted rights issue participation and somewhat increasing working capital. So let me conclude with our guiding. For 2026, we expect $13 billion in organic CapEx and a 3% growth in oil and gas production. We have increased our quarterly cash dividend by more than 5% now at $0.39 per share and announced a share buyback of up to $1.5 billion for the year, starting with the first tranche tomorrow. So thank you very much for the attention. And now I will leave the word back to you, B�rd, for the Q&A session. So thanks. Bård Pedersen: Thank you, both Anders and Torgrim. We will now start the Q&A. [Operator Instructions] So then we'll start. And the first hand I saw was Teodor Sveen-Nilsen from Sparebank. Teodor Nilsen: Congrats on strong results. So 2 questions. First on CapEx. You obviously reduced the guidance for 2027. I just wonder how we should interpret the run rate into 2028. Should we also assume that 2028 CapEx will be well below the $13 billion you previously announced? Or is that too early to say anything about? And second question, that is on MMP. Could you just explain what's behind the price review that boosted the results? Anders Opedal: Thank you very much. So you can think about the price review, Torgrim, while I'm talking about the CapEx. Yes, you're right. We have reduced the CapEx. We have -- when we are looking into the CapEx profile over the last years, we have had consistency. You have seen that we have consistency investing into Norwegian oil and gas and in international oil and gas. And last year and this year, we are reducing the CapEx outlook for our renewables and low carbon solutions. And this is due to that 2, 3 years ago, we had a different market view than we have today. We don't expect that this market will change dramatically over the next years. We intend to continue focusing, investing consistently into our attractive oil and gas portfolio that Torgrim demonstrated and be market-driven and invest in low-carbon solution and power when the time is right, the profitability is right and the market comes. So I cannot give you the guiding for '28 already. But with this consistency investments in oil and gas and this change we have done in the CapEx for renewables and low carbon solutions and the market will probably not change very much over the next years, I think you will see somewhat consistency in our CapEx guiding going forward, and we will come back to more details about this in June. Torgrim Reitan: And thanks, Teodor. On the price review, that is a normal mechanism in many of the gas contracts where sort of if the price in the contract dislocates from what the market should have been and the price should have been, we have a mechanism to renegotiate or open up that. We often disagree with customers in processes like this. And often, we take such things into arbitration as we have done in this case. So that has gone on for a while, and we won in that arbitration. Over the year, we have accrued revenue related to that because we consider that we had a strong case. We had an even better outcome than what we accrued as such. So this will be a one-off payment during the year. And from now on, there is a new mechanism in place on that contract as such. Bård Pedersen: Sorry, Teodor, I need to stick to the 2 questions because we want to cover as many as possible. And the next one is on my list is John Olaisen, ABG Sundal Collier. John Olaisen: First question is regarding Johan Sverdrup... Bård Pedersen: John, please use the microphone so people can hear you online. John Olaisen: Okay. Sorry. It's John Olaisen from ABG. My first question is regarding Johan Sverdrup. Anders, you quoted in the media today saying that you expect it to decline by more than 10% this year. I wanted to elaborate a little bit more on that. How much more? And do we expect the same for the next few years? So that's my first question on Johan Sverdrup production profile. The second question is regarding M&A. You've sold a lot of assets internationally. So I wonder, do you still have assets on the sales list internationally? And also secondly, it's a long time since you bought assets internationally. Do you have -- are you looking at potential acquisitions internationally? Those are the 2 questions, Sverdrup and M&A. Anders Opedal: Thank you. First of all, when it comes to Sverdrup, I think we have demonstrated over many, many years how we've been able to keep up the production, even increase it due to the fantastic work that is done by the people working with Johan Sverdrup. Then a field like this is like all other fields, eventually, it will come into decline, and we see that now. So we see a decline in Johan Sverdrup for 2026, which is more than 10%, but well below 20% and that is what we put into our numbers. Still, we will have a growth in Equinor of 3% for 2026 and actually also a growth both on the Norwegian continental shelf and internationally. And of course, based on all the good work, drilling new wells, placing the wells better, retrofitting the wells, high production efficiency, have a high water cut and flow through the separators. The team is working to make sure that this decline is as low as possible. But above 10, well below 20 is what we see and kind of planning for in 2026. Well, we don't have a specific list of M&A sales candidates and targets that we disclose. But I think what you have seen, what we have done in the past, we have been active both in divestment where we think the timing is right to create value and where we see that future investment can be used better elsewhere that we have monetized those assets. And when we have seen opportunistic opportunities to invest, we have done it like twice in the U.S. gas in the Marcellus. You can expect us to be active going forward. And we have had a strategy of optimizing the international business, and we have optimized it now and set it clear for growth. And now is the focus to deliver on that growth finding more attractive exploration opportunities within those selected areas and at the same time, be open for value-accretive opportunities in the market. Bård Pedersen: Thank you. Next on my list is Henri Patricot from UBS. Henri Patricot: Two questions from me. The first one on the cash flow guidance for '26, '27, you do show this meaningful improvement in '27 to $18 billion. Could you give us a bit more of a breakdown behind this improvement? I think you mentioned Empire Wind starting up, some tax lag effect. What else is contributing to this sharp increase? And then secondly, I was wondering, there's uncertainty still around Empire Wind 1. What would be the impact to the financial framework you presented today if the project does not complete or implications for the broader CapEx and shareholder returns? Anders Opedal: So if you, Torgrim start with Empire Wind, then I can take on the CapEx reduction for '27 afterwards. Torgrim Reitan: Okay. So thanks, Henri. On the Empire Wind, clearly, we are steered by sort of forward-looking economics and forward-looking cash flows when we make up our mind. So from now on, the remainder of investments will be covered by the ITC and cash flow from operations over the next 2 years in a way. So the threshold for not moving forward with it is extremely high in a way. I mean the total economics of that project life cycle is something else. But clearly, the decision that we have to make is actually how it look going forward. And going forward, it's actually pretty solid. So the threshold for stopping it is very high. Our job is to deliver this on time and schedule. And I must say, I am extremely proud of what that project organization has been able to do through all of this volatility this year to keep it steady on the track. So we are on track to deliver, and we have no other plans than that. Anders Opedal: Yes. And then the cash flow from operation that is increasing from $16 billion to $18 billion towards '27. This is based on flat price assumption, $65 on the oil price and $9 and $3.5 for Europe and U.S., respectively. And the answer here is that this is the tax lag. We are this year paying a higher tax based on higher prices last year on the Norwegian continental shelf. And it's also a 3% production increase in 2026 that will also contribute to a higher cash flow. Bård Pedersen: Good. I have a long list also online. So let's take a few from there. The first one to raise his hand was Biraj Borkhataria from RBC. Biraj Borkhataria: Just the first one is a follow-up on Johan Sverdrup. You mentioned the decline for 2026. What is in your base case for 2027 and beyond? Because obviously, it's quite a big part of your portfolio. It'd be good to get some clarity there on the decline rates. And then the second question is just on the Empire Wind budget has obviously gone up a little bit. How should we think about how much contingency you have in that new $7.5 billion budget? Anders Opedal: Well, when it comes to -- we are guiding now on Johan Sverdrup for 2026. And to say what it will be in '27 is too early. As I said, we have a fantastic team there that will do everything they can to reduce this decline. We will drill new wells. And I also remind you that in the end of '27, we will have Johan Sverdrup Phase 3 coming on stream as well. We have ramp-up of other fields on the Norwegian continental shelf, meaning that despite this reduction in '26 decline in Johan Sverdrup, we will still have a production growth. And then we will see now how Johan Sverdrup behave during the first part of the decline and how we are mitigated and then we will come back to it. So it's too early to say. When the increases on the Empire Wind, it's very much related to 2 elements, is tariffs that has been imposed to the project and is also an effect of the first stop-work order that we had. The second stop-work order, we were able to execute part of the project, most of the project in the beginning of the stop-work order. And the most important parts of the progress, we were able to do after the preliminary injunction. So very little effect of the project. So it's the execution part of it -- it's going well in terms of CapEx -- use of CapEx in this project, but there is a remaining uncertainty on tariffs. You might remember a couple of weeks ago, a 10% tariff due to Greenland that was removed a little bit a few days later, and that is some of the uncertainty that we are facing with this project. Bård Pedersen: The next one on the list is Alastair Syme from Citi. Alastair Syme: Just one question really to Anders. I just wanted to reflect on the journey that Equinor has been on in recent years with respect to the transition because you are signaling today a further scaling back in ambitions with a lower CapEx and look, I know you're not alone in doing this in the industry. But if I go back a few years ago, you had outlined a competitive position where Equinor could be differentiated in the transition space. So I guess my question is, what are your reflections on this journey? And what do you think has happened that is different to what you anticipated several years ago? Anders Opedal: Thank you. It's a really good question. And I think kind of this is where we were saying today that we are signaling a consistency. We have over the last 5 years, been extremely consistent in our communication around oil and gas and how we will develop the oil and gas portfolio, optimize it, and we have delivered on that. But we also had a different market view on offshore wind and the transportation and storage of CO2 in particular. This is where we were -- had experience. We saw a market growing for transportation and storage of CO2 going faster than we actually have seen. We -- for instance, also for hydrogen, a couple of years ago, we actually had head of terms contracts with customers. Those has been canceled, meaning that we have not been able to progress a lot of these projects within that area. But keeping in mind, we were able to -- been able to do Northern Lights -- Northern Lights Phase 2, Northern Endurance. So we see now that the licensing for or support regimes and applications for capturing CO2 goes slower despite that the framework and the laws are much more in favor of CO2 now than it was before. So to summarize very quickly, we had a different market view some years ago based on real discussions with governments and potential customers than we have today. 3, 4 years ago, customers called us to buy natural gas and was also asking for potential hydrogen and transportation and storage of CO2. Today, they continue to buy natural gas, but they have postponed their own targets for reducing emissions beyond 2030. Some years ago when everyone had a 2030 target, much more focus from customers to have this market up and running very fast. Now with different targets beyond 2030 to collect enough CO2 to have long-term contracts we have found it very difficult. That's why we are allocating no more CapEx into that area due to the market conditions. So that is what had happened. And we have focused on business-to-business with hard-to-abate industry that has postponed the targets. Bård Pedersen: Next question is from Irene Himona from Bernstein. Irene Himona: My first question is one of clarification really. You referred to your objective to build an integrated power portfolio. Typically, when your peers refer to integrated power, they mean essentially adding gas-fired power generation to renewables. So I wanted to ask what does integrated power mean for you? And how does �rsted fit in that? My second question, just going back to the share buyback. Previously, in the past, you had guided to a long-term sustainable through-the-cycle share buyback of around about $2 billion. Today, you lowered that to $1.5 billion. I'm just trying to understand what has changed between then and now essentially. Anders Opedal: You can start with that, Torgrim, and I'll do the integrated power. Torgrim Reitan: Okay. Thanks, Irene. So well, we have said at earlier years, $1.2 billion as sort of the sustainable level in a way. So $1.5 billion is actually above that. We retired the $1.2 billion a bit back. To give a little bit more context, Irene, it's the concept of having a stable share buyback through a cycle, comes a little bit theoretical. We're just coming out of a super cycle, and we have returned $54 billion over the last 3 years based on that in a way. So where we are now, we are actually the first year where the balance sheet is normalized, and we aim to manage within our means. So the number that we put forward today is $1.5 billion. We are leaning on the balance sheet this year, but you have seen in 2027. So we want to sort of give you an outlook for -- over a couple of years here. So the way you should think about share buyback is that it is a natural part of the capital distribution. It is something that is regular and is on top of the cash dividend. And the cash dividend, you should see -- consider as bankable. Share buyback clearly will be more dependent on macro environment as we move forward. Anders Opedal: When it comes to integrated power, for us, that means both intermittent power like offshore wind, onshore wind, solar, in addition to flexible power, batteries and CCGTs. We do have exposure in all of this. We have gas to power in U.K. We have battery in Poland and onshore and offshore and solar. This was divided in different business area. Now everything is integrated into one business area power. And then we have Danske Commodities that are able to integrate this totality and add additional value to this. Having said that, the priority within Integrated Power over the next year is to deliver on the already sanctioned projects. And from that, we are able to potentially if we have the right investment opportunity to expand further on the integrated power. But of course, with our gas position in Europe and U.S., we are, of course, well positioned also for gas to power if we see the right opportunities in the future. �rsted and working together with �rsted and collaboration with �rsted, as we have said, fits into this type of integrated power. We can be exposed in offshore wind in different ways and working together with �rsted, collaborating with �rsted will fit into an integrated power in different types of potential structures. Bård Pedersen: Thank you, Irene, for that. I'll take one more on the phone and then return to the room here. The next one is Paul Redman from BNP Paribas. Paul Redman: My first question is just how do you think about growth at Equinor? The reason I asked that question is at the Capital Markets Day last year, you highlighted a flat to decline in production 2026 plus. And I'm assuming that included some Vaca Muerta production as well. You're heavily cutting the renewable portfolio spend. So just how do we think about growth going forward from here? And then secondly, when I look at MMP, I guess the long-term -- well, the annual guidance was $1.6 billion, $400 million a quarter. You generated about $1.25 billion to $1.3 billion for the quarter if I take out the long-term gas contract review from this quarter. Is there any reason the guidance isn't updated? And how should we think about MMP going forward? Anders Opedal: I'll start with the growth, and we divide it so you can take the MMP. Well, let's start with the renewables. We have said that we don't want to invest more than what we have already sanctioned, but that will create a growth. We had a 45% growth quarter-to-quarter on the renewable business this year, 25% on the annual -- in 2025. So still growth in Integrated Power over the next year. And then as I said, we will have to think how we can create further profitable and disciplined growth into that area. When it comes to the international business, we have repositioned that portfolio. And you can expect from today's level towards 2030, growing this production towards 900 million barrels a day. So it's clearly a growth in there, growth in production, growth in free cash flow. On the Norwegian continental shelf, we will continue to explore. We -- it will be difficult to create further growth in -- on the Norwegian continental shelf, but we have received attractive acreage. We will drill 26 exploration wells on the Norwegian continental shelf next year. We're working on reducing the time from exploration to production from 5 to 7 years to 2 to 3 years, enabling more efficiency to be able to keep the production at the highest possible level on the Norwegian continental shelf and growing free cash flow from that portfolio. And that is what we're aiming for, for Norwegian continental shelf internationally and integrated power. Torgrim Reitan: Thanks, Paul. On MMP. So if you strip away the price review, you get to around $400 million in the fourth quarter, which is very much around sort of what we guide at. So that's sort of -- that's what you should, in a way, expect on a quarterly basis. However, there will be fluctuations as you very well know. What typically drives results are volatility in commodity markets and also contango versus backwardation. I can give you one example actually from January, where there has been a lot of volatility in the gas market. And in Europe, we have a 70% day ahead exposure and a 30% month ahead exposure. So you can rest assure that sort of the spikes you have seen in January, it finds its way to our P&L in Europe. In the U.S., we don't have -- we don't sort of have a firm exposure that we want, but clearly, the traders keep a certain part open. So when going into January, in the U.S., our traders left 30% exposed to the prompt or cash prices as such. So at the most extreme, for instance, the in-basin price for Marcellus gas was $60 per MBtu, and we took that. And then we have a transportation capacity into New York, actually coming up at Penn Station. And we achieved more than $100 per MBtu in that weekend as such. So just examples of when you see volatility, you should expect us to be able to get it in a way. So that's why these results typically fluctuates. Bård Pedersen: Thank you, Paul. Vidar Lyngv�r from Danske Bank. Vidar Lyngvær: First, just another clarification on the renewable spending in 2027. You're reducing CapEx by $4 billion. I get the tax credit part. Could you add some more color on where the remaining cut comes from? Second, Johan Sverdrup, you mentioned the decline rates there. Are those exit to exit, so exit '25 to exit '26? Or is it average production decline in '26 versus average in '25? Torgrim Reitan: Johan Sverdrup exit to exit or -- let's come back to the specifics on that. But I do think it is when you compare sort of the last year production with next year production as such. And just -- yes, and team is nodding there. So that is the way it works, yes. Anders Opedal: Yes. Yes, a little bit more color to this. As I answered earlier, we had a different market view. So we had, for instance, potential hydrogen project, transportation of CCS project in the CapEx outlook that we showed last year, those projects are not materializing. In addition, we have reduced our onshore renewable CapEx as well. And in total, this adds up to those $4 billion and together also with the ITC as you have seen. Bård Pedersen: Good. Steffen Evjen from DNB Carnegie. Steffen Evjen: On the ITC, just could you please remind me on the milestones they are required for that payment to come in, in terms of first power and any other things that has to be fulfilled? My second question is just a clarification on Adura. I think you said $1 billion in dividends. Is that your share? Or is that the total share to both shareholders? Torgrim Reitan: It's our share and then the ITC. ITC, yes. So the way it works is that you can recognize it when you start production and sort of that is sort of scale as you continue to start up the various turbines. So what we have assumed is that we recognize all of this in 2027 because that's sort of the plan. There is an upside that there is some ITCs recognized in 2026. We haven't based our analysis on it. So that is sort of the recognition part. And then there is -- so what is the cash flow impact of it. And it will take some time from we recognize it to the cash flow is in our account. So what you see on the slide is that we have assumed $2 billion impact of the ITC in '27, while the total number, the absolute number is $2.5 billion. So that sort of give you a little bit of a perspective around this. It is a significant financial operations to manage all of this, as you would know, but there is a large and growing market for ITC in a well-functioning market in the U.S. for this. Bård Pedersen: Next one is Martijn Rats from Morgan Stanley. Martijn Rats: I've got 2, if I may. I wanted to ask you again about the CapEx reductions. I know there have been a few questions about it already. But when Equinor took the initial 10% stake in �rsted, very soon thereafter, we also had a reduction in the CapEx outlook for offshore wind, renewables in general. And in many ways, that had the character, therefore, when you put these 2 things together, it's like, well, we do less organically and we do more inorganically. It was sort of not a total reduction, but it had an element of we're swapping one type of spending for another type of spending. And I was wondering how we should interpret this reduction in CapEx on this occasion. If power and low carbon CapEx goes down, is that -- should we interpret that as well, the company is just going to do less of that stuff? Or should we anticipate that in the fullness of time, this also turns out to be a swap, less organic, but more inorganic. I was hoping you could say a few things about that. And then the other question I wanted to ask is about the 10% OpEx and SG&A reduction target. Like 10% in a single year is quite a significant amount and also because Ecuador has already been very focused on that for some time. I was positively surprised that there's still sort of that type of opportunity available. Could you talk a little bit about the key levers, where that spending can be reduced? And also just for the avoidance of 10%, how does that translate into absolute sort of absolute dollar amounts, that would be helpful? Anders Opedal: Let's start with that question first, and Torgrim. Torgrim Reitan: Okay. Thanks, Martijn. So on the 10% reduction. So over the last years, we have been able to maintain OpEx and SG&A flat even if we have grown our production and despite the inflation as such. So our people and organization has done a good job. Next year, we expect that number to come down by 10%. That is a very big number. However, it is a significant impact of divestment of Peregrino and the establishment of Adura that will be equity accounted as such. So the reported numbers will be down 10%. But when you adjust for structural changes, we expect to maintain OpEx and SG&A flat, growing by 3% and still inflation as such. So this comes from many sources. First of all, activity level. Clearly, we have taken down and prioritized that very hard. That has a direct impact on it. We have taken down early phase costs significantly in the portfolio, also a significant contributor. Staff are continue to high grade and take out efficiencies. And then the business areas are clearly working on this. So -- but on your question, is there more to come? And the answer is yes, we are never satisfied with where we are on this. And I can give you 2 examples of what to come. One is the work around NCS 2035. We do see a significant cost impact of that. So we hope to show more on that in June. The other one is actually artificial intelligence. So we have already see that in our numbers, NOK 1 billion or so, which is good. However, this is early days. And we do believe that with our large operations and our ability to take out effect across assets that AI can really be a significant contributor to further cost improvements. So we'll continue to fight and work this -- but the 10% is clearly colored by the inorganic moves we have done. Anders Opedal: Yes. So -- and thank you for that CapEx question, Martijn. And let me elaborate a little bit how I think around this because you probably see now that several times, we have taken down the renewables and low-carbon solution CapEx. And it's not necessarily because we have done any inorganic moves. It's also because we have not been successful in some of the bidding because we have raised the bar for winning future CFDs. And a couple of years ago, we had several projects inside our CapEx outlook that is now not inside the CapEx outlook due to deliberately not being successful in those auctions. So a more positive view some years ago, as we said during the �rsted acquisition of 10%, we found it more value creating at that point in time, do an inorganic move than do organic move. This -- we have further taken down the CapEx for offshore wind, but also on onshore renewables. A couple of years ago and last year, we had a much more positive market view and direct discussions with customers for CO2 highway and the hydrogen project in Eemshaven, which are now pushed further out in time. And actually, the hydrogen projects in Eemshaven is stopped before FEED, and we will not move forward. And in these areas, I don't think there are many inorganic moves to be done that will create value. So you should not expect us to work much on this. We will continue to work on being a leading company in terms of transportation and storage of CO2, building on Northern Lights 1, 2 and Endurance, but we will not make investments before we see -- we have long-term contracts, we have seen costs coming down and we see profitable projects. And that means that there needs to be a better market than we see today. Bård Pedersen: Thank you, Martijn. Next one is Nash Cui from Barclays. Naisheng Cui: Two questions, please. The first one is on your upstream reserve life. I wonder how do you think about a reasonable level of upstream reserve life in the medium to long run, please could better technologies like AI to help extend base? Then my second question is on �rsted. I think earlier, you mentioned that you could collaborate more with �rsted in kind of different types of potential structures. And I wonder if you could elaborate what you mean by the potential structures? Anders Opedal: Well, you have seen what we have done, just an example with Shell in U.K. There's always way to work together to create value for both shareholders. But there is no discussion at the moment, but we see that a further collaboration with �rsted could benefit both companies, but nothing new to elaborate today. When it comes to reserve life, I think this will also -- the ROP will be affected in the years to come that we have many more exploration wells, smaller discoveries and faster time from discoveries to production, meaning that the ROP will be lower than traditionally when we had the big elephants on the Norwegian continental shelf. At the same time, we are comfortable with our ROP where we see it today around 7 because we have so many exploration wells, we have discoveries. And last year, we had 14 discoveries, adding in total 125 million barrels in new resources. Lofn and Langemann, which is in Sleipner area is in an area where we thought there was nothing more to be found, but new technology, new seismic, use of AI has enabled us to make more discoveries. We have seen the same in the Ringvei Vest area. So we will continue to implement AI in exploration to ensure that we are able to discover new resources that was overseen in the past that we now can drill and bring to market in a quicker way. And by using AI, not only on exploration, but also in operations, and so on. We saved $130 million last year, and this is accelerating. So as Torgrim said earlier, we are really focusing on implementing AI to create value in the company. And this is something that you will hear more about in the future. Bård Pedersen: Next is Jason Gabelman from TD Cowen. Jason Gabelman: I wanted to first go back to the Empire Wind guidance. And I'm wondering if the $600 million of cash flow, is that what Equinor expects to receive? Or are there going to be some repayments on the project financing that are going to minimize that in the earlier years? And I wonder if you have a similar number for the Dogger projects. And then my follow-up is just on kind of broader exploration opportunities beyond what you've discussed. And we've seen companies kind of going back into regions where fiscal terms have improved like the Middle East and West Africa. I wonder if you look at those regions as potential opportunities for the company to exploit or given kind of the lack of footprint in those regions, is it not a core focus? Anders Opedal: Yes. I'll start with that question, and you can do the $600 million and the synergy effects there. So basically, what you have seen, what we have done in the international oil and gas portfolio is to focus it. We were in 30 to 40 countries, high cost, high exploration cost. And we have concluded that we were not successful with that strategy, adding too much cost and too little of progress in putting new resources into the inventory. So we have worked very hard to focus and building an attractive exploration portfolio in those focused areas like in Angola, in Brazil and in U.S. offshore. And of course, Bidenor East Canada, we're working on the Bidenor field, where this will also have attractive exploration opportunities around it, similar to what we see on Castberg and other new fields. Then, of course, we will, of course, always be open for ideas and value-adding exploration activity outside this core, but the bar is high. We will not have a global exploration strategy moving around in all parts of the world. We have areas where we see now we have learned the basin. We have experience, and we think we can expand quite a lot on that one. Brazil, for one instance, by Bacalhau, the Raya, we have an attractive exploration opportunities there now, the neighbor block to the Bumerangue discoveries for BP. We have a block close to Raya, and we're maturing up to see what kind of exploration program we can have in that area. And next -- and in this year, we will actually also drill exploration wells in Angola. So we are curious about other areas, but we'll have most of our focus in the focused area. Torgrim Reitan: And then Jason, on the $600 million in cash flow related to Empire Wind, that is related to our equity as such. There's no sort of money of that, that goes to the lenders. A couple of things. There is a portfolio effect in addition to the cash flow within the project. And that is related to that the depreciation that we have in Empire Wind goes into the IFRS results and the minimum tax in the U.S. is based on IFRS results. So it sort of reduces the minimum tax payments in the states as such. So there's a portfolio effect coming on top of the direct cash flow in the project as such. Bård Pedersen: Just to clarify in the CFFO, the interest payment is included, but not the payment to the lenders, as you said. Thank you, Jason. Kim Fustier from HSBC is next on my list. Kim Fustier: I had a couple on the NCS, please. Firstly, I believe that back in November, you announced a reorganization of your NCS business along centralized functional lines like subsea drilling, et cetera. Could you give a bit more color on this? And how does that move help to set you up for a future on the NCS with fewer big developments, but more small developments? And then secondly, could you give an update on a couple of pre-FID projects, Wisting and then Bay du Nord in Canada, where there seems to have been some technical progress lately? Anders Opedal: Yes. Thank you. So the Norwegian continental shelf is changing. With after Johan Sverdrup and Bacalhau, we have, as I said, much more smaller discoveries, smaller fields. Most of the developments will be now subsea tie-in projects. We actually have 75 of those in our portfolio over the next 10 years. So it's about making sure that we're able to execute on these projects faster. We are going -- that we can drill more exploration well faster, and we can create more value. So then we have actually started with looking into how we work. how is our work processes, all the way from working together with partners, internal approval processes, field development processes for subsea tie-in and so on. We have looked at 70 work processes, how to -- for drilling to development and so on. We have simplified those work processes, and we have looked at them together such that all these processes are streamlined end to end. And just to say a change that I will do, instead of making 7, 8 individual decisions on these projects one by one, we will group the decision. And twice a year, I will make a lump decision of several projects, enabling faster decision-making processes and ensure that we're able to move this project faster. Based on changing the way we work, we are also reorganizing both the project organization, the drilling organization and the operation units on the Norwegian continental shelf, not offshore, but all the onshore function, enabling to work according to the new simplified work processes. So this is actually one of the largest changes we have done developing the Norwegian continental shelf since we established the StatoilHydro company and merged StatoilHydro back in 2007, 2008. So it's actually changing the way we work because the geology and the reserves on the Norwegian continental shelf changes. And what do we want to achieve? Well, we want to move time from discovery to production from 5 to 7 years to 2 to 3 years, and we need to increase the volumes that we are able to find during exploration, meaning that we need a 200 to 300 efficiency gains on the Norwegian continental shelf. When it comes to Wisting, this is far in the north in the Barents Sea, challenging projects. We're working hard to simplify it. We have made a lot of progress in that respect. We will work on concluding on the concept during first half of 2026 or in 2026 and then move towards hopefully a DG3 during 2027. But let me underline this. We are not schedule driven. This is a project where we have to make sure that this is the right project, right financial, right breakeven, NPV, and we have everything in place because this is a very, very challenging project. On the Bay du Nord, we are approaching also a concept selection at what we call Decision Gate 2. We have a good engagement with local authorities and the government of Canada to -- so we can work together. This is a very good project. We have worked well together with suppliers for a long time to take down the cost and the breakeven as much as possible. And if we are successful now over the next months, then we can bring it towards an investment decisions over the next -- over the next years. And both these projects, if we are successful, will contribute to high production beyond 2030. Bård Pedersen: Thank you, Kim. I have a few left on my list, and I want to cover as many as possible. So I ask that you limit yourself to one question to give as many as possible the opportunity. Next one is Chris Kuplent from Bank of America. Christopher Kuplent: I'll keep it to one question for Torgrim, and please forgive me for some quick mental math. But when you set your $1.5 billion buyback, are you effectively arguing over the course of '26 and '27, considering the lumps and bumps in your CFFO as well as CapEx, you're targeting to be free cash flow neutral after dividends and buybacks. Am I putting too many words in your mouth? Or is that a fair characterization of what you're trying to do over the next 2 years? Torgrim Reitan: Well, Chris, I think I need to be very precise here. So I mean, you're on to it. So clearly, you should look across those 2 years when you think about sort of our free cash flow generation that we have available to cash dividend and share buyback. We aim to run with a solid balance sheet. However, we are going to lean on the balance sheet in '26, well aware that next year is a larger free cash flow. So it makes sense to look across those 2 years. And we have done that when we have set the share buyback level for '26 as such, we have. Bård Pedersen: Thank you, Chris. Matt Lofting, JPMorgan. Matthew Lofting: Just one on Empire Wind and read-throughs from it. I mean it seems Equinor has done a good job keeping the project execution on track amid the past hold orders. But I just wonder how the company reflects on implications from this and having retained 100% equity stake through it for best assessing risk management and risk-adjusted returns, let's say, on future capital allocations. Are there learnings that are emerging from Empire Wind for optimal sizing, taking into account perhaps above as well as belowground factors? Anders Opedal: Thank you. That's a really good question. And yes, this is definitely something to reflect on. And we normally don't take 100% in any license, not on oil and gas and not in offshore wind. But due to a deal with BP, they took some and we took this. We derisked it somewhat with higher strike prices with a financing package. And then as you have seen, the political risk with the new administration was higher than anticipated. This is a trend we see now in several countries that energy investments are more and more politicalized and polarized. And we see it in Norway. We see it in U.K., we see it in U.S. And definitely, for us, this brings some reflections about what is the above-ground risk you can take. And for myself, I reflected quite a lot about to see bipartisan support for future projects. If there is a kind of a strong division for potential projects, then we need to think twice and really understand the political risk. And this is something new. It's not only in U.S. This is something new that we have seen lately in several countries. And kind of we need to adapt the learning, and we need to bring into future decision processes definitely. Very important question you raised there. And with the political changes we have seen, which were kind of outweighted all the other factors that was reducing the risk, we would have probably thought differently about Empire Wind in the past. Bård Pedersen: Thank you. We are on the hour, but let's take one more and hope is short and then we'll round it off, and that is you, James Carmichael from Berenberg. James Carmichael: Just one last quick one, I think. Just again on Empire Wind. I was just wondering if you could clarify your sort of best case estimate on the timing of the underlying court case and when we might be able to sort of put any uncertainty to be around sort of future hold orders, et cetera. Anders Opedal: Yes. This is a little bit early to say kind of because it's a judge in U.S. to decide that timing when this -- the merits of the case will come up for the court. There's been indication that will happen fairly quick with some couple of months, and that gives us opportunity to elaborate on the case in a good way. I just want to also remind you that all the 4 other operators we're doing exactly the same thing, challenging this in court and all of them were granted a preliminary injunction. We mean that this stop-work order was unlawful. And at least with so consistent preliminary injunction, I think also we have a strong case moving forward. But I'm an engineer and not a lawyer. So -- but yes, we are moving forward with a strong belief that we will have a good case in the court, strong case. Bård Pedersen: Thank you. I would like to thank you all for participating and for asking your questions. We didn't manage all the way through the list, but I want to be respectful for everybody's time. And as always, the Investor Relations team remain available for any follow-up questions during today or later in the week. Have a good afternoon, everybody, and thank you for joining.
Operator: Good afternoon, and welcome to the Artisan Partners Asset Management Business Update and Fourth Quarter 2025 Earnings Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Artisan Partners Asset Management. Please go ahead. Ryan Bruhn: Welcome to the Artisan Partners Asset Management Business Update and Earnings Call. Today's call will include remarks from Jason Gottlieb, CEO; and C.J. Daley, CFO. Following these remarks, we will open the line for questions. Our latest results and investor presentation are available on the Investor Relations section of our website. Before we begin today, I would like to remind you that comments made during today's call, including responses to questions, may include forward-looking statements. These are subject to known and unknown risks and uncertainties, including, but not limited to, the factors set forth in our earnings release and detailed in our SEC filings. These risks and uncertainties may cause actual results to differ materially from those disclosed in the statement, and we assume no obligation to update or revise any of these statements following the presentation. In addition, some of our remarks today will include references to non-GAAP financial measures. You can find reconciliations of these measures to the most comparable GAAP measures in the earnings release and supplemental materials, which can be found on our Investor Relations website. Also, please note that nothing on this call constitutes an offer or solicitation to purchase or sell an interest in any Artisan investment product or a recommendation for any investment service. I will now turn it over to Jason. Jason Gottlieb: Thank you, Ryan, and thank you for joining the call today. Since our founding in 1994, we have steadily expanded our capabilities across equities, credit and most recently, alternatives. We have done this while remaining true to a consistent business philosophy and approach, high value-added investing, a talent-driven business model and thoughtful growth, all in the pursuit of generating and compounding wealth for our clients over the long term. 2025, we generated significant absolute returns for our clients, delivered strong results for our shareholders and continue to expand our multi-asset class platform. Firm-wide asset-weighted investment returns exceeded 20% net of fees. Our investment strategies generated over $33 billion in returns for clients. Compared to 2024, we grew revenue by 8%, operating income and adjusted operating income by 9% and 12%, respectively, and assets under management by nearly 12%. Turning to Slide 3. Investment performance remains strong across our platform with 79% of our AUM outperforming benchmarks for the 3-year period, 74% for the 5-year period and 92% for the 10-year period gross of fees. Several strategies generated particularly strong results in 2025. In equities, six of our strategies generated over 500 basis points of outperformance net of fees, including U.S. Mid-Cap growth, Non-U.S. growth, Global Equity, Global Value, Select Equity and Sustainable Emerging Markets. The Global Equity, Global Value and Select Equity Strategies outperformed their benchmarks by 2,422, 1,188 and 1,175 basis points, respectively, net of fees. In credit, the emerging markets local opportunity strategy generated a calendar year return of over 24%, 527 basis points above its benchmark net of fees. In alternatives, credit opportunities returned nearly 8%, global unconstrained returned nearly 12% and Antero Peak returned over 20% each net of fees. Longer-term performance across our platform is compelling and broad based. All 12 Artisan strategies with track records over 10 years have outperformed their benchmark since inception net of fees. 14 of 17 strategies in equity, 4 of 4 credit strategies and 3 of 5 alternative strategies have outperformed their respective benchmarks since inception net of fees. Trailing 1-year performance has been weighed down by underperformance in two of our largest equity strategies, International Value and Global Opportunities, both of which have very strong long-term track record. Turning to Slide 4. We ended the year with $180 billion in assets under management, an all-time high at year-end, driven by over $33 billion of investment gains. Our credit platform performed well in 2025. AUM grew by 29% compared to 2024 to $17.9 billion. Net inflows totaled $2.8 billion and organic growth exceeded 20% for the third consecutive year. Our alternatives platform also experienced healthy growth with AUM growing 20% from 2024 to $4 billion. With strong organic growth in global unconstrained in particular. Our equity platform was impacted by higher-than-expected outflows of $15.6 billion. Outflows were primarily concentrated in global opportunities U.S. mid-cap growth and non-U.S. small-mid growth strategies, driven by challenging short-term performance, changing asset allocation preferences and profit taking on the back of strong long-term performance. Maintaining and growing AUM in public equities requires differentiated and compelling investment performance, asset allocation demand, the right vehicles and pricing and effective sales and client service. The bar is high, but we believe we can continue to maintain and grow our equity businesses. In addition, we continue to make meaningful progress towards expanding the breadth of our platforms towards credit and alternatives. Slide 5 provides an overview of our newest investment franchise, Grandview Property Partners. Grandview is a real estate private equity firm specializing in originating, developing, acquiring and managing middle market properties across the United States and joins Artisan as our 12th autonomous investment franchise. The Grandview team led by founding partners, Raj Menon, Dean Sotter, Eric Freeman and Jeff Usas has worked together for an average of 22 years. Since forming Grandview Partners in 2018, the team has delivered top quartile results and consistent DPI realization. Grandview's macro-driven investment approach focuses on growth markets supported by shifting demographic trends and regional supply-demand dynamics. Recent funds have emphasized industrial, residential and power land themes. Grandview has raised three discretionary closed-end drawdown funds and currently manages approximately $880 million in institutional assets across its flagship fund series and co-investment programs. The acquisition of Grandview advances our strategic expansion into alternative investments, establishes a foundation in private real estate and creates new pathways for growth. It also aligns with our long-standing business model, high value-added investing talent-driven and thoughtful growth. We believe we can leverage our institutional and intermediated wealth relationships to further expand and develop Grandview's business. Marketing the team's next fund will be high on the priority list in 2026. With Grandview's acquisition, we have broadened the ways in which we can partner with and onboard differentiated investment talent. We intend to leverage our enhanced transactional and operational capacity to add additional capabilities across our platform with a disciplined focus on allocating capital towards our highest conviction opportunities. I will now turn it over to C.J. to review our recent financial results. Charles Daley: Thanks, Jason. Our complete GAAP and adjusted results are presented in our earnings release. We are pleased with our financial results for the fourth quarter 2025. Assets under management as of December 31, 2025, were $180 billion, up 12% from year-end 2024. Revenues in the December quarter reached a new all-time high of $336 million, up 11% compared to the September quarter and up 13% compared to the prior year fourth quarter. The December 2025 quarter reflects approximately $29 million of performance fees from six different strategies. Strong relative investment performance in the fourth quarter across three performance fee eligible accounts drove performance fees above our third quarter projections. As of the end of 2025, approximately 3% of our AUM is subject to performance fee arrangements and the majority of those arrangements are annual fees with measurement dates at the end of December. Our weighted average fee rate for the fourth quarter was 74 basis points, which includes performance fee revenue. Our recurring management fee rate remained consistent with recent quarters. In the fourth quarter, the Artisan funds completed their annual income and capital gain distributions. Distribution is not reinvested in Artisan funds totaled $1.5 billion for the quarter and $2 billion for the full year. Representing an $800 million increase from 2024. This increase was driven primarily by strong absolute investment performance in our two largest equity mutual funds. Adjusted operating expenses for the quarter were up 4% compared with the third quarter 2025 and up 7% compared with the fourth quarter 2024, primarily from higher variable incentive compensation expense due to increased revenues. While total adjusted operating expenses increased, fixed compensation costs for the quarter declined modestly. Long-term incentive compensation expense was lower in the quarter due to the forfeiture of unvested long-term incentive awards associated with a small number of employee departures. Additionally, we benefited from the quarterly true-up of self-insurance liabilities, which reflected updated estimates. Adjusted operating income increased 23% compared to both the prior quarter and the same quarter last year. Adjusted operating margin for the quarter was 40.2%, an improvement of 400 basis points from the prior quarter. Adjusted net income per adjusted share was up 24% compared to last quarter and up 20% compared to the fourth quarter of 2024, largely consistent with operating income. Full year 2025 revenues were up 8% compared to 2024 on higher average AUM. Full year 2025 adjusted operating expenses increased 5% from 2024, primarily from higher incentive compensation on elevated revenues and the impact of the addition of the January 2025 long-term incentive award. Calculating our non-GAAP measures, nonoperating income includes only interest expense and interest income. As of December 31, we had $152 million of seed capital invested in emerging products. Those investments have produced solid returns. During the year, we realized $20 million of gains from seed investment redemptions in products that no longer require support from firm capital. Those gains, which are excluded from our non-GAAP earnings, provide capital to support dividends as well as future growth through reinvestment in new products, GP investment in private funds or acquisitions. Our balance sheet remains a source of strength. We ended the year with approximately $214 million of cash and a conservatively leveraged capital structure at approximately 0.4x leverage. Importantly, our $100 million revolver remains fully undrawn, providing additional liquidity and downside protection. As a result, we are in a position to return capital to shareholders on a consistent and predictable basis while maintaining the flexibility to invest in the business. Consistent with our dividend policy, the Board declared a quarterly dividend of $1.01 per share with respect to the December 2025 quarter, along with a $0.57 year-end special dividend. In total, dividends declared with respect to 2025 cash generation were $3.87 per share, representing a 98% payout ratio relative to adjusted earnings and an 11% increase versus dividends declared on 2024 cash generation. Year-end special dividend was 14% higher than the prior year, reflecting stronger earnings and cash generation. Based on our stock price on December 31, this equates to a dividend yield of 9.5%. Importantly, even after funding the quarterly and special dividends and our near-term growth initiatives, including Grandview, we retain approximately $80 million of excess capital to fund organic growth and explore potential M&A opportunities. Overall, our capital structure is intentionally designed to be durable through market cycles combining strong cash flows and liquidity, modest leverage and a variable cost model that generates attractive margins. Looking ahead to 2026. Our Board approved the 2026 Annual Long-Term Incentive Award of approximately $72 million, consisting of $51 million of cash-based franchise capital awards and $21 million of restricted stock awards. Consistent with our long-standing philosophy of retaining investment talent, the vast majority of the awards were awarded to our investment professionals. The result of the 2026 grant, we expect long-term incentive amortization expense to be approximately $85 million for 2026, excluding mark-to-market impacts. The acquisition of Grandview closed on January 2 is expected to have an immaterial impact on our 2026 earnings. We expect that the acquisition will be mildly accretive to earnings per share after the final closing of Grandview's next flagship closed-end drawdown fund. Including approximately $20 million of increased fixed expenses from the long-term incentive compensation grant and the addition of Grandview expenses, fixed expenses are expected to increase low single digits in 2026. Low single-digit increase primarily reflects merit-based salary increases and inflationary market data and technology costs. As a reminder, we estimate our fixed compensation and benefits expenses will be approximately $6 million higher in the first quarter of 2026 compared to the fourth quarter of 2025. In closing, we believe our long-standing investment-led culture, disciplined allocation of resources and capital and expanding multi-asset platform positions us well to continue to compound wealth for our clients and shareholders over the long term. I will now turn the call back to the operator. Operator: [Operator Instructions] The first question comes from Bill Katz with TD Cowen. William Katz: Okay. So maybe all things grand view to get started. There's probably a cluster of questions here, maybe accounts for my first question, so if you don't mind. One, the AUM was a fairly lower level than I think maybe many of us were anticipating. I appreciate the close earlier. Maybe you could sort of explain why that happened? And then secondly, as you mentioned in terms of the accretion guidance looking ahead, how do we think about maybe the timeline for the next flagship fund? And maybe what was the previous size of the fund as we can sort of try to lay that through our models. Charles Daley: Bill, I'll start. The AUM was down because in the fourth quarter, there were some realizations on some properties in the first fund, the Grandview Fund I, which is fully invested in the harvesting phase. So there were realized gains as well as distributions out to LPs, which is a good thing. Jason Gottlieb: And Bill, on your question regarding Fund III. Fund III was about $150 million in raised out and committed assets. They're almost through the investment period there. And so that's obviously a lower bar than what we're certainly expecting in Fund IV, which we're going to be actively pursuing, as I mentioned in our prepared commentary, this will very much be a goal of ours -- a top priority of the management teams as well as Grand Views to build out Fund IV, which we're effectively launching as we speak. And so we expect that to build throughout the course of the year. We hope to have a first close sometime in the early to mid part of the summer which will be a good indication as to how we're tracking. But we do expect it to be significantly higher than their last fund launch, which was Fund III. William Katz: Great. And then just sticking with -- I was encouraged by some of your comments in the press release and in your prepared commentary. I was just sort of leaning into the M&A opportunity. I was wondering if you could maybe expand on your commentary a little bit, just sort of where you're seeing the greatest receptivity? How is the portfolio potentially seasoning of maybe 3 months ago? And then just given just everything that's going on in the market, how are you sort of seeing like the bid-ask spread on expectations around purchase price? Jason Gottlieb: Yes. So maybe I'll just talk a little bit about the future pipeline. There's a couple of things that I would highlight. We're clearly not exclusively focused on M&A. We're really letting the talent drive the outcome here. And certainly, there's asset classes where we have a an emphasis in terms of where we're seeking opportunity. And I would continue to focus on the areas that you would expect private credit is one where we've been reasonably active both in the form of lift out and the potential for M&A. Private equity in the form of secondaries has been an area that we remain pretty active. We've seen some really interesting idiosyncratic opportunities within equity that has more recently come back. This is one in particular that we've been talking about 5 or 6 years ago, we were very excited about. There was a little bit of a hesitation, I think, more on their part just due to where they were in their career and what they wanted to achieve and get accomplished before they did something more entrepreneurial, but we're now engaged with them, and we're talking. And another one in particular that is interesting is just the potential to broaden out our credit platform, not necessarily just purely in private, but also on the public side as well as the hybrid side. I would go back to some of the comments I made around Grandview and most of their transactions are off market. And I think that what we saw with Grandview, which was an off-market transaction. I think that, that will continue to be a more fertile hunting ground for us. The transactions that are being shown and prominently shopped, are hard for us to really get excited about. Those tend to be more about dollars and cents as opposed to investments, and we really need to just stay true to who we are and focus on the investment side. But the other -- the last thing I would say about the pipeline, and it goes back to Grandview, we're excited about Grandview for all of the reasons we're excited about the prior 11 teams. And what's great about Grandview is they already are a fully functioning investment platform. It's not like we have to build something. The foundation has been laid. The team has been working together for 20-plus years. They have had great deal of investment success. And so it's really up to us to collectively work with them to build in some and layer in some growth. And so that's different from when you go into a lift out where you have to really drop all your pencils and really focus on everything that's required to make a team successful. And so while we're still going to be there and do that, I think there's less that's required of the middle of the firm, given that this is a team that's operating at a high level already. Operator: The next question comes from Alex Blostein with Goldman Sachs. Anthony Corbin: This is Anthony on for Alex. Maybe just one 2-part question on the international value strategy. So this has been kind of one of the top flowing strategies at APAM for a while now, yet we saw another quarter of elevated outflows despite what seems like an industry kind of rotation out of growth and into value. So what's driving this recent weakness? And how have you seen kind of client demand change recently? Jason Gottlieb: Yes. I don't -- Anthony, it's Jason. I wouldn't put too much emphasis on the elevation of the outflows. I think it's primarily due to the fact that David and the team have just continued to deliver really exceptional absolute returns even in the face of a challenging market for them. They continue to produce great absolute returns with a slight relative headwind. So we haven't seen anything notable or in particular that gives us pause or concern -- or certainly, David and the team. There's been some institutional reductions just largely due to the impact of the equities book of several of our clients just outperforming. And so we're getting a little bit of that rebalanced flow that you naturally expect. And we would expect some of that to continue to happen throughout the course of the first quarter in light of how strong markets were globally, especially ex U.S. So that's there's nothing that we're seeing in the trends or there's nothing underlying that we -- that gives us concern or something that suggests that there's an issue on the horizon. Operator: The next question comes from John Dunn with Evercore ISI. John Dunn: I wanted to maybe get an update on what you're seeing as far as interest in and demand for non-U.S. strategies just given what a contributor is to your AUM base? Charles Daley: Yes. John, yes, it's a good question. I'd say there's probably four -- there's really four areas that I think there's going to be some interesting opportunities for our platform. And I think they aligned directly to your question. So right now, I think our AUM is 70% ex U.S., plus or minus a few percent. And when you think about the big trends that we're seeing, number one, we think there's a reemergence of emerging markets allocations coming on the horizon. We spoke about something last quarter, which was we were aligning some sales efforts and some sales focus and running a campaign specifically in emerging markets. And while it was early days and it remains extremely early days, we're seeing some green shoots and some direct allocations coming out of that effort. I think we raised north of $1 billion in the 5-ish plus months that we enacted that campaign with -- we have four very distinct strategies that are able to capture that, and all four of them had over $100 million in net flows over that very short period of time. We fully expect that, that campaign will be in force throughout 2026 as we see the pipeline grow and build. And so we're very much excited about that area, in particular, you rightly point out the international markets. And I would expand that out to global as well. I think a lot of people don't want to give up the ghost on U.S. and the beauty of global clearly gives you the ability to toggle between U.S. and non-U.S. And we've had a great deal of success in our global franchises. So global value, as I've mentioned in my prepared comments, has just shot the lights out performance-wise our global equity team with Mark Yockey also had an outstanding year. They -- I think they produced a 47% return in their global equity strategy. And then underneath that, we also have some international capabilities that we're excited about. Mark Yockey, again, produced a really outstanding return in 2025, which is on the heels of outstanding returns in prior years as well. And so his record is really compelling. We're starting to see some real activity in that strategy as well. And so we think the engagement in international will remain elevated, and we expect that several of our strategies will be aligned to at least have conversations with the clients about the benefits of how they operate in those markets. Some that are maybe a little less aligned to your question, but still relevant to, I think, the trends that we're seeing in our conversations, we still think that there's a long way to go in credit. And you're seeing that in all of our areas where we have exposure. So the high income team with Bryan Krug and his -- the development of custom credit solutions, we've seen significant uptake in interest from our institutional marketplace where they're really designing a bespoke solution around a specific need, and Bryan is able to accommodate those. So we're seeing really good uptake there. One thing that's been sort of flying a little bit under the radar screen for quite a long time, but we're starting to see some uptake as well as our -- we have a floating rate fund that is top quartile on a 1-year, top quartile on a 3-year that's being run out of Bryan's franchise. We're starting to see some interesting opportunities coming from that. And then when you look at the cross-section of emerging markets and credit with our EMsights team, they're firing on all cylinders, emerging market debt opportunities, emerging market local opportunities continuing to really deliver outcomes to the upside, both in absolute as well as excess returns. And so they're at the intersection of a couple of interesting themes for us. And then lastly, something that we've talked about for quite a while, which is alternatives. Certainly, Grandview is going to play a very important current and future role in the growth and development of our alternatives platform. And then when you think about what's going on, again EMsights as well as in our high income team. EMsights, the global unconstrained strategy through the end of the year, I think we raised about $500 million or $600 million in assets. And this, again, is a top quartile performer with a very, very differentiated return profile that people are really -- it's really resonating with our intermediate wealth space as well as our institutional space. And then lastly, credit opportunities, which I cited as a really strong performer over a multiyear time horizon is continuing to see incremental flows, which we would expect to continue in 2026. John Dunn: Got it. And then maybe just because it's been a swing factor for flows lately. Maybe could you just give us kind of the puts and takes looking forward the institutional side, particularly by region? Charles Daley: Yes. I think institutionally, we're -- if you look at the regions, I'd say where we're probably a little bit more of a little bit more at risk has probably been more in Europe in light of some of the regulatory changes that we've talked about for quite a while. We talked about it in Australia, and it sort of impacted a couple of countries in Europe as well the combination of some of the regulatory changes that are occurring, some short-term performance where -- that is where we have a lot of global exposure, specifically with our growth team and global opportunities. There's going to be, I think, a little bit more of a challenge in that region, specifically because of that. where clients are reallocating the active passive debate rages and then you've got that regulatory overhang is -- causes it to be a little bit more challenging. But institutionally in the U.S. marketplace, we are still continuing to see pretty good opportunities, and it's going to -- it's coming in our emerging markets franchises as well as in our credit franchises. So there's to your point, there's going to be some puts and takes. So it's going to be hard to tell exactly where it all shakes out. But I'd say U.S. is probably a little bit more favorable in that regard institutionally relative to non-U.S. Operator: [Operator Instructions] This concludes our question-and-answer session and the Artisan Partners Asset Management Business Update and Fourth Quarter 2025 Earnings Call. Thank you. You may now disconnect.
Operator: Good day, everyone, and welcome to today's BrightView Earnings call. [Operator Instructions] Please note, this call may be recorded. I will be standing by if you should need any assistance. It is now my pleasure to turn the conference over to Mr. Chris Stoczko, Vice President of Finance and Investor Relations. Please go ahead, sir. Chris Stoczko: Good morning, and thank you for joining BrightView's First Quarter Fiscal 2026 Earnings Call. Dale Asplund, BrightView's President and Chief Executive Officer; and Brett Urban, Chief Financial Officer, are on the call. I'll now refer you to Slide 2 of the presentation, which can also be found on our website and contains our safe harbor disclaimer. Our presentation includes forward-looking statements subject to risks and uncertainties. In addition, during the call, we will refer to certain non-GAAP financial measures. Please see our press release and 8-K issued yesterday for a reconciliation of these measures. With that, I'll now turn the call over to Dale. Dale Asplund: Thank you, Chris, and good morning, everyone. We had a strong start to 2026, as we grew total revenue 3% and delivered improvements in EBITDA while accelerating investments in our sales force, adding 80 incremental sellers in the quarter. While the needs of our customers vary geographically during the quarter based on weather, our focus on our frontline employees and delivering reliable service to our customer drove another sequential quarter of improvement in employee turnover and customer retention. Our intense focus on accelerating investments in our sales force, coupled with stronger customer retention, drove improvements in our underlying Land Contract book of business, one of the leading indicators of future revenue growth. More on this in a few minutes. Our accelerated investment in the sales force is proving effective, and we remain on track to deliver on our 2026 guidance, which represents a return to land growth in the third consecutive year of record adjusted EBITDA, as we continue to transform our business and deliver value for shareholders. We are well positioned to execute against our objectives. This quarter's progress reinforces my confidence in achieving our 2026 guidance, and our continued investment across the business positions us to deliver sustainable, profitable topline growth in both the near and long term. We have strengthened the foundation of the business, making significant strides in leveraging our size and scale, unlocking efficiencies and improving profitability over the past 2 years. Now, as we move forward, we will continue to cultivate a world-class sales organization to drive new sales to position BrightView as the investment of choice. With that, let's move to Slide 5, where we continue to see sequential improvement in our frontline turnover. Since day 1, my focus has been prioritizing our frontline crew members. And with ongoing investments, we continue our journey toward becoming the employer of choice. We have seen a considerable decline in turnover with approximately 30% improvement in just 2 short years. As an example of our continued commitment to our frontline, this quarter, we implemented advance pay, allowing our employees to access a portion of their earned wages ahead of the typical pay cycle, providing them with financial stability and flexibility. Our goal of becoming the industry's employer of choice has driven material cost savings that we've reinvested back into our frontline, and our continued improvement in employee turnover has created a more reliable workforce with consistent service levels for our customers. Turning to Slide 6. I'd like to highlight the impact that consistent service levels continue to have on retaining our customers. After reaching a low of approximately 79% in 2023, customer retention has improved by approximately 450 basis points as of Q1 2026, driven by initiatives focused on delivering consistent service levels to our customers, prioritizing our frontline employees and investing record level of capital to refresh our fleet. This is a true reflection of the exceptional service our employees deliver each day. Turning to Slide 7. We've also made significant progress across our branch network in driving retention improvements, in both the top and bottom quartiles. We have seen sequential improvement resulting in a 10% shift in both quartiles. While we are pleased with these results, we remain encouraged with the opportunities that still lie ahead. Our commitment to high-quality customer service has yielded significant improvement in customer retention. And, as we know, the longer a customer stays with us, the stronger relationship we build and ultimately results in us being able to provide a full suite of services over many years. The sequential improvement we have seen in this metric is a key contributor to now 3 consecutive quarters of positive net new sales in our Land Contract business, which I'll touch on in more details in a few moments. Turning to Slide 8. I'd like to update you on the rapid progress we've made in strengthening our sales force. During Investor Day, we outlined plans to expand our sales organization by 50%, representing approximately 500 net new hires by 2030. In the second half of fiscal 2025, we added approximately 100 new sellers, followed by about 80 additions in the first quarter of fiscal 2026, which is an increase of approximately 20% since the beginning of 2025. We are pacing ahead of our initial expectations, as this represents more than 1/3 of our progress toward the 2030 target. There are 2 categories of sellers, as shown in the bottom left, new business sellers focused on acquiring new customers and capturing a larger share of the total addressable market, while our customer-facing support team manages existing relationships and drives ancillary sales on top of contracted services. As new business sellers ramp their productivity and add new contracts, our customer-facing support team will further expand ancillary sales, helping to drive overall growth. Hiring is pacing ahead of our original expectations, and we plan to continue to ramp our sales organization through 2026. Expanding our sales force is critical to driving growth. And with structured training and enhanced technology tools in place, we are encouraged by the early momentum we are seeing in new sales. Turning to Slide 9. Now, I'd like to build on the topic of new sales and talk about a metric that's critical to Land Maintenance growth. This chart shows the improvement we made in our Land Contract book from Q2 2025, underpinned by a sequential improvement in our net new sales, a metric that factors in both customer retention and new sales. Ultimately, a growing contract book is an indicator of future Land Contract revenue growth. In my first year, we have realigned the sales and ops structure and changed the incentive plan to reward sellers for driving profitable new sales. This resulted in our branch managers and sellers working in tandem to align on new sales and equip them with the appropriate go-to-market tools. As we solidify the foundation of our business through reductions in employee turnover and improvements in customer retention, we began ramping the sales force in the back half of 2025. Since then, we have increased our sales force by approximately 180, or approximately 20%, and continue to see sequential improvements in customer retention, 2 key metrics needed to drive growth in our Land business. In Q3 2025, the momentum drove positive net new results, and we have seen 3 consecutive quarters of increased net new contract sales and growth in our Land Contract book of business of approximately 2%. This sustained momentum in improving customer retention and new sales growth gives me confidence that we will return to sustainable topline growth in the back half of fiscal 2026. Moving now to Slide 10. I want to remind everyone of the progress we've made in solidifying the foundation of our business and our focus for 2026 and beyond. In my first 2 years, my focus was on investing in and prioritizing our frontline employees, delivering consistent and reliable service to our customers and unlocking our size and scale as the industry's largest commercial landscaper. This has resulted in sequential improvement in employee turnover, customer retention and margin expansion, all key catalysts to help solidify the foundation of our business. Going forward, we will continue delivering in these key areas while also focusing on driving profitable topline growth in 2026 and beyond. As I mentioned a few moments ago, accelerating investments in our sales force will allow us to capture a greater share of the market. Through new sales and a sustained commitment to quality service, we expect sustained growth in our contract book, allowing our customer-facing support teams to layer in additional ancillary sales. By continuing to solidify the foundation of our business and by making strategic investments in our sales organizations, we are well positioned to accelerate contract growth and deliver sustainable, profitable topline growth. Before I turn it over to Brett, I want to express my appreciation to our more than 18,000 employees for their unwavering commitment to delivering consistent service and strengthening BrightView's position as the provider of choice. A recent example of this, although not an impact to the first quarter, was the team's readiness during the recent winter storms to safely and reliably service our customers. It is events like these that set us apart from other landscapers in the nation. Our ability to provide dependable service to our key customers was highlighted over the past few weeks. Once again, thank you to all our employees for putting the customer at the center of everything we do. With that, I will now turn it over to Brett. Brett Urban: Thank you, Dale, and good morning, everyone. 2026 is off to a strong start with our financial results positioning us to deliver on our guidance, which implies Land revenue returning to growth and delivering a third consecutive year of record adjusted EBITDA. The strategic decisions we have made over the past 2 years to invest in our employees and customers has paid significant dividends, as you can see in our employee turnover and customer retention metrics. And now, our strategy to add to our sales force is already showing positive signs in our selling performance. I am continually encouraged by the momentum we are building in the business to deliver long-term profitable growth. Let's turn to Slide 12 to discuss our results in the quarter. Total revenue for the first quarter was $615 million, which is a 3% increase, driven by heightened snowfall and continued improvement in underlying land metrics. Snow was a major benefit in the quarter, increasing 110% from the prior year, as we saw higher-than-average snowfall in the Mid-Atlantic, Northeast and Midwest geographies. Maintenance land revenue was impacted by weather-related factors, including the year-over-year step over from the 2 named hurricanes in prior year Q1 and increased snowfall this quarter, which limited our ability to perform core land maintenance. However, as Dale just mentioned, we're highly encouraged by the trends we're seeing in employee turnover and customer retention, and now, net new positive contract sales, which is the catalyst for land growth in the back half of 2026. In the Development segment, revenue decreased 7%, driven by timing and mix of projects. I want to be clear that the headwinds we experienced were timing related as we saw this impact start late in 2025 and should not be viewed as lost revenue over the long term. Turning now to profitability on Slide 13. We delivered another quarter of adjusted EBITDA growth, as we continue to transform our business. Higher revenue was a benefit to flow-through, as we are continuing to see advantages of refreshing our fleet, unlocking purchasing power through procurement and realizing efficiencies across the business to drive G&A savings. These benefits were partially offset by accelerated investments in our sales force, as our revenue-generating resources are up 180 employees or 20% over last year. This investment underpins the next leg of our sustainable growth journey. Now, let's move to Slide 14 to discuss our strategic capital allocations focused on driving long-term shareholder value. Our strong balance sheet highlights this strategy, supported by ample liquidity and a favorable debt structure with no long-term maturities until 2029. We continue to accelerate our fleet strategy in 2026, which saw a significant improvement to the average age of our core mowers and production vehicles in 2025. And now on to refreshing our fleet of trailers, this refresh has provided not only P&L benefits in the form of lower rental and repair and maintenance expense, but also intangible benefits through higher employee morale and customer satisfaction, which are major contributors to the improvement we've seen in frontline turnover and customer retention. Additionally, at the start of 2026, we increased our share repurchase authorization from $100 million to $150 million, as we believe our current valuation does not fully reflect our earnings potential. This increase resulted in $14 million in share repurchases in Q1, essentially doubling the quarterly average from 2025, as we continue to see our shares as significantly undervalued. While we currently view our fleet refresh and share repurchases as an efficient use of capital, we remain poised to return to M&A when the time is right, and we've developed a robust pipeline focused on service line density and market expansion. Moving to Slide 15. We felt confident by the first quarter results and underlying trends we are seeing in the business, and we are reiterating our 2026 revenue, EBITDA and free cash flow guidance. This represents the third consecutive year of record-breaking EBITDA, continued margin expansion and a return to Land revenue growth. Additionally, our free cash flow guidance, coupled with ample liquidity, provides significant financial flexibility to continue to reinvest in the business. Before turning the call back over to Dale, I want to reiterate my conviction in the trajectory of BrightView and our ultimate goal, delivering sustainable, profitable topline growth while creating meaningful shareholder value. The investments we've made into our business have paid dividends, as evidenced in our employee turnover and customer retention. And now, we expect our investments into our sales force to do the same. With that, I'll turn the call back to Dale. Dale Asplund: Thanks, Brett. Before we turn to questions, I want to reinforce a core belief that our people are the foundation of our progress. By investing in our employees and building an employer of choice culture, our intense focus on delivering best-in-class service is at the forefront of everything we do. Now, as we continue to ramp our sales organization, we are excited about the contributions the new 180 sellers are going to make. This, combined with leveraging our size and scale and strategically allocating capital, I'm confident in our ability to achieve sustainable topline growth and position the company to deliver long-term shareholder value. With that, operator, you can open the call for questions. Operator: [Operator Instructions] We'll go first this morning to Bob Labick of CJS Securities. Bob Labick: Congratulations on a great start to the year. Yes, I wanted to go back to the sales force investment, obviously. You mentioned you're ahead of pace. Does this mean you're going to pause? Or do you keep your foot on the accelerator? What's the target for the year? And what's the impact on the P&L? I guess, finally, like how long does it take until new salespeople break even and add to the top and bottom line? Dale Asplund: Yes. Great question, Bob, because we're proud of the progress we've made. First, we're going to start off by saying we join you today from our team -- with our team down in Homestead, Florida location. So we're seeing weather all over, and our teams continue to embrace the need for more employees to communicate with our customers. You saw in the quarter, Bob, we added 80 FTEs to support our growth levers. We are not going to slow down. We are seeing benefit. It's building our contract book, and we can talk through the effect it had on revenue in the quarter, as we saw outpaced snow across the country. But everything we've seen from the transition of moving our sales force to work directly with our branch managers is working. Now, it's about making sure as our branch managers request additional go-to-market resources, we're supporting them and continuing to give them people to help us grow this business. The 80 people we added in the quarter on top of the 100 people that we brought in last year, we are going to keep going. Originally, we said we were looking to add another 100 this year on our goal to adding 500 before 2030. We're well ahead of schedule. We're at 80 as of the end of the year. I want to keep promoting to add resources across the whole network. So I feel great about the momentum. It is our future to grow this business. We've done so much to improve the foundation. Now, it's about adding resources. So we're not going to stop at the 100. If there's opportunity and the branches can absorb them, can go get more market share, I'm going to keep giving them those investments to help them grow their business. Brett, do you want to add anything? Brett Urban: No. Bob, I would just say we're excited by it. We've made significant progress in a short period of time to ramp up our sales force. And you go back a little bit over 2 years, when Dale started as CEO, it was all about fixing the foundation, making sure we take care of our employees who in turn take care of our customers. And you look at that strategy now 2 years later, and that's paying huge dividends. Employee turnover is down significantly, over 30%, and customer retention is up significantly. Now, the next leg of our journey is to make sure we can support our branches by getting customer-facing sellers out into the markets. And we're going to do that as quickly as possible. So I'd say, yes, it was higher than expected, but we couldn't be more excited about the progress we're making with adding those sellers to the business. Bob Labick: Okay. Yes, that's great. And, yes, you've done a remarkable job over the last 2-plus years in building the foundation for growth. And obviously, sales force acceleration is part of it right now. You mentioned a few other things. What are the remaining steps to building this core foundation to get the flywheel fully running? And how much longer do you think that part will take until you have the foundation where you want it and you start to see the acceleration in top line? Dale Asplund: Yes. Great add-on, Bob. I think we made great improvements in taking care of our existing customer base. As I said in my prepared remarks, when I joined the company, our customer retention on an annual basis was running at 79%. It is very hard to grow a business when you're losing 21% of your customer base each year. I'm proud of the progress we made. And as we put in the deck, we're up 450 basis points over the last 27 months. So great progress. But what is the most beneficial? I'm so optimistic because we still have ample opportunity. As we put in the deck on Slide 7, you can see we've shifted from 20% of our branches being below 70% customer retention and only 20% being above 90% to just 24 months later, we're at 30% above 90% and 10% below 70%. Now, I'm not going to be happy until none of our branches are below 80% customer retention because that's our path to growth. We cannot lose our existing customer base. There's always reasons we might lose a few, but at the end of the day, we've got to make sure the service we provide our customers each and every day and support our employees that provide that service, make sure our customers recognize the value that we're trying to add to their businesses each day. So we're going to keep going, Bob. That retention is a critical number. We're going to invest in new sales, but we've got to keep chasing that retention number. We're at 83.5%, as we put in the deck. 85% is the next stop on our journey, I hope. Then, I'm not going to stop until I can say one day, we're keeping 90-plus percent of our business. But Brett, do you want to add anything? Brett Urban: I'll just add a little context. Obviously, you could tell the excitement in our voices over here. It starts with taking care of our employees, as Dale said, will take care of our end customers. We've improved that customer retention metric significantly. We've improved our fleet and our go-to-market significantly, just the look and brand of BrightView. And if you look at Page 9 of the deck, the strategy is starting to pay dividends. We continue to share more metrics on the business to give confidence of our ability to grow this in the back half of this year. And if you look at Page 9 of the deck, it's a new metric we're sharing, which is our Land Contract values that we have on the books at any given point in time. It's the annualized amount of these contracts. And if you look over the last 3 quarters, a big piece of this 2% growth in our contract book is coming from that customer retention, but we're now also starting to see those sellers we added back in the last June quarter, right, producing some incremental positive wins in the business and adding to that Land growth. So we couldn't be more excited about the strategy actually paying dividends into the KPIs. And if you look at Page 9, this is the leading indicator that would predict growth in the back half of the year once we get into our busy season. Operator: We'll go next now to Tim Mulrooney of William Blair. Timothy Mulrooney: So Maintenance Land, let's just start there. Yes, your Maintenance Land business was down a little more than 2% in the first quarter, but you maintained your guide for 1% to 2% growth for the full year. That implies about 2.5% growth for the remaining 3 quarters. And I know January is off to a snowy start, so if there's disruption in the second quarter here, then it looks like a lot of that growth in Maintenance Land is going to have to come from those last 2 quarters of the fiscal year. Can you just help us understand where you expect that growth to come from? Help bridge that gap for us. Dale Asplund: Yes. Great question, Tim, because I think it's worth taking a look at the quarter and digesting it for a minute. As everybody saw, and we said in our prepared remarks, snow was very, very high in the quarter, almost a record level for the quarter, being up $36 million. So it's great. We were able to take care of our customers in the market that they needed. If you look at our Land, we shrunk Land $8.9 million, Tim. So let me break apart that $8.9 million. First, we stepped over 2 named storms last year from 2 hurricanes that hit our southern markets, Milton and Helene. That was roughly $3.5 million. And then, $6 million of that other shrink is directly attributed to the markets that saw that outsized snow. So if you think of $6 million that comes out of our Land business that we can't put into the ground with ancillary work, that will position us to roughly flat if we didn't step over the storm and we didn't have the outpaced snow. So we feel great, Tim. We feel like the business would have been flat, as we enter the winter season, and the business is going to be poised to grow, whether it's 2% or 3% as we go across our 2 busiest quarters come April and go through the summer. So we are very optimistic that what you see on a headline for shrinking land, when you really break it down, it was impacted by the amount of snow that we had in those markets. And people saw we've had a very busy snow January based on everything in the news. But we're going to continue to take care of our customers each and every day based on what services they need. And I will tell you, I have seen more positive comments from customers the last 2 weeks than I've seen in many months. They're all reaching out to realize anybody can talk about doing snow services in July, but only true people that invest in the people and the equipment are able to deliver the service when we have as much snow as we've seen over the last several weeks. So we're in a great position, Tim. We are not -- we didn't change our guide. Despite what we're seeing on snow, we are very confident that we will achieve that 1% to 2% Land growth very easily. So we are positioned very well. But Brett, do you want to add anything? Brett Urban: No, I agree with Dale. January is off to a bit of a snowy start. We still have 2 heavy snow months in front of us, in February and March, which are still part of our total snow season. So we'll see how the quarter finishes out here. It is quite cold across most of the U.S. still. So we have optimism there. But as Dale said, look, if the $6 million that we were impacted by snow in Q1, even if we see a little bit of impact in Q2, given some more snowy weather, you'd have to grow the back half of the year north of 2%, like you said, Tim. And we feel ultra confident, especially looking at the contract book growth that we show on Page 9. That is the key, right? That is the number of customers we have, the value of contracts we have, that annuity businesses within our Land business that gives us that confidence to be at that 2% plus growth in the back half of the year. And we'll update as we get through Q2. When we do finish the snow season, we get through February and March, we'll provide a full update on the guide as we enter into Q3. Timothy Mulrooney: All right. That's helpful color, Brett and Dale. Brett, maybe you and I can nerd out on that contract book number that you just highlighted for a second because up 2% does look promising. But honestly, we don't have much to compare this metric to. Can you help us understand what this metric looked like this time last year? Brett Urban: Yes. Absolutely. Well, look, last year, we were still fixing the foundation and making sure we took care of our employees and took care of our customers. So if you go back a year, this is a new metric, we haven't shared it, but you wouldn't see an increase in this metric, right? We were working through kind of some things in the past and getting to a point where we're really significantly improving that customer retention. And now, like I mentioned before, with the sales force adds that we did 9 months ago, we're starting to see those sellers be productive. And we know it takes -- the first year to 6 months of a new seller, they're semi-productive, but not nearly fully ramped up. In that 6- to 12-month tenure range, they start to get ramped up and become productive and really start to sell. And then 12-plus months on, they would become fully productive. So that's why we're so excited about the adds we've made in Q1 to the sales force because that will pay dividends really later this year and really more importantly into '27 in the future. So we are investing in future growth. But going back to Page 9, just to give you a little more detail, if you look at our Land business, we do about $1.7 billion in Land revenue. I'm just going to round some numbers here, $1.7 billion in Land revenue. We've said publicly 2/3 of that is our contract business and roughly 1/3 of that is our ancillary business. So, rough math here, 2/3 of our $1.7 billion would say we have $1.150 billion of contract value on the books. So if you go back, Tim, a year ago, that number would have been less because obviously, the business hasn't been growing. But if you look at the last 3 sequential quarters now with the business growing, that contract value growing, 2% increase on, call it, $1.15 billion, roughly $22 million, $23 million. So that's what gives us the confidence, as we get into the busy season, right? 2/3 of our Land revenue happened between April and September, those last 6 months of the year. So this is definitely a leading indicator to what's going to come to the P&L in the back half of the year. Operator: We'll go next now to Greg Palm of Craig-Hallum. Greg Palm: I wanted to maybe hit on the weather stuff a little bit more just given some of the recent events. So can you talk about kind of what you've seen quarter-to-date in terms of impacts, both positive and negative? And I guess, as I'm thinking about it, just given this elevated amount of snow in certain markets, are you using that as a way to maybe onboard new customers that you can maybe convert to annual Land Maintenance contracts as well? Dale Asplund: Yes. Great question, Greg. Let me start off, and then, Brett can add. So I think, as everybody saw in our release, snow was very, very positive in the first quarter. In fact, we had a lot of questions I know on people asking, why didn't we think about increasing our expectations for snow from the $190 million to $220 million of our initial guide. But like I've said, since I've been in seat, we're only going to deliver good news on snow. Let me give you a little bit of additional data. So January has been a very strong month with storms going from anywhere in Texas all the way out through the Northeast. And this past weekend, we saw some pretty good weather down in the Carolinas and Virginia, so -- but if you look at our typical Q2, let me just give you a statistic, February and March combined in the past has been anywhere from $60 million combined in snow revenue to $160 million combined in snow revenue. So while it's still early, and we are optimistic about where we're going to finish snow, we'll give everybody that upside once we get through Q2. If I just did some quick math, Greg, and this is what we told a lot of our investors, if we did quick basic math, we did $173 million of revenue last year in Q2. We did $68.4 million this year. So you can assume that we're probably going to pace if we don't see any major warming happening. On the snow side, we're probably going to pace ahead of the top end of our range. But we'll update everybody come the end of Q2 once we get full visibility. And then, we'll decide how much of that benefit that we see from snow once we hit the end of Q2, we can reinvest back into the business. So, we feel great about it, Greg. It's only going to be upside for us wherever we land the plane with snow. And we just don't think it's going to create a long-term headwind that our summer months, where we get 2/3 of our Land revenue, we won't be able to outrun to get the growth that we promised for land. Brett Urban: Yes. I'd just add to it, Greg. Look, Dale said it several times here in the last probably month or so. Any competitor and/or landscaper can say they can do snow in July. But when the flakes start flying and snow is hitting the ground, we've actually seen that be quite different. And we've had customers in our markets, especially the southeastern part of the United States in Texas through Georgia, the Carolinas, come to us and say, "Hey, guys, we need help. Can you guys help us in snow"? And we've had a lot of customer outreach to the point of your second question of, is this going to lead to new customer acquisition? Yes, potentially. We're taking care of our customers first. We want to make sure the customers who have us for both land and snow and signed us up early in the season, that we're taking care of those customers first. But where we can and we have capacity, we're starting to pick up additional customers for snow, and now, having conversations with them about picking up their land contract, right? So if they're seeing some struggles from their incumbent landscaper on snow, they'll probably see the same struggles when it comes to landscaping. So that's creating an opportunity for us in the future to create more customer acquisition. Dale Asplund: Greg, let me add a little more color. And remember, this is a tough metric because the way that we price snow is obviously either with time and materials and you don't know how much snow you're going to get or we had tiered pricing for our fixed contracts. My team, who's been working so hard through the first 4 months of the year, gave me some high-level numbers, and these are just high level. I would say they feel like we believe we're going to get somewhere around 5 incremental annual -- $5 million of incremental annual contract value in snow based on customers coming to us to support their business. And they're thinking there could be about the same amount, Greg, in emergency needs for us to go out and service customers because their existing provider failed. Now, those all depend on the amount of volume we get in snow. But I will tell you, for us, that just shows the strength of people coming to us, asking us to do incremental services. So it comes down to making sure our team is prepared. Our team has the materials, our team has the equipment and our team is ready to do the work to take care of our customers. And we've seen that year-to-date. So we feel great that this is going to drive eventually more Land business because like I started off, anybody can talk about doing snow in July. But when you're getting 18 inches and you've got to have a parking lot clear, 24/7, you've got to have the equipment and people to make sure that you can service that property. So that's some more detail for you, Greg. Greg Palm: You answered 2 of my follow-up questions without doing, so I will -- I guess, I'll just pivot to something, maybe a little bit different, thinking back, I don't know, 6, 9 months ago about just sort of the overall discretionary spend environment. I know it's a tougher question in some of these seasonal markets like we're talking about. But overall, what are you seeing now versus that year ago period? And I'm just kind of thinking how this might impact some of the ancillary trends going forward. Dale Asplund: Yes. Look, it's still early, Greg, in the year. And obviously, if we get a lot more weather across those southern markets, especially in the HOA communities, you could feel some headwind on the Land side just because people end up spending a lot more money on snow removal. Nothing we're alarmed of. I would go the opposite way and tell you, we've seen a lot of damage from ice, whether it's plant material dying or whether it's tree damage across the country. We've dispatched tree crews out to many markets to try to make sure we can service our customers who have tree damage. So I would say there's always the possibility of headwinds, but we're seeing existing tailwinds. So I would say it's still too early to say are we going to see any noise from that. Once we get to the end of the second quarter, and we know exactly how much snow we had and where it was, we'll update everybody. But the good news is the commitment we made to take care of our customers and get higher retention and create that relationship continues to promote them to turn to us to actually do more and more of their services. So Greg, we are positioned so well, still too early to say if there's going to be some noise, but I have no worry even if we have some noise, like Brett said earlier, we're going to hit our Land forecast that we gave you in November of growing 1% to 2%. Operator: Gentlemen, we'll go next now to Andy Wittmann of Baird. Andrew J. Wittmann: Slide 9, again, the contract book of business, 3 quarters up 2%, that's great. I just wonder like if there's some context here around like we're in the middle of winter right now. And I know that -- I guess, you guys have said that your selling season has become more of an all-year-round thing. But for those seasonal markets, I have to think that some of your customers are still thinking about what they want to do for the coming green season. So does the 2% more likely look better a quarter from now after you get through some of those people in the seasonal markets making the decision for the year? I'm just trying to understand if this is actually conservative, for lack of a better term, or if I'm making too much out of it. Dale Asplund: No. I think, Andy, it's a great question. I don't think it's conservative because it's historic. So we're just giving you the facts of where we're at. You bring up a great question. We're starting to sell in our northern markets, even though it's a little bit of a challenge when you're getting as much snow as you're getting right now, but our customers are thinking about their April through October Land business. So absolutely, we sell Land contracts all year long. And I will tell you, even to Greg's question a minute ago, when we get additional needs for snow, it gives us the foot in the door to get those Land contracts, as we go into the summer. So Andy, to answer it a different way to say it's not conservative, we feel that momentum will continue to show on this slide. Our goal is not to say we've grown our book 2%. We think with the additional 80 resources we added in sales, we think of the 180 we've added over the past year, we feel great that we're going to continue to see momentum in this metric. Our goal is to keep adding resources to drive new contract book, and then, drive those customer-facing roles to drive all those ancillary services that those customers are going to need. So the teams in the field are very excited. Managing salespeople was a new thing to them a year ago, but now, they're all seeing the power of getting people out there, getting us new business so we can grow our business. And it's been a great journey, and I think 2026 will continue to show that momentum. Brett? Brett Urban: I would just add, we continue to manage this business for the long term. The quicker we can get these sellers added, like we showed on Page 8 of the presentation, the more inflection we'll have on Page 9, the contract book. And we're starting to see those 60 sellers we added last April, May, June, starting to produce and be productive here in Q1 of 2026. So it takes a little bit of time. But as you think about the business, you think about the way we're managing it. The strategy really is, Andy, based on that long-term view of the business. And that's why we went as far as to put our 2030 goals back into this earnings presentation to show we're committed to getting there as quickly as possible. So yes, I agree with you. I couldn't be more excited about the progress we made on Page 9. Whether it's 2% or something north of 2%, we'll continue to kind of share that metric just to show the progression in that underlying contract annuity business that makes BrightView such an attractive investment. Andrew J. Wittmann: I also wanted to ask about your IT tools. These have been some pretty big areas of investments that you guys have been making. Two of the bigger ones were around your HR IT system. I think that you guys are now -- have now gone live on a new system there. I think it was Workday that you put in. I want to know how that's gone, if there's been any disruption growing pains through that. And maybe even more importantly, though, I think you guys are now in the process of rolling out or more thoroughly rolling out your field management software that really kind of gives your guys the tools in the field for all sorts of different things. Maybe, Dale, could you just talk about how that's going? And how disruptive or not disruptive the field software is in particular? Dale Asplund: Yes. I think it's a great question. I would say, first, let's start with the HRIS system. Our employees are our #1 asset, and we've got to make sure we've got visibility and ways to manage them. I think what that tool has given us is added benefit for all of our leaders and made their jobs easier. So from a transition, as we've started to migrate to that for visibility, and we'll continue to have phases, Andy, as we add different modules on to get away from the litany of IT systems we had and put it all in one system. But the field has embraced it. It continues to show benefit, and we'll continue to leverage the different modules as we go forward. On the field service side, that's one that is really starting to take way. We've seen continued progress. We have over 1/3 of our branches on it. Our initial goal was sometime late March, early April was to get all of our branches on field service. The branches that have been on it for 30 to 60 days are seeing benefit in creating capacity with their labor. So that's a positive thing that the teams that are using it to help route and define how many hours for each job it's creating capacity. And that's key for us because I want to use not it as a labor savings tool. I want to use it to create capacity. So as we're growing this business this summer, we have the ability to service customers with the resources we have today. Now, I would say this, Andy, we had a couple of branch managers send me an e-mail, and I'm always there to help them. Obviously, when you get as much snow in a couple of these markets and you have training scheduled, we pushed a couple of branches out because I recognize we've got to service our customers, and we just moved the training out for a few weeks, and we get our team to reassign a date. But we are making wonderful progress on both of those initiatives. And like we said, our IT investments were behind schedule several years ago. These are the first 2 in a litany of different technologies we can help grow our business. So we're enabling our field. We're giving them tools, and our goal is to long term help them be more efficient and spend more time with their customers. Brett Urban: And Andy, I would just add, this is why it's so exciting, we have the balance sheet, liquidity and flexibility to do all these investments, which is fantastic, not only investing in our employees, in our customers, in our fleet, in our sales force, but also invest in technology. So Dale mentioned some of the tools that are rolling out, but that's all supported by the flexibility we have on the balance sheet, so we couldn't be more excited about the ability for us to grow the business, produce higher EBITDA than the year before and continue to invest back into the business. Operator: We'll go next now to Stephanie Moore at Jefferies. Stephanie Benjamin Moore: I wanted to circle back on maybe a question that was asked earlier, but I'm going to ask it a little bit differently. As you think about all of the success you've had thus far to start the year from the investment standpoint, obviously, the strong snow season, maybe just talk about the level of confidence you have in the guide, understanding it's obviously still early in the year and you need to get through your busy season? But I'm trying to understand what could maybe go wrong or in a more negative direction, which would make the guidance a little bit more difficult. So maybe downside scenarios that you guys walk through. Dale Asplund: Yes. I think, like I said, I'll take it into some buckets. Obviously, snow, if we continue to add the volume of snow we saw in Q1 and we saw in January, that could create some delays in our ability to do Land Maintenance service here in the second quarter, especially when you're looking at markets that are getting extreme cold all the way down into Florida. I was out with my teams this week to start the day and dispatch our teams, and we had temperatures in the low 30s across Florida. So we could always get that, Stephanie, more snow. It gives us more upside in the Snow business we do, and then, it will give us some potential delays in our maintenance and our development business. But, all these storms and the ice damage across the country, I would flip it the other way. I feel like long-term, as we go into our busy season with the summer, we had equally as much opportunity to see ancillary grow faster because of the tree work, because of the plant damage that's going to occur because once we get out of winter, people will want to make sure their properties look good. So I feel like there could be some timing. There's no question that when you get as much snow as we've had over the first 4 months, it could create some noise in timing. But at the end of the day, I think there's going to be a lot of opportunity that comes out of a little bit rougher winter. And I think that even in the development business, okay, we're going to have some timing, like we saw in this quarter. Our 3 biggest projects that we're doing right now are all in the northern markets. We could have done more work with them if they weren't under snow for the majority of the quarter. So we feel great, Stephanie. I don't -- you say what risks do we have? We always have risks in every environment, but I feel our upside is greater than our downside right now. Stephanie Benjamin Moore: That's very helpful. And then, maybe switching to capital allocation priorities, obviously, you noted that the M&A pipeline remains robust, but you also have been very active in share repurchases. So maybe just talk through as you evaluate both options, what's more for the near-term priorities, when we might expect to see M&A start again. Any color there would be great. Dale Asplund: Yes. Great question. I'll start off, and I'll give it to Brett. I remind my senior leaders that you have to earn the right to do M&A by growing your own business before you've earned the right to buy somebody else's business. And my guys remind me of that all the time because they're all on the verge of seeing that business grow. So they're all reminding me it's time to get back into M&A. And you saw it. We had a strong quarter of share repurchase. We're buying our equity back at 7.5x at the price that we averaged in Q1. At 7.5x, we'd have a hard time getting a quality company like we have at BrightView for that multiple. We believe we've got a big robust pipeline, a quality company, so even if smaller is going to trade at 8 to 9x. Even if we get a turn on that based on synergies, we're still paying a price that some were higher than what we can buy our own shares back at. So we know the quality of company we have at BrightView. We recognize we're significantly undervalued. So we're going to keep -- and our Board approved us to upsize our share repurchase and get more aggressive. So we feel great about the investments we're making. It's real simple, invest in our people and our fleet, invest in buying our shares back, and then, do M&A. But Brett, do you want to add anything? Brett Urban: No, I would just add that we're currently levered at 2.4x, essentially flat to where we were, very favorable debt structure, no long-term maturity in 2029. And we have plenty of liquidity, right around $0.5 billion to invest in the business of liquidity. So to your question, Stephanie, and Dale's point, I think on Page 14, we've tried to lay out our priorities very clearly. And I think we're executing on those priorities. We've executed on a fleet refresh that has essentially seen all of our core mowers get to our targeted average age. Almost all of our production vehicles, by the end of this year, we feel like they'll be at the average targeted age. And we have some work to do on trailers. But this year is probably going to be our last year of elevated CapEx in the business. We're going to run about 6.5%. And then, we'll come back down more to that 3.5%, 4% normal range as we get through our trailer refresh. But Dale said it well, buying a company comes with some inherent risk of integration and acquisition. And if our stock is going to trade at 7.5x multiple, definitely an accretive use of capital to buy our own shares. And look, we feel like we should be in the 10-plus multiple trading range. So when we get there, and this business is growing, and we get there, we get a re-rate, there's absolutely a tremendous amount of opportunity to go down the acquisition trail. And I will tell you that the pipeline we're maintaining here is significant. So we have a pipeline of potential targets. When the time is right, we'll be able to pull that lever fairly quickly. Operator: We'll go next now to Jeffrey Stevenson at Loop Capital. Jeffrey Stevenson: How should we think about the cadence of development revenue growth this year after the segment was negatively impacted by project timing in the December quarter? And then, has there been any change in the timeline of the 4 to 5 large projects you're working on compared with prior expectations? Or is that in line with what you were expecting when you gave guidance last quarter? Dale Asplund: Yes. We feel great about the progress we saw from Q4 into Q1 for development. It's definitely swinging back. Is there timing differences? Jeff, yes, like Brett said in the script, when you've got a lot of those big projects up in the northern climates and you get the amount of snow, they still grew, but they could have grown more. We had more opportunity. Those projects will still hit our timelines. It's going to be about when we can recognize it. We feel great about what the customers are asking us to do, and we continue to work on them. So I'm not worried about the development business long term. We just got to stay on top of everything we're working on, take care of our customers, communicate to our customers and continue to keep driving forward with the development backlog, so we keep booking work each and every day. Jeffrey Stevenson: Great. No, that's helpful, Dale. And sticking on the development business, I was wondering if you could provide an update on your cold start initiative and the timeline of that this year? And then, also, with the increase you've seen in the sales force, obviously, that's mainly on the maintenance side. But have any of the new hires been on your development business as well? And how will that help with growth over the coming years? Dale Asplund: Yes. Look, I think it's a great question. We updated everybody that our goal is to get several new locations open for development. We have now opened 6 locations across North America that we're seeing green shoots out of. Some of it is markets that we traditionally did remote work in. So we had some development teams there that could do work. But Jeff, yes, about 10% of those new sellers in the quarter, that money that we spent went to the development team because our whole goal is when we add a location, make sure we've got a development sales rep out in the market to get us more and more work. So yes, it's about 10%-90% for that $6 million that we talked about spending in the quarter on sales resources. And we've got 6 of the locations that we've gotten stand-alone P&Ls that they're operating independently versus they used to be doing work remotely. So great progress there, and we're going to continue to keep our foot on the gas and grow as fast as we can with new locations. Operator: [Operator Instructions] we'll go next now to Greg Parrish at Morgan Stanley. Gregory Parrish: I'll just squeeze one in here. Maybe just help us think about snow margin, especially heading into the second quarter with how much we had, had in January, and we'll see how February, March play out. But how much of the snowfall so far is in fixed versus variable? And then, can you talk about the potential for some of these clients, as they move up in tiers, does that potentially add more margin upside in the Snow business in the second quarter? Dale Asplund: Yes. Good question, Greg. I think, when you look at our -- we announced that we basically saw $3 million of improvement from the revenue in the quarter. If you digest that and you really break it down, you look at it and say $6 million of that incremental EBITDA came from that incremental snow revenue, where the shrinkage in development and land, there was about $2 million of negative EBITDA in land and $1 million in development giving us the $3-ish million of net benefit. I would say you were head on. So we've got a big portion of our contracts, where, especially in the northern markets, we went to more fixed tier pricing. Now, as much snow as we saw, the Chicago market saw 3x the normal snow up and from New Jersey up to Boston saw double the normal snow in the first quarter. All those, when we have fixed tier pricing, kind of limit the margin that we're going to have until we start triggering those additional tiers. As we trigger those additional tiers, it becomes more profitable. So we have always said our margin expectation on incremental snow is between 20% and 25%. We feel once we land the plane for the year and we exit Q2, we will be very comfortably in that range. I know Q1, $6 million of benefit on $36 million of revenue is slightly below that on flow-through, but we feel like a lot of that is just timing of how we see those fixed tier contracts. We continue to see more and more customers go to fixed tier, especially after a year like this because some of the markets on the fringe that traditionally took more risk and tried to go to time and material are probably going to want to go look at fixed pricing again, so -- but yes, we feel great. We feel that we're going to get added benefit as we go through Q2, maybe as much on revenue, but more on profit because we're -- right now, it's all about just taking care of the customer. Operator: And ladies and gentlemen, that is all the time we have for questions this morning. At this time, I'll turn things back to Mr. Asplund for any closing comments. Dale Asplund: Look, I want to thank everybody again, and I apologize. I know we still had some questions in the queue. I think it was a great discussion. And operator, thank you. But I'd like to close by reaffirming our confidence in the trajectory of the business, as we continue to work toward its transformation. Over the past 2 years, we fixed the foundation of this business, becoming a unified company and unlocking efficiencies to drive this business forward. All the while, we have started to reinvest back into our sales organization. I am beyond proud of how many resources we were able to add in the quarter, and we are going to benefit from them, not here in Q1, but throughout 2026 and position us for long-term growth. So to all the employees, thank you. Everybody continue to be safe. To all of our investors, thank you for taking the time to listen in today. Everybody, be safe, and we'll talk to you again at the end of the second quarter. You can now end the call, operator. Operator: Thank you, Mr. Asplund, and thank you, Mr. Urban. Again, ladies and gentlemen, that will conclude today's BrightView conference call. Again, thanks so much for joining us, and we wish you all a great day. Goodbye.
Bård Pedersen: Good morning to all, both here in the room in Oslo and to all our participants online. Welcome to the presentation of Equinor's Fourth Quarter and Full Year Results for 2025. My name is B�rd Glad Pedersen. I'm Head of Investor Relations in Equinor. To those of you who are in the room, I want to inform you that there are no emergency drills planned for today. So if there is an alarm, we will evacuate and follow instructions. Today, we will have a presentation first from our CEO, Anders Opedal, followed by a presentation from our CFO, Torgrim Reitan, before we start the Q&A. [Operator Instructions] So with that, I hand it to Anders for your presentation. Anders Opedal: And thank you all for joining here in the room, and thank you for participating on digital. So for Equinor, 2025 was a year of strong deliveries, but it was also a year of increased geopolitical tension and market uncertainty. Our job is to ensure we allocate our resources in a way that maintain a competitive business, creating value at all times. Today, Torgrim and I will show how we take the necessary measures to further strengthen our competitiveness, cash flow and robustness. This makes sure that we can navigate through and leverage market volatility and the current macro environment. So we have 3 key messages for you today. First, we are well positioned for maximizing long-term shareholder value. Today, we will share how clear strategic priorities guide capital allocation for 2026 and '27, and we will revert at our Capital Market Day in June to present our strategy towards 2030. Second, we take firm actions to strengthen free cash flow. We reduced our CapEx outlook with $4 billion and maintain strong cost discipline. This makes us more robust towards lower prices and ensure that we can maintain a solid balance sheet through the cycles. And third, we continue to develop an attractive portfolio, delivering oil and gas production growth. With this, we are prepared for volatility ahead. The energy transition is shifting gears in many markets with governments and companies changing priorities. Current oil prices are supported by geopolitical risk, but we are prepared for strong supply combined with moderate demand growth, putting pressure on the oil price in the near-term. For gas, the European market has seen cold weather and high draw on storage in late December and in January. Storage levels are now around 40%, significantly below average for the last 5 years and also lower than last year. We expect continued volatility ahead and more LNG coming into the market. In the U.S., low temperatures have driven up local demand and reduced exports of LNG. But before I progress any further, I will always start with safety. Despite fewer people being hurt and our safety numbers moving in the right direction, we still have serious incidents and need to improve. In September, our colleague was fatally injured during a lifting operation at Mongstad. A stark reminder that we cannot rest until everyone returns safely home from work every day. Our safety trend reflects years of good work from the people in our organization and our suppliers. Safety remains our first priority. Throughout 2025, we have delivered strong performance despite geopolitical uncertainty, high inflation in the supply chain and lower commodity prices. This results in all-time high record production, thanks to good operational performance and new fields on stream. We have matured a competitive project portfolio across the Norwegian continental shelf and internationally. With Johan Castberg on stream, we opened a new region in the Barents Sea. In Brazil, we started production from Bacalhau, the first pre-salt operator ship awarded to an international company. We continue high-grading our portfolio, and we maintained cost and capital discipline. All this has enabled us to deliver industry-leading return on average capital employed of 14.5% and $18 billion in cash flow from operations after tax. We have delivered $9 billion in capital distribution to our shareholders, as we said at the start of the year. Last year, we received 2 stop-work orders for Empire Wind. In our view, both are unlawful. The first one was lifted by the UN administration in May. The second stop-work order came just before Christmas. This cited national security reasons, already a central part of an extensive approval process where we have complied with all requirements. In January, we were granted a preliminary injunction allowing us to resume construction. There will be a continued legal process, and we remain in dialogue with U.S. authorities to resolve any issues. Despite the significant challenges caused by the stop-work orders, the project execution is according to plan. The project is now over 60% complete. We have successfully installed all monopiles, the offshore substation and almost 300 kilometers of subsea cables. The total CapEx for Empire Wind is now expected to be around $7.5 billion. Around $3 billion is remaining, and we, like other companies, remain exposed to uncertainty when it comes to possible future tariffs. The project qualifies for tax credits as decided by the U.S. Congress. The cash effect of these is expected to be around $2.5 billion. So far, we have drawn $2.7 billion from project financing. We expect to draw the remaining $400 million this year. For 2027 and '28 combined, we expect around $600 million in cash flow from operations. Combined with the ITC, this covers the remaining CapEx in the period. We have continued high-grading our portfolio. We announced the latest move earlier this week, divesting onshore assets in Argentina for a total consideration of $1.1 billion, unlocking capital for high value creation opportunities. The establishment of Adura was a major milestone last year. Our joint venture with Shell has created a leading operator on the U.K. continental shelf, fully self-funded, covering all Rosebank CapEx and well positioned for growth. The JV company expects to distribute more than 50% of cash flow from operation to its shareholders, starting from the first half of 2026. Based on Adura's plans, we expect total dividends of more than $1 billion for 2026 and '27 combined with growth from '26 to '27. This moves our U.K. portfolio from being cash negative due to CapEx to cash positive from dividends. These 2 transactions build on previous high-grading of the portfolio, divesting mature assets and invest more in long-term gas production onshore U.S. Through this, we have created a more future-proof international portfolio, focusing on prospective core areas, increasing free cash flow, strong production, lowering cost and a portfolio with low carbon intensity. Now on to our strategic priorities for 2026 and '27 and how they guide our capital allocation. The world is changing, but one thing remains firm. Energy demand continues to grow. We are well positioned to contribute to energy security, affordability and sustainability. So first, after more than 50 years of developing the Norwegian continental shelf, we are uniquely positioned for value creation here, and we continue to invest. The Norwegian continental shelf remain the backbone of the company. In 2026, the NCS will contribute to our production growth, and we work to maintain strong production well into the next decade. In the future, as you know, we expect to make more but smaller discoveries. To ensure commerciality, we will work with partners, suppliers, authorities and unions to change the way we operate on the Norwegian continental shelf. We will develop future discoveries faster, become more efficient and increase return while improving safety further. Next, we are set to deliver strong production and cash flow growth from our high-graded internationally -- international oil and gas portfolio. We are progressing project execution and exploration across key geographies, adding new volumes and opportunities for longevity in the portfolio. On power, we combine our renewable portfolio with flexible power to build an integrated power business and strengthen our competitiveness. We are value-driven in all we do and disciplined in execution and capital allocation. The main focus for '26 and '27 deliver safe operations and strong project execution of already sanctioned portfolio. All this, Norwegian oil and gas, international oil and gas, power are tied together by our marketing and trading capabilities, creating value uplift across our business. We are positioned to create value within low carbon solutions like carbon capture and storage, but markets are developing at a slower pace than anticipated. In addition to the execution of Northern Lights and Northern Endurance, we will continue to mature a few selected options and markets at low cost. We will be positioned to invest as markets develops, customers are in place and returns are robust. We grow our production to even higher levels in 2026 from a record high production level in 2025. For the year, we expect a production growth of around 3%. We are ramping up new fields, which more than offset divestment and natural decline. We are replenishing our portfolio and have 3-year average reserve replacement ratio of 100%. On the NCS, we made 14 commercial discoveries last year, mainly close to existing infrastructure, adding to longevity. And we continue to explore. We have added attractive acreage in Norway, Brazil and Angola, where we expect to drill around 30 exploration wells in 2026. We expect to reduce our unit production cost to $6 per barrel. We continue to focus on delivering a carbon-efficient portfolio with a CO2 upstream intensity of 6.3 kilo per barrel. We take firm actions to strengthen our cash flow and further increase resilience facing higher market uncertainty. In 2026, we expect around $16 billion in cash flow from operations after tax. This reflects a lower price outlook and is also impacted by the tax lag effect in Norway. A flat price assumptions is growing to around $18 billion in 2027. We have strengthened our investment program for 2026 and '27, reflecting market realities. We have reduced our CapEx outlook for these 2 years with around $4 billion, mainly within power and low carbon. This also influenced our net carbon intensity reduction for 2030 and 2035, no change to 5% to 15% and 15% to 30%, respectively. We maintain a stable investments of around $10 billion annually to oil and gas. Our CapEx guiding for 2026 is around $13 billion. This includes Empire Wind, where we, in 2027, expect to monetize investment tax credits for around $2 billion. With this, we indicate CapEx of $9 billion for 2027. In the current situation for the offshore wind industry, we are focusing on projects in execution and have a high bar for committing capital towards new offshore wind projects. This includes our ownership in �rsted. We will continue driving cost improvements, including the portfolio high-grading we have done. We aim for 10% OpEx reduction in 2026, even while growing production. We continue with strategic portfolio optimization to strengthen future cash flow. Proceeds from the divestment of Peregrino and onshore Argentina assets is expected to contribute more than $1.1 billion this year. The action we take to strengthen our cash flow and robustness support sustainable, competitive capital distribution. This is important to me and a priority for the Board of Directors. The starting point is the cash dividend. We have set an ambition to grow the quarterly cash dividend with $0.02 per share on an annual basis. We continue to deliver on this. It represents an industry-leading increase of more than 5%. We also continue to use share buybacks to deliver competitive total distribution. For 2026, we announced a share buyback program of $1.5 billion, including the state share. The first tranche of $375 million starts tomorrow. As previously communicated, we see true timing effects like the tax lag in Norway and the phasing of Empire Wind and lean on the balance sheet to deliver competitive capital distribution in 2026. In 2027, we have taken action to deliver stronger free cash flow. This is important to ensure that we can deliver competitive capital distribution in a long-term sustainable manner. So with our guiding in the background, I will give the floor to Torgrim that will take you through -- further through the details. And then I look forward to questions together with Torgrim when he is finished. So Torgrim, please. Torgrim Reitan: So thank you, Anders, and good morning and good afternoon, and thank you for joining us here today. So 2025 was a good year for Equinor. We delivered strong performance and record high production. But before we dive into the financial results, I want to expand on how we will manage through a period of volatility. So we are prepared for lower prices with a strong balance sheet, lower cost and CapEx and an attractive project portfolio. Our financial framework sets the boundary conditions for how capital allocation -- for our capital allocation and how we manage our company. So to start, our highest priority will be to deliver a robust and a growing cash dividend, in line with our dividend policy, and this reflects growth in our long-term underlying earnings. Then we will continue to invest in an attractive and high-graded investment portfolio with low breakevens and strong returns in line with the following priorities. First, our unique position on the Norwegian continental shelf gives us competitive advantages. And this is why we will continue to prioritize developing this area and allocating almost 60% of our investments to an area we know better than anyone. In '26, we have 16 projects in execution in Norway. Many of these are tie-ins to existing infrastructure with low cost and very low breakevens. Then we will allocate 30% of our capital to our international oil and gas business. This is mainly to sanctioned projects, and we expect to increase production to more than 900,000 barrels per day in 2030. And then around 10% of our capital will be allocated to building an integrated power business where the main focus is on delivering our offshore wind projects in execution safely, on time and on cost. Outside these 3 areas, we expect limited investments over the next 2 years. As you know, we will prioritize having a strong balance sheet and liquidity necessary at all times. And this is important to manage risk and to continue to deliver value. Over the next 2 years, we will see through the timing effects such as the NCS tax lag and the tax credit on Empire Wind impacting our cash flow from operations, and we will lean on the balance sheet. We will lean on the balance sheet in 2026 to cover CapEx and distribution. Next year, in 2027, cash flow from operation is stronger, and we have lowered CapEx, significantly improving the free cash flow. So we will manage the balance sheet through this period and continue to deliver competitive capital distribution, including share buybacks. For more than a decade, we have consistently delivered an industry-leading return on capital employed. And if you ask me, that is a premium KPI that we hold very high in our company. And with this financial framework, we expect to deliver around 13% over the next 2 years, now using a lower price deck than what we have used earlier as such. So that is comparable to what we have said earlier. We are used to managing volatility and deliver value through cycles. First, to manage cycles, we have to run with a strong balance sheet and a robust credit rating, and we have that. We have that. And having liquidity available is key. We have close to $20 billion for the time being. Second, a low cost base is important to ensure that we make money at low prices, and we continue to reduce our costs. We have a low unit production cost. And in 2026, we will further reduce it by around 10% to $6 per barrel. We are the lowest cost supplier of pipe gas to Europe with our all-in costs of less than $2 per MBtu, and we are sure that we will create significant value in any price scenario in Europe. Through strong cost performance and portfolio high-grading, we aim to reduce OpEx and SG&A by 10% in 2026. This corresponds to a flat underlying cost development, overcoming inflation while growing production. We are addressing costs in all parts of the organization. And I want to highlight that in 2025, we brought down OpEx and SG&A in renewables by 27%, mainly due to reductions in early phase costs. And then thirdly, it is key to have a competitive project portfolio that makes sense at lower prices. And we operate a majority of our projects, giving us the flexibility needed to adjust when we want to do that. Through portfolio flexibility and high-grading, we have reduced CapEx over the next 2 years by $4 billion, made divestments totaling more than $6 billion since 2024 and strengthened the quality of our portfolio. Our average breakeven is around $40, and we see an internal rate of return of 25% in the portfolio at $65 oil. We remain a leader on CO2 efficiency and an average payback of 2.5 years. So I will call this a robust, low-risk and high-value project portfolio that will create value also at low prices. In periods of volatility, our NCS position and our international portfolio complement each other. In Norway, we are more robust to lower prices, while internationally and particularly in the U.S., where we have strengthened our gas position, we have a large exposure to upside in prices. So Norway first. We have immediate deductions for CapEx against the special petroleum tax. And with full consolidation between fields and no asset ring-fencing, our pretax CapEx of around $6 billion translates into an after-tax investments of less than $1.5 billion. And when prices change, 78% of the effect on the revenue is absorbed by reduced taxes. So this makes the NCS less exposed to lower prices than other basins. So what happens if prices change? With a $10 move in oil prices, the cash flow is only impacted by $1.2 billion, and this is across the global portfolio and adjusted for tax lag. For European gas, a $2 change equals $800 million. What is particularly interesting is the U.S. gas, where the production is now 1/3 of our Norwegian gas position. But still, a $2 movement in gas price has a similar effect on cash flow after tax as in Norway. So let me elaborate more on the U.S. gas as that has become even more important to us. So in 2025, we delivered around $1 billion in cash flow from operations out of that asset. Production increased by 45% on back of well-timed acquisitions to around 300,000 barrels per day, capturing gas prices that were more than 50% higher than in 2024. We have a low unit production cost for U.S. gas around $1 per barrel, and we are well positioned to benefit from robust power load growth and increased demand in the Northeast. We are marketing our gas ourselves, and we are able to add value through trading, pipeline capacity and access to premium markets such as New York City and Toronto. So in January this year, gas prices in the Northeast reached very high levels driven by the winter storms, and we used our infrastructure and trading to capture quite a bit of value out of that volatility. Okay. So now to our fourth quarter and full year results. These slides sums up the key numbers you heard from Anders. Safety is our first priority. We see strong safety results, but we need to continue improving with force. Return on average capital employed in '25 was 14.5%. Cash flow from operations after tax came in at $18 billion, and earnings per share was strong at $0.81. For the year, we produced 2,137,000 barrels per day. This is record high and up 3.4% from last year, driven by ramp-up on Johan Castberg and Halten East on the NCS, U.S. onshore gas and new wells coming on stream. In the quarter, production was up 6% despite some operational issues in Norway and in Brazil. On the NCS, Johan Sverdrup had another strong year. For power, we produced 5.65 terawatt hours and renewables power generation was up by 25%. So then to financials. Adjusted operating income from E&P Norway totaled $5 billion, driven by increased production at lower prices. Depreciation was up compared to last year due to new fields on stream. Our E&P International results were impacted by portfolio changes and an underlift situation in the quarter. In the U.S., results were driven by significantly higher gas production, capturing higher prices. And in our MMP segment, results were driven by gas trading and optimization and a favorable price review result in January. So the result of this price review explains the difference from the MMP guidance. So this is a one-off. However, important enough, and the cash flow impact will be somewhat higher than the accounting effect, and it will come in 2026. On a group level, we had net impairments of $626 million and losses on sale of assets of $282 million. These do not impact adjusted numbers. A significant part of this relates to the Peregrino and the Adura transactions, and they are mainly driven by accounting treatment of these transactions, more of a technical nature. Adjusted OpEx and SG&A was up 7% compared to the same quarter last year and up 9% for the year. These are driven by transportation costs, insurance claims and currency. For the year, underlying OpEx and SG&A was up 1%. And if you adjust for currency headwinds, it was actually slightly down. For the year, our cash flow from operations came in at $18 billion after tax, in line with our guidance when we adjust for changes in prices. Organic CapEx for the year was $13.1 billion, also in line with what we said. Our net debt to capital employed ended at 17.8%. This increase from last quarter is mainly driven by NCS tax payments and �rsted rights issue participation and somewhat increasing working capital. So let me conclude with our guiding. For 2026, we expect $13 billion in organic CapEx and a 3% growth in oil and gas production. We have increased our quarterly cash dividend by more than 5% now at $0.39 per share and announced a share buyback of up to $1.5 billion for the year, starting with the first tranche tomorrow. So thank you very much for the attention. And now I will leave the word back to you, B�rd, for the Q&A session. So thanks. Bård Pedersen: Thank you, both Anders and Torgrim. We will now start the Q&A. [Operator Instructions] So then we'll start. And the first hand I saw was Teodor Sveen-Nilsen from Sparebank. Teodor Nilsen: Congrats on strong results. So 2 questions. First on CapEx. You obviously reduced the guidance for 2027. I just wonder how we should interpret the run rate into 2028. Should we also assume that 2028 CapEx will be well below the $13 billion you previously announced? Or is that too early to say anything about? And second question, that is on MMP. Could you just explain what's behind the price review that boosted the results? Anders Opedal: Thank you very much. So you can think about the price review, Torgrim, while I'm talking about the CapEx. Yes, you're right. We have reduced the CapEx. We have -- when we are looking into the CapEx profile over the last years, we have had consistency. You have seen that we have consistency investing into Norwegian oil and gas and in international oil and gas. And last year and this year, we are reducing the CapEx outlook for our renewables and low carbon solutions. And this is due to that 2, 3 years ago, we had a different market view than we have today. We don't expect that this market will change dramatically over the next years. We intend to continue focusing, investing consistently into our attractive oil and gas portfolio that Torgrim demonstrated and be market-driven and invest in low-carbon solution and power when the time is right, the profitability is right and the market comes. So I cannot give you the guiding for '28 already. But with this consistency investments in oil and gas and this change we have done in the CapEx for renewables and low carbon solutions and the market will probably not change very much over the next years, I think you will see somewhat consistency in our CapEx guiding going forward, and we will come back to more details about this in June. Torgrim Reitan: And thanks, Teodor. On the price review, that is a normal mechanism in many of the gas contracts where sort of if the price in the contract dislocates from what the market should have been and the price should have been, we have a mechanism to renegotiate or open up that. We often disagree with customers in processes like this. And often, we take such things into arbitration as we have done in this case. So that has gone on for a while, and we won in that arbitration. Over the year, we have accrued revenue related to that because we consider that we had a strong case. We had an even better outcome than what we accrued as such. So this will be a one-off payment during the year. And from now on, there is a new mechanism in place on that contract as such. Bård Pedersen: Sorry, Teodor, I need to stick to the 2 questions because we want to cover as many as possible. And the next one is on my list is John Olaisen, ABG Sundal Collier. John Olaisen: First question is regarding Johan Sverdrup... Bård Pedersen: John, please use the microphone so people can hear you online. John Olaisen: Okay. Sorry. It's John Olaisen from ABG. My first question is regarding Johan Sverdrup. Anders, you quoted in the media today saying that you expect it to decline by more than 10% this year. I wanted to elaborate a little bit more on that. How much more? And do we expect the same for the next few years? So that's my first question on Johan Sverdrup production profile. The second question is regarding M&A. You've sold a lot of assets internationally. So I wonder, do you still have assets on the sales list internationally? And also secondly, it's a long time since you bought assets internationally. Do you have -- are you looking at potential acquisitions internationally? Those are the 2 questions, Sverdrup and M&A. Anders Opedal: Thank you. First of all, when it comes to Sverdrup, I think we have demonstrated over many, many years how we've been able to keep up the production, even increase it due to the fantastic work that is done by the people working with Johan Sverdrup. Then a field like this is like all other fields, eventually, it will come into decline, and we see that now. So we see a decline in Johan Sverdrup for 2026, which is more than 10%, but well below 20% and that is what we put into our numbers. Still, we will have a growth in Equinor of 3% for 2026 and actually also a growth both on the Norwegian continental shelf and internationally. And of course, based on all the good work, drilling new wells, placing the wells better, retrofitting the wells, high production efficiency, have a high water cut and flow through the separators. The team is working to make sure that this decline is as low as possible. But above 10, well below 20 is what we see and kind of planning for in 2026. Well, we don't have a specific list of M&A sales candidates and targets that we disclose. But I think what you have seen, what we have done in the past, we have been active both in divestment where we think the timing is right to create value and where we see that future investment can be used better elsewhere that we have monetized those assets. And when we have seen opportunistic opportunities to invest, we have done it like twice in the U.S. gas in the Marcellus. You can expect us to be active going forward. And we have had a strategy of optimizing the international business, and we have optimized it now and set it clear for growth. And now is the focus to deliver on that growth finding more attractive exploration opportunities within those selected areas and at the same time, be open for value-accretive opportunities in the market. Bård Pedersen: Thank you. Next on my list is Henri Patricot from UBS. Henri Patricot: Two questions from me. The first one on the cash flow guidance for '26, '27, you do show this meaningful improvement in '27 to $18 billion. Could you give us a bit more of a breakdown behind this improvement? I think you mentioned Empire Wind starting up, some tax lag effect. What else is contributing to this sharp increase? And then secondly, I was wondering, there's uncertainty still around Empire Wind 1. What would be the impact to the financial framework you presented today if the project does not complete or implications for the broader CapEx and shareholder returns? Anders Opedal: So if you, Torgrim start with Empire Wind, then I can take on the CapEx reduction for '27 afterwards. Torgrim Reitan: Okay. So thanks, Henri. On the Empire Wind, clearly, we are steered by sort of forward-looking economics and forward-looking cash flows when we make up our mind. So from now on, the remainder of investments will be covered by the ITC and cash flow from operations over the next 2 years in a way. So the threshold for not moving forward with it is extremely high in a way. I mean the total economics of that project life cycle is something else. But clearly, the decision that we have to make is actually how it look going forward. And going forward, it's actually pretty solid. So the threshold for stopping it is very high. Our job is to deliver this on time and schedule. And I must say, I am extremely proud of what that project organization has been able to do through all of this volatility this year to keep it steady on the track. So we are on track to deliver, and we have no other plans than that. Anders Opedal: Yes. And then the cash flow from operation that is increasing from $16 billion to $18 billion towards '27. This is based on flat price assumption, $65 on the oil price and $9 and $3.5 for Europe and U.S., respectively. And the answer here is that this is the tax lag. We are this year paying a higher tax based on higher prices last year on the Norwegian continental shelf. And it's also a 3% production increase in 2026 that will also contribute to a higher cash flow. Bård Pedersen: Good. I have a long list also online. So let's take a few from there. The first one to raise his hand was Biraj Borkhataria from RBC. Biraj Borkhataria: Just the first one is a follow-up on Johan Sverdrup. You mentioned the decline for 2026. What is in your base case for 2027 and beyond? Because obviously, it's quite a big part of your portfolio. It'd be good to get some clarity there on the decline rates. And then the second question is just on the Empire Wind budget has obviously gone up a little bit. How should we think about how much contingency you have in that new $7.5 billion budget? Anders Opedal: Well, when it comes to -- we are guiding now on Johan Sverdrup for 2026. And to say what it will be in '27 is too early. As I said, we have a fantastic team there that will do everything they can to reduce this decline. We will drill new wells. And I also remind you that in the end of '27, we will have Johan Sverdrup Phase 3 coming on stream as well. We have ramp-up of other fields on the Norwegian continental shelf, meaning that despite this reduction in '26 decline in Johan Sverdrup, we will still have a production growth. And then we will see now how Johan Sverdrup behave during the first part of the decline and how we are mitigated and then we will come back to it. So it's too early to say. When the increases on the Empire Wind, it's very much related to 2 elements, is tariffs that has been imposed to the project and is also an effect of the first stop-work order that we had. The second stop-work order, we were able to execute part of the project, most of the project in the beginning of the stop-work order. And the most important parts of the progress, we were able to do after the preliminary injunction. So very little effect of the project. So it's the execution part of it -- it's going well in terms of CapEx -- use of CapEx in this project, but there is a remaining uncertainty on tariffs. You might remember a couple of weeks ago, a 10% tariff due to Greenland that was removed a little bit a few days later, and that is some of the uncertainty that we are facing with this project. Bård Pedersen: The next one on the list is Alastair Syme from Citi. Alastair Syme: Just one question really to Anders. I just wanted to reflect on the journey that Equinor has been on in recent years with respect to the transition because you are signaling today a further scaling back in ambitions with a lower CapEx and look, I know you're not alone in doing this in the industry. But if I go back a few years ago, you had outlined a competitive position where Equinor could be differentiated in the transition space. So I guess my question is, what are your reflections on this journey? And what do you think has happened that is different to what you anticipated several years ago? Anders Opedal: Thank you. It's a really good question. And I think kind of this is where we were saying today that we are signaling a consistency. We have over the last 5 years, been extremely consistent in our communication around oil and gas and how we will develop the oil and gas portfolio, optimize it, and we have delivered on that. But we also had a different market view on offshore wind and the transportation and storage of CO2 in particular. This is where we were -- had experience. We saw a market growing for transportation and storage of CO2 going faster than we actually have seen. We -- for instance, also for hydrogen, a couple of years ago, we actually had head of terms contracts with customers. Those has been canceled, meaning that we have not been able to progress a lot of these projects within that area. But keeping in mind, we were able to -- been able to do Northern Lights -- Northern Lights Phase 2, Northern Endurance. So we see now that the licensing for or support regimes and applications for capturing CO2 goes slower despite that the framework and the laws are much more in favor of CO2 now than it was before. So to summarize very quickly, we had a different market view some years ago based on real discussions with governments and potential customers than we have today. 3, 4 years ago, customers called us to buy natural gas and was also asking for potential hydrogen and transportation and storage of CO2. Today, they continue to buy natural gas, but they have postponed their own targets for reducing emissions beyond 2030. Some years ago when everyone had a 2030 target, much more focus from customers to have this market up and running very fast. Now with different targets beyond 2030 to collect enough CO2 to have long-term contracts we have found it very difficult. That's why we are allocating no more CapEx into that area due to the market conditions. So that is what had happened. And we have focused on business-to-business with hard-to-abate industry that has postponed the targets. Bård Pedersen: Next question is from Irene Himona from Bernstein. Irene Himona: My first question is one of clarification really. You referred to your objective to build an integrated power portfolio. Typically, when your peers refer to integrated power, they mean essentially adding gas-fired power generation to renewables. So I wanted to ask what does integrated power mean for you? And how does �rsted fit in that? My second question, just going back to the share buyback. Previously, in the past, you had guided to a long-term sustainable through-the-cycle share buyback of around about $2 billion. Today, you lowered that to $1.5 billion. I'm just trying to understand what has changed between then and now essentially. Anders Opedal: You can start with that, Torgrim, and I'll do the integrated power. Torgrim Reitan: Okay. Thanks, Irene. So well, we have said at earlier years, $1.2 billion as sort of the sustainable level in a way. So $1.5 billion is actually above that. We retired the $1.2 billion a bit back. To give a little bit more context, Irene, it's the concept of having a stable share buyback through a cycle, comes a little bit theoretical. We're just coming out of a super cycle, and we have returned $54 billion over the last 3 years based on that in a way. So where we are now, we are actually the first year where the balance sheet is normalized, and we aim to manage within our means. So the number that we put forward today is $1.5 billion. We are leaning on the balance sheet this year, but you have seen in 2027. So we want to sort of give you an outlook for -- over a couple of years here. So the way you should think about share buyback is that it is a natural part of the capital distribution. It is something that is regular and is on top of the cash dividend. And the cash dividend, you should see -- consider as bankable. Share buyback clearly will be more dependent on macro environment as we move forward. Anders Opedal: When it comes to integrated power, for us, that means both intermittent power like offshore wind, onshore wind, solar, in addition to flexible power, batteries and CCGTs. We do have exposure in all of this. We have gas to power in U.K. We have battery in Poland and onshore and offshore and solar. This was divided in different business area. Now everything is integrated into one business area power. And then we have Danske Commodities that are able to integrate this totality and add additional value to this. Having said that, the priority within Integrated Power over the next year is to deliver on the already sanctioned projects. And from that, we are able to potentially if we have the right investment opportunity to expand further on the integrated power. But of course, with our gas position in Europe and U.S., we are, of course, well positioned also for gas to power if we see the right opportunities in the future. �rsted and working together with �rsted and collaboration with �rsted, as we have said, fits into this type of integrated power. We can be exposed in offshore wind in different ways and working together with �rsted, collaborating with �rsted will fit into an integrated power in different types of potential structures. Bård Pedersen: Thank you, Irene, for that. I'll take one more on the phone and then return to the room here. The next one is Paul Redman from BNP Paribas. Paul Redman: My first question is just how do you think about growth at Equinor? The reason I asked that question is at the Capital Markets Day last year, you highlighted a flat to decline in production 2026 plus. And I'm assuming that included some Vaca Muerta production as well. You're heavily cutting the renewable portfolio spend. So just how do we think about growth going forward from here? And then secondly, when I look at MMP, I guess the long-term -- well, the annual guidance was $1.6 billion, $400 million a quarter. You generated about $1.25 billion to $1.3 billion for the quarter if I take out the long-term gas contract review from this quarter. Is there any reason the guidance isn't updated? And how should we think about MMP going forward? Anders Opedal: I'll start with the growth, and we divide it so you can take the MMP. Well, let's start with the renewables. We have said that we don't want to invest more than what we have already sanctioned, but that will create a growth. We had a 45% growth quarter-to-quarter on the renewable business this year, 25% on the annual -- in 2025. So still growth in Integrated Power over the next year. And then as I said, we will have to think how we can create further profitable and disciplined growth into that area. When it comes to the international business, we have repositioned that portfolio. And you can expect from today's level towards 2030, growing this production towards 900 million barrels a day. So it's clearly a growth in there, growth in production, growth in free cash flow. On the Norwegian continental shelf, we will continue to explore. We -- it will be difficult to create further growth in -- on the Norwegian continental shelf, but we have received attractive acreage. We will drill 26 exploration wells on the Norwegian continental shelf next year. We're working on reducing the time from exploration to production from 5 to 7 years to 2 to 3 years, enabling more efficiency to be able to keep the production at the highest possible level on the Norwegian continental shelf and growing free cash flow from that portfolio. And that is what we're aiming for, for Norwegian continental shelf internationally and integrated power. Torgrim Reitan: Thanks, Paul. On MMP. So if you strip away the price review, you get to around $400 million in the fourth quarter, which is very much around sort of what we guide at. So that's sort of -- that's what you should, in a way, expect on a quarterly basis. However, there will be fluctuations as you very well know. What typically drives results are volatility in commodity markets and also contango versus backwardation. I can give you one example actually from January, where there has been a lot of volatility in the gas market. And in Europe, we have a 70% day ahead exposure and a 30% month ahead exposure. So you can rest assure that sort of the spikes you have seen in January, it finds its way to our P&L in Europe. In the U.S., we don't have -- we don't sort of have a firm exposure that we want, but clearly, the traders keep a certain part open. So when going into January, in the U.S., our traders left 30% exposed to the prompt or cash prices as such. So at the most extreme, for instance, the in-basin price for Marcellus gas was $60 per MBtu, and we took that. And then we have a transportation capacity into New York, actually coming up at Penn Station. And we achieved more than $100 per MBtu in that weekend as such. So just examples of when you see volatility, you should expect us to be able to get it in a way. So that's why these results typically fluctuates. Bård Pedersen: Thank you, Paul. Vidar Lyngv�r from Danske Bank. Vidar Lyngvær: First, just another clarification on the renewable spending in 2027. You're reducing CapEx by $4 billion. I get the tax credit part. Could you add some more color on where the remaining cut comes from? Second, Johan Sverdrup, you mentioned the decline rates there. Are those exit to exit, so exit '25 to exit '26? Or is it average production decline in '26 versus average in '25? Torgrim Reitan: Johan Sverdrup exit to exit or -- let's come back to the specifics on that. But I do think it is when you compare sort of the last year production with next year production as such. And just -- yes, and team is nodding there. So that is the way it works, yes. Anders Opedal: Yes. Yes, a little bit more color to this. As I answered earlier, we had a different market view. So we had, for instance, potential hydrogen project, transportation of CCS project in the CapEx outlook that we showed last year, those projects are not materializing. In addition, we have reduced our onshore renewable CapEx as well. And in total, this adds up to those $4 billion and together also with the ITC as you have seen. Bård Pedersen: Good. Steffen Evjen from DNB Carnegie. Steffen Evjen: On the ITC, just could you please remind me on the milestones they are required for that payment to come in, in terms of first power and any other things that has to be fulfilled? My second question is just a clarification on Adura. I think you said $1 billion in dividends. Is that your share? Or is that the total share to both shareholders? Torgrim Reitan: It's our share and then the ITC. ITC, yes. So the way it works is that you can recognize it when you start production and sort of that is sort of scale as you continue to start up the various turbines. So what we have assumed is that we recognize all of this in 2027 because that's sort of the plan. There is an upside that there is some ITCs recognized in 2026. We haven't based our analysis on it. So that is sort of the recognition part. And then there is -- so what is the cash flow impact of it. And it will take some time from we recognize it to the cash flow is in our account. So what you see on the slide is that we have assumed $2 billion impact of the ITC in '27, while the total number, the absolute number is $2.5 billion. So that sort of give you a little bit of a perspective around this. It is a significant financial operations to manage all of this, as you would know, but there is a large and growing market for ITC in a well-functioning market in the U.S. for this. Bård Pedersen: Next one is Martijn Rats from Morgan Stanley. Martijn Rats: I've got 2, if I may. I wanted to ask you again about the CapEx reductions. I know there have been a few questions about it already. But when Equinor took the initial 10% stake in �rsted, very soon thereafter, we also had a reduction in the CapEx outlook for offshore wind, renewables in general. And in many ways, that had the character, therefore, when you put these 2 things together, it's like, well, we do less organically and we do more inorganically. It was sort of not a total reduction, but it had an element of we're swapping one type of spending for another type of spending. And I was wondering how we should interpret this reduction in CapEx on this occasion. If power and low carbon CapEx goes down, is that -- should we interpret that as well, the company is just going to do less of that stuff? Or should we anticipate that in the fullness of time, this also turns out to be a swap, less organic, but more inorganic. I was hoping you could say a few things about that. And then the other question I wanted to ask is about the 10% OpEx and SG&A reduction target. Like 10% in a single year is quite a significant amount and also because Ecuador has already been very focused on that for some time. I was positively surprised that there's still sort of that type of opportunity available. Could you talk a little bit about the key levers, where that spending can be reduced? And also just for the avoidance of 10%, how does that translate into absolute sort of absolute dollar amounts, that would be helpful? Anders Opedal: Let's start with that question first, and Torgrim. Torgrim Reitan: Okay. Thanks, Martijn. So on the 10% reduction. So over the last years, we have been able to maintain OpEx and SG&A flat even if we have grown our production and despite the inflation as such. So our people and organization has done a good job. Next year, we expect that number to come down by 10%. That is a very big number. However, it is a significant impact of divestment of Peregrino and the establishment of Adura that will be equity accounted as such. So the reported numbers will be down 10%. But when you adjust for structural changes, we expect to maintain OpEx and SG&A flat, growing by 3% and still inflation as such. So this comes from many sources. First of all, activity level. Clearly, we have taken down and prioritized that very hard. That has a direct impact on it. We have taken down early phase costs significantly in the portfolio, also a significant contributor. Staff are continue to high grade and take out efficiencies. And then the business areas are clearly working on this. So -- but on your question, is there more to come? And the answer is yes, we are never satisfied with where we are on this. And I can give you 2 examples of what to come. One is the work around NCS 2035. We do see a significant cost impact of that. So we hope to show more on that in June. The other one is actually artificial intelligence. So we have already see that in our numbers, NOK 1 billion or so, which is good. However, this is early days. And we do believe that with our large operations and our ability to take out effect across assets that AI can really be a significant contributor to further cost improvements. So we'll continue to fight and work this -- but the 10% is clearly colored by the inorganic moves we have done. Anders Opedal: Yes. So -- and thank you for that CapEx question, Martijn. And let me elaborate a little bit how I think around this because you probably see now that several times, we have taken down the renewables and low-carbon solution CapEx. And it's not necessarily because we have done any inorganic moves. It's also because we have not been successful in some of the bidding because we have raised the bar for winning future CFDs. And a couple of years ago, we had several projects inside our CapEx outlook that is now not inside the CapEx outlook due to deliberately not being successful in those auctions. So a more positive view some years ago, as we said during the �rsted acquisition of 10%, we found it more value creating at that point in time, do an inorganic move than do organic move. This -- we have further taken down the CapEx for offshore wind, but also on onshore renewables. A couple of years ago and last year, we had a much more positive market view and direct discussions with customers for CO2 highway and the hydrogen project in Eemshaven, which are now pushed further out in time. And actually, the hydrogen projects in Eemshaven is stopped before FEED, and we will not move forward. And in these areas, I don't think there are many inorganic moves to be done that will create value. So you should not expect us to work much on this. We will continue to work on being a leading company in terms of transportation and storage of CO2, building on Northern Lights 1, 2 and Endurance, but we will not make investments before we see -- we have long-term contracts, we have seen costs coming down and we see profitable projects. And that means that there needs to be a better market than we see today. Bård Pedersen: Thank you, Martijn. Next one is Nash Cui from Barclays. Naisheng Cui: Two questions, please. The first one is on your upstream reserve life. I wonder how do you think about a reasonable level of upstream reserve life in the medium to long run, please could better technologies like AI to help extend base? Then my second question is on �rsted. I think earlier, you mentioned that you could collaborate more with �rsted in kind of different types of potential structures. And I wonder if you could elaborate what you mean by the potential structures? Anders Opedal: Well, you have seen what we have done, just an example with Shell in U.K. There's always way to work together to create value for both shareholders. But there is no discussion at the moment, but we see that a further collaboration with �rsted could benefit both companies, but nothing new to elaborate today. When it comes to reserve life, I think this will also -- the ROP will be affected in the years to come that we have many more exploration wells, smaller discoveries and faster time from discoveries to production, meaning that the ROP will be lower than traditionally when we had the big elephants on the Norwegian continental shelf. At the same time, we are comfortable with our ROP where we see it today around 7 because we have so many exploration wells, we have discoveries. And last year, we had 14 discoveries, adding in total 125 million barrels in new resources. Lofn and Langemann, which is in Sleipner area is in an area where we thought there was nothing more to be found, but new technology, new seismic, use of AI has enabled us to make more discoveries. We have seen the same in the Ringvei Vest area. So we will continue to implement AI in exploration to ensure that we are able to discover new resources that was overseen in the past that we now can drill and bring to market in a quicker way. And by using AI, not only on exploration, but also in operations, and so on. We saved $130 million last year, and this is accelerating. So as Torgrim said earlier, we are really focusing on implementing AI to create value in the company. And this is something that you will hear more about in the future. Bård Pedersen: Next is Jason Gabelman from TD Cowen. Jason Gabelman: I wanted to first go back to the Empire Wind guidance. And I'm wondering if the $600 million of cash flow, is that what Equinor expects to receive? Or are there going to be some repayments on the project financing that are going to minimize that in the earlier years? And I wonder if you have a similar number for the Dogger projects. And then my follow-up is just on kind of broader exploration opportunities beyond what you've discussed. And we've seen companies kind of going back into regions where fiscal terms have improved like the Middle East and West Africa. I wonder if you look at those regions as potential opportunities for the company to exploit or given kind of the lack of footprint in those regions, is it not a core focus? Anders Opedal: Yes. I'll start with that question, and you can do the $600 million and the synergy effects there. So basically, what you have seen, what we have done in the international oil and gas portfolio is to focus it. We were in 30 to 40 countries, high cost, high exploration cost. And we have concluded that we were not successful with that strategy, adding too much cost and too little of progress in putting new resources into the inventory. So we have worked very hard to focus and building an attractive exploration portfolio in those focused areas like in Angola, in Brazil and in U.S. offshore. And of course, Bidenor East Canada, we're working on the Bidenor field, where this will also have attractive exploration opportunities around it, similar to what we see on Castberg and other new fields. Then, of course, we will, of course, always be open for ideas and value-adding exploration activity outside this core, but the bar is high. We will not have a global exploration strategy moving around in all parts of the world. We have areas where we see now we have learned the basin. We have experience, and we think we can expand quite a lot on that one. Brazil, for one instance, by Bacalhau, the Raya, we have an attractive exploration opportunities there now, the neighbor block to the Bumerangue discoveries for BP. We have a block close to Raya, and we're maturing up to see what kind of exploration program we can have in that area. And next -- and in this year, we will actually also drill exploration wells in Angola. So we are curious about other areas, but we'll have most of our focus in the focused area. Torgrim Reitan: And then Jason, on the $600 million in cash flow related to Empire Wind, that is related to our equity as such. There's no sort of money of that, that goes to the lenders. A couple of things. There is a portfolio effect in addition to the cash flow within the project. And that is related to that the depreciation that we have in Empire Wind goes into the IFRS results and the minimum tax in the U.S. is based on IFRS results. So it sort of reduces the minimum tax payments in the states as such. So there's a portfolio effect coming on top of the direct cash flow in the project as such. Bård Pedersen: Just to clarify in the CFFO, the interest payment is included, but not the payment to the lenders, as you said. Thank you, Jason. Kim Fustier from HSBC is next on my list. Kim Fustier: I had a couple on the NCS, please. Firstly, I believe that back in November, you announced a reorganization of your NCS business along centralized functional lines like subsea drilling, et cetera. Could you give a bit more color on this? And how does that move help to set you up for a future on the NCS with fewer big developments, but more small developments? And then secondly, could you give an update on a couple of pre-FID projects, Wisting and then Bay du Nord in Canada, where there seems to have been some technical progress lately? Anders Opedal: Yes. Thank you. So the Norwegian continental shelf is changing. With after Johan Sverdrup and Bacalhau, we have, as I said, much more smaller discoveries, smaller fields. Most of the developments will be now subsea tie-in projects. We actually have 75 of those in our portfolio over the next 10 years. So it's about making sure that we're able to execute on these projects faster. We are going -- that we can drill more exploration well faster, and we can create more value. So then we have actually started with looking into how we work. how is our work processes, all the way from working together with partners, internal approval processes, field development processes for subsea tie-in and so on. We have looked at 70 work processes, how to -- for drilling to development and so on. We have simplified those work processes, and we have looked at them together such that all these processes are streamlined end to end. And just to say a change that I will do, instead of making 7, 8 individual decisions on these projects one by one, we will group the decision. And twice a year, I will make a lump decision of several projects, enabling faster decision-making processes and ensure that we're able to move this project faster. Based on changing the way we work, we are also reorganizing both the project organization, the drilling organization and the operation units on the Norwegian continental shelf, not offshore, but all the onshore function, enabling to work according to the new simplified work processes. So this is actually one of the largest changes we have done developing the Norwegian continental shelf since we established the StatoilHydro company and merged StatoilHydro back in 2007, 2008. So it's actually changing the way we work because the geology and the reserves on the Norwegian continental shelf changes. And what do we want to achieve? Well, we want to move time from discovery to production from 5 to 7 years to 2 to 3 years, and we need to increase the volumes that we are able to find during exploration, meaning that we need a 200 to 300 efficiency gains on the Norwegian continental shelf. When it comes to Wisting, this is far in the north in the Barents Sea, challenging projects. We're working hard to simplify it. We have made a lot of progress in that respect. We will work on concluding on the concept during first half of 2026 or in 2026 and then move towards hopefully a DG3 during 2027. But let me underline this. We are not schedule driven. This is a project where we have to make sure that this is the right project, right financial, right breakeven, NPV, and we have everything in place because this is a very, very challenging project. On the Bay du Nord, we are approaching also a concept selection at what we call Decision Gate 2. We have a good engagement with local authorities and the government of Canada to -- so we can work together. This is a very good project. We have worked well together with suppliers for a long time to take down the cost and the breakeven as much as possible. And if we are successful now over the next months, then we can bring it towards an investment decisions over the next -- over the next years. And both these projects, if we are successful, will contribute to high production beyond 2030. Bård Pedersen: Thank you, Kim. I have a few left on my list, and I want to cover as many as possible. So I ask that you limit yourself to one question to give as many as possible the opportunity. Next one is Chris Kuplent from Bank of America. Christopher Kuplent: I'll keep it to one question for Torgrim, and please forgive me for some quick mental math. But when you set your $1.5 billion buyback, are you effectively arguing over the course of '26 and '27, considering the lumps and bumps in your CFFO as well as CapEx, you're targeting to be free cash flow neutral after dividends and buybacks. Am I putting too many words in your mouth? Or is that a fair characterization of what you're trying to do over the next 2 years? Torgrim Reitan: Well, Chris, I think I need to be very precise here. So I mean, you're on to it. So clearly, you should look across those 2 years when you think about sort of our free cash flow generation that we have available to cash dividend and share buyback. We aim to run with a solid balance sheet. However, we are going to lean on the balance sheet in '26, well aware that next year is a larger free cash flow. So it makes sense to look across those 2 years. And we have done that when we have set the share buyback level for '26 as such, we have. Bård Pedersen: Thank you, Chris. Matt Lofting, JPMorgan. Matthew Lofting: Just one on Empire Wind and read-throughs from it. I mean it seems Equinor has done a good job keeping the project execution on track amid the past hold orders. But I just wonder how the company reflects on implications from this and having retained 100% equity stake through it for best assessing risk management and risk-adjusted returns, let's say, on future capital allocations. Are there learnings that are emerging from Empire Wind for optimal sizing, taking into account perhaps above as well as belowground factors? Anders Opedal: Thank you. That's a really good question. And yes, this is definitely something to reflect on. And we normally don't take 100% in any license, not on oil and gas and not in offshore wind. But due to a deal with BP, they took some and we took this. We derisked it somewhat with higher strike prices with a financing package. And then as you have seen, the political risk with the new administration was higher than anticipated. This is a trend we see now in several countries that energy investments are more and more politicalized and polarized. And we see it in Norway. We see it in U.K., we see it in U.S. And definitely, for us, this brings some reflections about what is the above-ground risk you can take. And for myself, I reflected quite a lot about to see bipartisan support for future projects. If there is a kind of a strong division for potential projects, then we need to think twice and really understand the political risk. And this is something new. It's not only in U.S. This is something new that we have seen lately in several countries. And kind of we need to adapt the learning, and we need to bring into future decision processes definitely. Very important question you raised there. And with the political changes we have seen, which were kind of outweighted all the other factors that was reducing the risk, we would have probably thought differently about Empire Wind in the past. Bård Pedersen: Thank you. We are on the hour, but let's take one more and hope is short and then we'll round it off, and that is you, James Carmichael from Berenberg. James Carmichael: Just one last quick one, I think. Just again on Empire Wind. I was just wondering if you could clarify your sort of best case estimate on the timing of the underlying court case and when we might be able to sort of put any uncertainty to be around sort of future hold orders, et cetera. Anders Opedal: Yes. This is a little bit early to say kind of because it's a judge in U.S. to decide that timing when this -- the merits of the case will come up for the court. There's been indication that will happen fairly quick with some couple of months, and that gives us opportunity to elaborate on the case in a good way. I just want to also remind you that all the 4 other operators we're doing exactly the same thing, challenging this in court and all of them were granted a preliminary injunction. We mean that this stop-work order was unlawful. And at least with so consistent preliminary injunction, I think also we have a strong case moving forward. But I'm an engineer and not a lawyer. So -- but yes, we are moving forward with a strong belief that we will have a good case in the court, strong case. Bård Pedersen: Thank you. I would like to thank you all for participating and for asking your questions. We didn't manage all the way through the list, but I want to be respectful for everybody's time. And as always, the Investor Relations team remain available for any follow-up questions during today or later in the week. Have a good afternoon, everybody, and thank you for joining.
Operator: Ladies and gentlemen, welcome to the Cognizant Technology Solutions year-end Fourth Quarter 2025 Earnings 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'd like to ask a question at that time, please press 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press 2 if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before Thank you. I would now like to turn the conference over to Mr. Tyler Scott, Senior Vice President, Investor Relations. Thank you. Please go ahead, sir. Tyler Scott: Thank you, operator, and good morning, everyone. Welcome to Cognizant's fourth quarter and full year 2025 earnings call. I am joined today by Ravi Kumar, our CEO, and Jatin Dalal, our CFO. Now, you should have received a copy of the earnings release and the investor supplement. If you have not, copies are available on our website, cognizant.com. Before we begin, I would like to remind you that some of the comments made on today's call and some of the responses to your questions may contain forward-looking statements. These statements are subject to the risks and uncertainties as described in the company's earnings release and other filings with the SEC. Additionally, during our call today, we will reference certain non-GAAP financial measures that we believe provide useful information for our investors. Reconciliations of non-GAAP financial measures where appropriate to corresponding GAAP measures can be found in the company's earnings release and other filings with the SEC. With that, over to you, Ravi. Ravi Kumar: Thank you, Tyler. Good morning, everyone. Thank you for joining us today. I'm pleased to report our momentum continued in the fourth quarter. Revenue growth and adjusted operating margin again outpaced our expectations. Looking at the quarter's highlights, revenue grew 3.8% year over year in constant currency, all organic, driven by North America. By segment, financial services led growth with constant currency revenue increasing 9% year over year during the quarter and 7% for the year, the highest annual level since 2016. Q4 bookings grew 9% year on year, driving a record quarterly total contract value. We signed 12 large deals with TCV of $100 million or greater, including one deal valued at more than $1 billion. The value of these large deal wins is 60% greater than a year ago. Adjusted operating margin of 16% improved by 30 basis points year over year. We now have over 4,000 AI engagements across all three vectors, and over 30% of our developer effort in software development cycles is AI-assisted and agent tech. Our productivity improved as fixed bid and transaction-based work now represent more than 50% of our revenue. We also saw a 5% and an 8% increase in trailing twelve-month revenues and adjusted operating income per employee, respectively. These results drove 2025 revenues up 6.4% in constant currency, surpassing the $20 billion mark and the high end of our guidance range. Importantly, we delivered profitable growth. Our 15.8% adjusted operating margin exceeded guidance, rising 50 basis points over last year. We achieved this result while investing in our people, including through a merit cycle for most associates and our highest discretionary annual bonus funding level since 2018. January marked my third anniversary as Cognizant's CEO. When we began this journey in early 2023, we set out to reclaim our winning heritage. In 2024, we successfully pivoted from stabilization to growth, industrialized a large deal engine, and expanded our platform strategy with AI-led investments to broaden our capabilities. In early 2025, we laid out our strategic objectives to amplify talent, scale innovation, and accelerate growth. We also set a goal to reach our industry's winner's circle by 2027. I'm extremely proud that we arrived two years early with top-tier revenue growth. Throughout 2025, we executed with speed and discipline, consistently meeting or beating the high end of our expectations each quarter as our investments began shaping Cognizant into an AI builder capable of scaling agentic AI across our clients' landscapes. Looking at additional milestones that demonstrate successful execution on our three strategic priorities, in 2025, we promoted more than 35,000 associates. We signed 28 deals, each with TCV above $100 million, with a combined TCV up nearly 50% versus last year. This includes five mega deals with TCV of $500 million or greater. Our net promoter scores reached a record high in 2025, from when I started three years ago. We expanded the breadth and depth of our partnerships across the hyperscaler and AI-native landscapes. We signed and have since closed our acquisition of Three Cloud, adding more than 1,200 Azure specialists and engineers to industrialize our deep expertise in Azure data and AI and application innovation. We returned $2 billion to shareholders through dividends and share repurchases. Our progress is reflected in our total shareholder return, which was top two within our peer group in 2025, both 2025 and the three-year period beginning 2023 through. Finally, with Belcan, we completed key integration milestones and continue to build a healthy synergy pipeline in the aerospace and defense industries. Last week, we announced Belcan secured a position on the missile defense agency's shield program. The indefinite delivery, indefinite quantity contract with a ceiling value of $150 billion positions us to compete for a broad range of task orders supporting innovative defense capabilities. As we enter 2026, our strategy is focused on solving the AI velocity gap. The gap between massive AI infrastructure spending in the past few years and business value realization for our clients. While AI technology is now mature enough to offer transformative value, the methodologies and tools to harness it are only just emerging, and the value to enterprises hasn't drifted yet. In fact, our latest new work new world research released last month reveals that AI is capable of unlocking $4.5 trillion in US labor value in the future. Cognizant's mission is to be the AI builder bridging the gap to enterprise value by converting the technology to measurable returns on investments for our clients. We are approaching this opportunity through our three-vector strategy. To capture vector one demand, as we call it, we're applying AI-led productivity to augment and accelerate traditional software cycles. As we shared at our Investor Day, we see a massive multi-trillion dollar opportunity to help clients accelerate the elimination of technology debt, build classical software in newer ways with AI platforms, and repurpose savings towards innovation. To capture what we call vector two and three, we are building entirely new cycles of agentic capital and digital labor that go beyond the reach of legacy software, creating a much larger total addressable spend. Closing this velocity gap, the AI velocity gap requires new methodologies and evolving beyond the traditional IT services role of the last two decades. In the nineties, we were bespoke systems builders. We wrote custom software code, and we owned the outcomes. In the two decades that followed, our role evolved into orchestrating classical software owned by various software providers. But classical software was written around the microprocessor, was deterministic, and built on rigid logic and fixed rules. Today's AI-led software, which is written around the frontier models, is probabilistic and contextual. This shift allows us to own the stack again and deliver outcomes. We believe the invention and reimagination of businesses will be driven by value at the intersection of AI-led agentic capital and classical software. To capture this demand, our AI builder stack acts as the connective tissue that addresses four layers of the ecosystem: AI compute, cloud, model access, and human capital services. Let me share some key elements. First is our trademark basis framework, our proprietary blueprint that guides clients in architecting new business processes, specifically for deploying and orchestrating autonomous agents. This is a fundamental shift from writing rigid logic to designing behavior, persona, intent, and outcomes. Second is our pioneering science of context engineering, a methodology for mapping a client's unique work graph, giving AI the situational awareness it needs to produce reliable business outcomes. Context engineering bundles an organization's operating principles, tribal knowledge, work patterns, friction sources, and historical and cultural imperatives so that AI intelligently binds to the enterprise's heterogeneous context, creating highly productive agentic capital. Third is our AI partnership ecosystem, which we continue to strengthen. On NVIDIA stack, we are offering solutions across the full life cycle, from building and fine-tuning models to standing up agentic applications and deploying them as microservices. With Anthropic, Google Cloud, Microsoft Azure, and OpenAI, we're using their frontier models and agentic tooling to build layers of application value to accelerate AI adoption for our clients. With Adobe and Typeface, we are modernizing the enterprise marketing function and enabling cutting-edge customer experiences and content by moving manual workflows to agentic orchestration. With Claude's code, cognition, GitHub, and WinSurf, we are industrializing software creation through advanced code generation. With WorkFabric, we are scaling the emerging discipline of context engineering. With Ryder and Uniphore, we are partnering to deploy specialized domain-specific AI platforms. With Palantir, we will integrate its foundry and artificial intelligence platform to support the integration of AI with our TriZero business. Finally, with Salesforce and ServiceNow, we are embedding our agentic networks directly into our client's primary enterprise workflows. The fourth layer of our AI builder stack is our own proprietary IP across platform services and research. For example, Source elevates our engineering velocity while neuro IT ops harnesses AI to proactively manage and self-heal hybrid environments. Our AI data services have helped curate billions of high-precision data points for global clients. With Sizeto, we are accelerating and improving health care management. Our recently launched CareAdvanced AI offerings help streamline clinical workflows, reduce administrative burden, and empower care teams with faster and more accurate insights. Our award-winning AI labs, which was awarded its sixty-first patent, continues to feed our continued investments in AI platforms and products. To industrialize our AI builder stack, we have formed three units to sharpen our go-to-market muscle. First, our market-facing AI units are the hunters of value seekers working to capture the $4.5 trillion in labor value our research identified. Second, our integrated AI solution unit acts as an architectural core bringing various components of the AI stack together with strategic partnerships, cognizant methodologies, and AI platforms to address specific reinvention needs of businesses. Finally, our centralized AI platforms and products unit is a factory packaging custom IP into repeatable solutions. Underpinning our AI builder stack is our talent strategy. Over the last two and a half years, over 340,000 of our associates have completed AI skilling. We are shifting from a traditional linear staffing model to an asynchronous autonomous software engineering model. In this framework, our associates are trained to delegate complex high-value macro tasks to agentic networks while the micro steer to outcomes using platforms like Cognition, Gemini, Cloud, Hub, and others, orchestrating through Cognizant FlowSource. We are in the process of developing a hyperproductive high-velocity delivery model for agents to asynchronously assist human software developers and agent managers. In addition, we are broadening our talent base with non-STEM talent and early career programs. This includes aggressively recruiting interdisciplinary skills at the intersection of industry domain and technology. We added over 16,000 associates in India in 2025. In 2026, we are targeting 2,000 campus hires in the US and approximately 20,000 in India. We are seeing this AI builder strategy translate into demand across our core practices. For example, our proprietary platforms like Flowsource and neuroengineering are helping clients unlock technology debt, helping to fuel 8% year over year in both the fourth quarter and year in our digital engineering practices. Similarly, as our clients rethink their operations through an agentic lens, demand for our BPO business powered by deep immersion of digital labor grew 9% year over year in the quarter and the year. Our AI data training services launched early last year is gaining traction with our clients to build fine-tune AI models at speed and scale. Demand for data and cloud modernization remains healthy with revenue across both practice areas growing mid-single digits organically, outpacing total company growth. Let me share a few client examples of our strategy in action. First, with the financial services client, we signed an incremental billion-dollar partnership where we are leveraging our AI platforms, including our NeuroSuite and FlowSource, to help accelerate speed to market, drive product innovation, and deliver enhanced productivity. Next, with Cisco, the global leader in food distribution, we're transforming their complex customer interaction ecosystem into agentic capital. Previously, customer requests from product credits to auto substitutions could have prolonged resolution windows. Now, by deploying orchestrated agents, we have collapsed that cycle to ninety seconds. Cisco is harvesting this AI-generated savings to fund its next phase of identification. In the health care sector, we moved from pilots to production-grade automation. For a major US regional player, our AI intake platform reduced enrollment cycle times from as many as seven days to minutes. On their claim side, our clinical engine now adjudicates 96% of nurse note reviews autonomously, cutting human review times from eight hours to twenty minutes. We are scaling this expertise globally through a new strategic collaboration with Bupa Hong Kong, where our GenAI-led business process as a service solution modernizes claim and fraud, waste, and abuse detection, marking our largest BPO win in the region. We announced a multiyear expansion with Kolar, a leader in kitchen and bath products, building on our successful five-year partnership. We are bringing our cloud management capabilities and AI solutions like neuro idea ops to advance Kolar's digital ecosystem and drive AI-driven innovation. As we look towards 2026, we are well-positioned to continue our momentum. Our ambition is to lead as an AI builder and maintain a position in our industry's winner's circle. In closing, I'm proud of all that we have accomplished over the last three years. It has helped us reach our industry's winner circle two years ahead of plan. As the next decade of contextual computing unlocks new waves of nonlinear enterprise productivity and agentic software cycles, I believe there is a significant opportunity to create shared value for our clients, our associates, and our shareholders. The foundation is set. I believe the boldest chapters of our story are still ahead. Thank you again for joining us. I'll now turn the call over to Jatin. Jatin Dalal: Thank you, Ravi, and thank you all for joining us. Our fourth quarter and full-year results were a significant milestone in a multiyear journey marked by disciplined execution, strategic clarity, and operational excellence. We delivered fourth-quarter revenue growth above the high end of our guidance range and exceeded the initial full-year guidance we provided in February across all revenue, adjusted operating income, EPS, and free cash flow. We expect that our calendar year 2025 constant currency revenue growth will be in the top tier among the 10 peers against which we benchmarked performance, placing us definitively in the winner's circle. Beyond revenue growth, we achieved each of the broader objectives we provided at our Investor Day. This includes sustaining large deal momentum, skilling for the future through AI training, approximately 260,000 employees, adjusted operating margin expansion of 50 basis points, and 2025 adjusted EPS growth of 11%, well above revenue growth. We delivered these results during a period of significant macroeconomic complexity and technological change, further bolstering our conviction in the strategic actions we have taken to become an AI builder company. We are well-positioned to sustain this growth in 2026 and confident that we can build on this momentum in the years ahead. Now moving to the details. In Q4, revenue of $5.3 billion grew 3.8% year over year in constant currency and was all organic. For the full year, the revenue of $21.1 billion grew 6.4% in constant currency, including 260 basis points of growth from Belcan. With respect to demand, the environment remains complex. Traditional discretionary spending cycles continue to evolve as clients rebaseline expectations for productivity gains. However, we view this as an opportunity to capture wallet share in large deals and help clients reinvest savings into innovation. Moreover, it opens new pools of addressable spend for us to advance our AI Builder strategy. Now, turning to segment results. Financial Services once again led with full-year constant currency revenue growth of approximately 7%. This was driven by strong performance in North America across banking, financial services, and insurance clients. We have seen a steady improvement in discretionary spending in the last several quarters and consistent large deal signings, including a new mega deal in the fourth quarter. Our pipeline is strong, and we feel well-positioned to carry this momentum into 2026. Health sciences performance was resilient despite ongoing industry cost pressures and policy changes. In this period of heightened uncertainty, we are helping customers reduce costs while improving patient experiences and accelerating productivity. These cost savings are funding clients' future-focused investments across core platforms, cloud modernization, and regulatory readiness. We are seeing GenAI projects grow in areas like claims efficiency, clinical documentation, and customer experience. TriZetto remains a core differentiator, driving growth in implementation and managed services as clients modernize their administrative cores. Products and resources performance has been stable. While tariff uncertainty continues to suppress discretionary spending, we expect large deal traction during 2025 to drive better performance in 2026. AI adoption is growing across consumer and retail sectors, leading to demand for data services and agentic-led experience transformation. In communications, media, and technology, fourth-quarter year-over-year growth among our technology customers was more than offset by weakness in comms and media. Within comms and media, we have seen some impact from broader end-market softness, particularly in North America. On the technology side, clients continue to rapidly innovate and adopt GenAI, which is driving demand for our services. Geographically, North America was again our standout region in the fourth quarter, with growth of more than 4% year over year in constant currency, driven by financial services and healthcare. Europe grew 2% in constant currency, with healthy growth in financial services and among life sciences customers. Rest of the world grew in line with the total company, driven by the Middle East. Turning to bookings, bookings growth in the fourth quarter was driven by robust large deal performance. We signed 12 deals, each with TCV of more than $100 million. This includes two mega deals in the quarter, one in financial services and one in healthcare. On a trailing twelve-month basis, bookings grew 5% and represented a book-to-bill of 1.3. Annual contract value declined modestly year over year due to the mix of longer-duration deals and softness in small deal banks. That said, our backlog visibility at year-end is similar to where it stood this time last year and underpins our confidence in our full-year guidance. Now moving on to margins. Fourth-quarter adjusted operating margin of 16% increased by 30 basis points year over year, benefiting from NextGen program savings, increased utilization, and the Indian rupee depreciation. We delivered this result despite increased compensation costs, including our merit cycle and variable compensation, which drove a significant portion of our gross margin change year over year. Variable compensation for the majority of our associates is expected to be the highest since 2018, and we remain committed to investing in talent to fuel our growth. In November, the Government of India implemented certain provisions of the Code on Social Security or Labor Code as part of a broader labor law consolidation initiative. These rules did not have a material impact on our P&L in the quarter but did result in a one-time increase to our defined benefit liability on our balance sheet with a corresponding increase to accumulated other comprehensive income. We anticipate a modest increase in our defined benefit costs perspective. Now, to additional details on EPS, cash flow, and capital allocation. Fourth-quarter adjusted diluted EPS was $1.35, up 12% year over year. This drove full-year EPS of $5.28, up 11% from the prior year. DSO of eighty-one days declined one day sequentially and increased three days year over year. Fourth-quarter free cash flow was up approximately $800 million and brought the full-year amount to $2.7 billion, representing more than 100% of net income. During the fourth quarter, we returned nearly $500 million of capital to shareholders through share repurchases and dividends, bringing the full-year total to approximately $2 billion. We ended the quarter with cash and short-term investments of $1.9 billion or net cash of $1.3 billion. These amounts exclude about $730 million, which was deemed restricted cash and held in escrow ahead of the closing of the Three Cloud acquisitions on January month. Our M&A pipeline is healthy, and we intend to maintain an active acquisition strategy to strengthen our capabilities aligned with our AI Builder strategy. We believe our robust free cash flow and strong balance sheet provide us with flexibility to invest strategically in the quarters ahead while continuing to return significant capital to shareholders. Now turning to 2026 guidance. For the first quarter, we expect revenue to grow 2.7% to 4.2% year over year in constant currency. This includes approximately 100 basis points from our recently completed acquisition of Three Cloud. The midpoint of this range implies a modest sequential decline on an organic basis, due in part to lower bill days in Cuba. For the full year, we expect revenue to grow 4% to 6.5% in constant currency. This includes an inorganic contribution of approximately 150 basis points, of which approximately one-third is expected to come from future M&A. The midpoint of the range implies organic revenue growth of approximately 3.8%, which is consistent with our 2025 performance. This is also approximately 150 basis points above the midpoint of our initial 2025 organic growth guidance provided last year. At the midpoint, our full-year guidance implies stronger sequential growth in the second and third quarters compared to 2025. Similar to our guidance philosophy last February, the midpoint is based on our current visibility and the discretionary demand environment as we see it today. Our adjusted operating margin guidance is 15.9% to 16.1%, which represents 10 to 30 basis points of expansion and is in line with the outlook we provided at our Investor Day last year. Similar to 2025, we expect expansion will be driven by cost discipline and SG&A leverage. We expect free cash flow conversion of 90-100% of net income. The adjusted effective tax rate is expected to be in the 25% to 26% range. The midpoint implies a modest increase year over year, driven in part by discrete beneficial items in 2025 that we do not expect to repeat in 2026. Our expected weighted average diluted share count is approximately 475 million. This leads to adjusted diluted EPS guidance of $5.56 to $5.70, representing 5% to 8% year-over-year growth. Expected EPS growth is being driven by anticipated revenue growth, margin expansion, and lower share count. This is being partially offset by a higher tax rate, lower interest income as a result of lower assumed interest rates, and an increase in non-operating expenses related to the India labor code changes. For 2026, we expect to return approximately $1.6 billion of capital to shareholders, including approximately $1 billion towards share repurchases and the remainder toward our regular dividend. This leaves ample expected free cash flow available for future M&A. As always, we will evaluate these plans regularly. In the absence of strategic and accretive acquisition targets, we expect to return capital to shareholders and not build cash on the balance sheet. Finally, as we mentioned last quarter, we continue to evaluate a potential primary offering and secondary listing in India. We have engaged various financial and legal advisers as well as the regulators in India to assess the idea. As always, we remain committed to acting in the best interest of our shareholders, and this process aligns with this commitment. As of today, the board and management team continue to evaluate the proposal and have not yet made a decision. In summary, 2025 was a successful year. As we look toward 2026, we are well-positioned to continue our momentum. As Ravi mentioned earlier, our ambition is to lead as an AI builder and maintain our position in our industry's winner circle. With that, we will open up the call for your questions. Operator: Thank you. We'll now be conducting a question and answer session. If you'd like to ask a question, please press 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press 2 if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. In the interest of time, we ask that you each keep to one question and one follow-up. Thank you. Our first question comes from the line of Jason Kupferberg with Wells Fargo. Please proceed with your question. Jason Kupferberg: Good morning, Nice to see these numbers. I just wanted to start on the AI topic. And obviously, some new data points coming out from certain industry participants just over the last couple of days. For example, talking about expediting ERP implementations pretty significantly. It certainly seems to us, like, Cognizant to date has been a net winner from AI. To get your perspective on how that plays out in '26 and maybe just in light of some of these recent headlines, what percent of your total revenue currently comes from package implementation? Thanks. Ravi Kumar: Thank you for that question. You know, this has happened over tech revolutions before. When a new technology comes, we kind of think the old technology will go away, but the new technology will actually provide more opportunities. I see this as an increase in our total addressable spend. I mean, if you're referring to what's happening in the last few days, I can tell you any tool, any technology will not magically generate value on the other side. You need a bridge. And that bridge is what companies like Cognizant do. I'm gonna be precise on what I mean. You can't apply this technology on existing old processes. So you have to reinvent and reimagine a process. This is a technology that is very contextual in nature. It's not written on the microprocessor, which is deterministic. It's very probabilistic, which means we have pioneered something called context engineering, which is grounding this technology in the reality of an enterprise, understanding the heterogeneity of an enterprise. I mean, two SAP implementations are not the same, just to go back to the package work you spoke about. And it is about understanding the hustle, the flows, and everything else. Integrating deterministic software, which was written for the last twenty-five years, with probabilistic software, which will be written for the next twenty-five years. And building flows where digital and human labor can work together, integrating it into the operating and the physical layers of an enterprise. I think all of this is a lot of heavy lift. I mean, if this was all real, and if this was it, it would have switched on magically without anybody doing anything. We would have seen the drift of value already. And that's not happened yet. There is, you know, our study said there's $4.5 trillion of labor which can actually be amplified with higher productivity out of the $15 trillion in the United States in the last few years. It's not drifted yet because all of this has to be done. Equally, going back to what you just asked, there is technical debt. There is a lot of backlog. There is the elastic of software, the traditional software, leave it all the new software we're gonna write, which can actually expand. So we see this as a net new tailwind for us on two swim lanes. On the traditional software, apply it, you know, and do more for less and get more consumption because of elasticity, take out technical debts, take out the backlog. On the other end, apply this on a much new addressable spend, which classical software didn't penetrate. So I see this as more of a bigger opportunity for us and a higher surface area for us to actually operate. So this is a tailwind. We are cutting out to be winners. Our builder strategy is working. And our three-vector strategy we spoke about, both on applying this to traditional software and writing new agentic software, which can actually capture significantly more surface area and enterprises. We think it's a phenomenal opportunity. Now enterprise software package, you spoke about, you know, package software has been there for the last twenty years. There has been deterministic code. There's been systems of recording it. We're gonna apply layers of AI value on top of it, actually generate more value than before. So there is gonna be a coexistence of deterministic and probabilistic software, and there's gonna be interplay between the two. Okay. Jason Kupferberg: Understood. Thanks for all that color. And just a numbers one, for Jatin. I wanted to ask about gross margins. It sounded like the year-over-year decline in Q4 was primarily due to higher variable comp, which is arguably a good problem to have just given the overall financial performance of the company this year. But any other gross margin dynamics we should be thinking about in terms of 2026? Do you expect gross margins to be up year over year? And just to clarify, are you seeing any like-for-like pricing pressure as part of the year-over-year declines in gross margin currently? Thanks, guys. Jatin Dalal: Sure. So, yes, Q4 impact on gross margin was predominantly on account of higher bonus funding that we did for the full year. In quarter four, led by a strong operating margin performance for the full year that we were able to deliver. Apart from that, there was also a salary increase, as you are aware, which came through effective first November into the gross margin. So I would say those are the two factors that played out a bit in quarter four. I think the right way to see our gross margin is for the full year. And the full-year impacts are predominantly one, you know, the Belcan impact for the full year in 2025 gross margins. And the second is essentially slightly, I mean, essentially, the higher bonus for 2025. And as you mentioned, it's a good thing to have. Looking ahead for 2026, I mean, there is a productivity lag pressure in the industry. And therefore, the expectation that for a dollar value, you get a superior throughput than what you traditionally enjoyed through traditional productivity levers in the past. And that does impact the revenue, but I wouldn't call it a drag on margins yet so long as you are able to execute on your internal productivity measures and keep the cost curve below the price curve continuously, and that's what you have seen. We have been able to deliver revenue per employee productivity and profit per employee productivity in the previous twelve months. So far, we have been able to execute well against that market momentum for productivity, and therefore, I would say we are entering 2026 with that confidence. Going forward, we'll have to continue to watch out for the moment in the market. We do think that we have a few levers apart from AI productivity, and a couple of them are really the continued improvement in Pyramid. We hired 20,000 fresh college graduates in 2025, and we'll continue to look at that. And that does impact the long-term cost structure of the organization. And we'll continue to look at other traditional measures like offshoring and utilization beyond AI perk that I spoke about. So overall, we have things we can work through for 2026. Ravi Kumar: Thanks. Operator: Thank you. Our next question comes from the line of Tien-Tsin Huang with JPMorgan. Please proceed with your question. Tien-Tsin Huang: Really strong large deal activity again here in the fourth quarter. So I want to ask your confidence and your ability to grow off of that larger base in '26 over '25. How does the pipeline look for larger deals in '26? And any good line of sight into deal ramps being timely. Thanks. Ravi Kumar: Thank you, Tien-Tsin, for that question. Yeah. I think we've had a great bookings quarter, 9% YoY, TTM 5%. 50% increase in TCV on large deals for the full year and 60% increase in TCV of large deals in quarter four. And we are very excited about the fact that our fixed price business now is almost 50%. I mean, you know, three years ago, that used to be 41 to 42%. So we can, in some ways, fixed price it, share the productivity of the clients, and actually pass on some to ourselves. We're keeping that, you know, we are one of the we are probably the only player in our peer group which talks about code-assisted and autonomous software engineering. 32% of our code is AI-assisted. So we have now activated two swim lanes. In 2024, a lot of the large deals were productivity-led. Now we are seeing innovation-led vector two, vector three, as I call it. We did $1.2 billion deals in Q4. So it was a start. We crossed $10 billion. That's a record of starts. We have one $1 billion deal in quarter four, have five mega deals in the full year, and we have two mega deals in quarter four. So we have a strong pipeline, and we have reactivated both the swim lanes. And we are starting to do the transition of that work, and therefore, we see a solid quarter two and quarter three. In fact, we see more acceleration during the year of ramp-up as well as more deals on the way. So I'm very excited about the fact that this has become a tailwind for us. AI is a tailwind for us. Tien-Tsin Huang: No. Terrific. It's impressive. And so just clarify, you mentioned it there, Ravi or Jatin, if you wanna chime in. The confidence in the faster sequential growth beyond the first quarter being higher than the pattern in the last couple of years. So it sounds like that's really just what you see in terms of the large deals ramping and the timeliness of that? Jatin Dalal: Sure. So to me, there are two factors that play there. One, of course, is the strong bookings that we are walking in 2026 with. And the second is there is some amount of seasonality between quarters also in 2026 compared to '25. For example, in Q1, there are lower bill days in '26 compared to the number of bill days that we had in Q1 in 2025. Which automatically means that the sequential number improves in quarter two compared to quarter one in 2026. So these are the two factors that give us confidence that we can execute better sequential growth in the middle of the year. And that's what we have assumed in our guidance range, including the ramp-up of deals, you know, which we have closed in quarter four. Tien-Tsin Huang: Understood. Well done on all the deals here. Thank you. Operator: Our next question comes from the line of Keith Bachman with BMO Capital Markets. Please proceed with your question. Keith Bachman: Hi. Many thanks. I wanted to ask about the risk and opportunities of the fixed price, or success-based contracts are now about 50% of total. And what I'm trying to understand is your pricing I think you're pricing these contracts on assumed cost curves that leverage new innovations including AI, and I just wanna understand how you know, a, is there more are these are the prices more aggressive today than they have been? B, how should investors think about the risk and the opportunities of overage and underage in terms of achieving those cost curves? In other words, are you sharing those risks with the customers? But if you could just speak to the changing nature of the economic risks associated with these success-based contracts. Jatin Dalal: Sure. So, you know, there are various types of fixed price engagements, but essentially, I mean, they have one thing in common is that the larger component of delivery risk resides with the service providers like us. And, essentially, we underwrite the productivity in the beginning of the contract and we deliver to that productivity to the customer irrespective of whether we are able to achieve that outcome from a cost standpoint or not. The history of the industry is that we always have found ways through new technological progress to be able to deliver it. Specifically, in light of the whole large deal momentum that Cognizant has been able to achieve, we have a very, I would say, very robust process of bid versus date that we monitor every month the performance of the deals that we have won and how we are delivering our operating margin and revenue performance against those promises. And I'm happy to share that we deliver on aggregate of the portfolio very close to the expected margins that we had planned, which means we are in aggregate not having any overrun or also not significant underrun. So overall, we are tracking to the budgeted goal for our customers as we go, and that we will continue to do. That is something that is crucial in times like this when technology is shifting. And overall, we feel we are performing well. Ravi Kumar: I just wanna add two quick points to Jatin. If you look at it, in some ways, we are sharing the productivity, sharing the risk with our clients, but we are actually doubling down on execution. Look at our revenue per person and margin per person. It's gone up by 5% trailing twelve months, 8% margin, and 5% revenue trailing twelve months, which essentially means we are able to share with our clients the productivity, win, and actually, price to win and deliver to margins. That's our motto. And I think with this nonlinear opportunity with the technology, you can be ahead of the curve and do that. The second, I would believe, which is a very important shift, historically, if you look at it, go back to the nineties, companies like ours used to own the outcomes. And we used to price on outcomes. And then the enterprise software, both on-prem and SaaS, and then the plumbing on the cloud kind of abstracted layers of that value. And outcome-based was hard because there were so many people in the mix. We are fast forward. We can own the outcomes. We can own the outcomes. We can make this a platform play. We can make it nonlinear cost and nonlinear revenue. And we can take over operations of companies and give them a service. That is the reason why our BPO business is actually growing at 9%. Why on why? 9% of the BPO business is growing because we are able to do that very well. We are able to deliver outcomes on the value chain and share the benefits. Keith Bachman: Yeah. We thank you, Ravi. This sort of led into my next question durability of BPO. I think, you know, two years ago, many, including ourselves, had some concerns about the you know, what AI would do to BPO. It's been I think, one of the more robust parts of the market. And it seems clients need help in setting AI into BPO. And my question is, how durable is this? In other words, once you get those processes established in BPO, enabled by AI, does that create longer-term headwinds, or is there enough momentum here this is a multiyear tailwind or good growth within the context of BPO? Ravi Kumar: You know, that's a great question. I mean, look. This is total addressable spend, which is 10 times or maybe 20 times more than tech spend because you're embedding technology data into process and in recent times, machine learning and AI. You know, Cognizant has had nine to 10% growth in BPO for three years in a row. And the reason why we have done so is because we have always been on the cutting edge. We think this is a longish tailwind because operations of companies are a much bigger addressable spend. And we think we have an opportunity not just to transform, reinvent, reimagine flows in a company, we also have the ability to maintain them. There might be no I think we are underestimating how much that reinvention will need. It's decades of work. We are underestimating how much it needs to maintain. I mean, this is a contextual technology. It has to be grounded. It has to be situational. And we, you know, the effort needed to maintain and manage deterministic technology is less than the effort needed to maintain a probabilistic technology. So we have actually more work to do in maintaining than before. So I see this as a significant tailwind to our BPO business. We call it intuitive operations. You know? Even before AI into picture. So that's how we see this. Keith Bachman: Okay. Thank you, gentlemen. Much appreciated. Operator: Thank you. Our next question comes from the line of Jim Schneider with Goldman Sachs. Jim Schneider: Good morning. Thanks for taking my question. As you talked on the Health Sciences script about the cost benefits to those companies sort of outweighing any kind of regulatory pressures you're seeing. Clearly, in the payer space, there's been a lot of debate about additional regulatory burdens and cost pressures. Just would love to understand your level of confidence in the relative growth for your Health Sciences segment this year relative to your full-year guidance overall? Ravi Kumar: Thank you. Our health sciences business grew at six-plus percent, way higher than our company average. It's a business where we probably are the number one player in the market. We have a platform with half a trillion dollars of transactions flowing through it. We have 200 million members. We have a moat, which is super differentiated. There is a lot of labor sitting around it. And I think with the uncertainty of regulation in the payer side, you will want to transform those layers of value around the TriZero business. And shift that money to care. Because there is uncertainty around spend cycles. We're seeing more traction with companies that are willing to apply AgenTek in and around the traditional platform. And we see this capture of these value pools in new spend areas for Cognizant. We have started to partner with Palantir, which I spoke about. We have a partnership with Microsoft. We have a partnership with AWS. We are doing with Google Cloud. We're putting all these layers, and we're identifying the labor attached to it so that the administrative costs are gonna go down. And that money is gonna be underwritten for care. So there is more hustle and more work because of the uncertainty and the need and the paranoia about transformation so that this money is gonna be moved to care. Equally, there is a lot of work around applying agent takes to, say, bedside care. Or applying agentic to the life cycle of patients all the way from before they start to get to a doctor to after they finish the visit to the doctor. In fact, some of the places I've mentioned one or two examples where we are able to take notes of doctors and nurses and identify the whole thing and create high productivity for health care workers. So I see this as a tailwind because of the fact that there's uncertainty around regulation. We are actually gonna see more transformation on the administrative layers which will then transfer that value to care. Of course, there's also a part of life sciences and providers ecosystems there. And remember, the regulatory pressure is only on Medicaid and Medicare. It's not on commercial health care. But having said that, I think that uncertainty provides an opportunity to constantly innovate and transform and also to adhere to new regulatory norms using technology to adhere to new regulatory norms. Jim Schneider: Thank you. And then maybe as a follow-up, you sort of discussed many things that are sort of impacting gross margins at this point, whether that be the kind of outcome-based pricing, the fixed pricing, and also the pyramid. Can you maybe talk about when do you see line of sight to sort of gross margin inflecting on a year-over-year basis at some point during the course of this year? Thank you. Jatin Dalal: Yep. So, Sachin, we'll I mean, we have guided for the overall operating margin line. I want to guide at both the lines. But our endeavor would be to strive to reach that improvement in the gross margin line too. As I shared before, 2025 doesn't worry me because I know these core margins have remained protected. The dilution that you see in 2025 is coming predominantly because of Belcan, which has a structurally more on-site centric work, and therefore, it is not about lower profitability. But since you add a business that is more on-site centric, it is bound to have a lower gross margin, as you know. So it is not it is just a portfolio that has a particular characteristic which got added to the larger portfolio, that's one reason. And the second reason is really the higher bonus payout, which I think is a good thing for our employees. So I know we are protected and sustained the margin in '25. We will work towards, of course, improving them in the future. Ravi Kumar: I just wanna add two quick things here. Look. We are broadening the pyramid. We have a thesis that the value is actually gonna be more at the bottom. With higher productivity. Last year, we added more school graduates than the previous year. This year, we're gonna add more school graduates than the previous year. So that's gonna give a tailwind to it. Our productivity sharing with our clients and how much we are gonna keep back, is, you know, the 5% revenue per person and 8% revenue margin per person, that's gonna help. And, you know, good discipline operating has also helped. So there is a tailwind on it, and we're not worried about keeping our expensive margins for 2026 and beyond. Jim Schneider: Thank you. Operator: Thank you. Our next question comes from the line of Bryan Bergin with TD Cowen. Please proceed with your question. Bryan Bergin: Wanted to start with just kind of a bookings to growth question. So can you help bridge the ACV growth performance in 2025 to your 2026 growth guide? I'm just curious how you're factoring things pipeline diversion and really the midpoint of the range as well as things like short-term work. Can you detail that first? And then I'll ask my follow-up here. On the margin front, just SG&A, you've driven meaningful savings here in '25. You've actually held the dollar level flat for, like, three years. Understanding it wasn't optimized before, I'm just thinking how much more meaningful room do you have in that SG&A line to continue to help you? Jatin Dalal: Yeah. So on ACV, definitely we saw some amount of softness in quarter four, but I would also characterize that with the bundling of smaller deals being given out as consolidated contracts, and therefore, you see significant TCV of large deals which corresponds to that shrinkage for the smaller deals. That's a sort of industry dynamic that we see in times like this. So while that is definitely a data point, it is not something that is a challenge from a growth standpoint. On your sorry. Can you just repeat your second question? Bryan Bergin: Yeah. Just on SG&A. So you've done a great job there, right, for a couple of years. I'm just curious how much more room you have to optimize that base to continue to help if gross margin isn't gonna stabilize sooner? Jatin Dalal: SG&A continues to be an area of focus for us. So while we have done a good job in '25 and '24, so two years in a row, but that has now additional opportunity in the form of the deployment of AI in the corporate work that we do. So certainly, we will continue to push that in 2026 too. Bryan Bergin: Alright. Thank you. Operator: Our next question comes from the line of James Faucette with Morgan Stanley. Please proceed with your question. James Faucette: Thank you so much. Just wanted to ask a couple of quick follow-up questions. On near-term activity and sales engagement, I think you've mentioned a little bit of softness there at least in the fourth quarter. Can you just give a little more color there? Where were you seeing that? Is it just in near-term bookings, and how are you feeling about the potential for discretionary work to come back? I know that that's been something that everybody's been looking forward to coming back a little bit more aggressively, and clearly, you're doing well in kind of the larger deals, but just wondering about kind of more of the faster-term business. Ravi Kumar: Yeah. So, you know, look, we'll continue to see more large deal momentum. I mean, if you wanna share productivity with clients and win and use the process of consolidation, wallet share swap. Let's say, phenomenal opportunity. Innovation levers are trying to kick in now. That's gonna help us on smaller deals and discretionary. Look at financial services. We did nine-plus percent quarter four, and we did seven-plus percent for the full year. Financial services is a lot of discretionary. So and it's our largest vertical. And financial services performance in 2025 is the best we have had since 2018. So it is actually a good tailwind. I think there's gonna be as the pivot for AI shifts significantly from productivity to innovation, we're gonna see more discretionary flowing in. There is a talk of physical AI, which is now starting to hit manufacturing and automotive and aerospace and industries of that kind, that will also create opportunity. As the AI experiments will start to go into production, we're gonna see discretionary new value pools opening up. So overall, I think financial services is positive news, and it's one of our most cutting-edge industries and the highest exposure. So the others will follow. So I do see the unlock. Of course, the macro has to support for the acceleration. You know, for discretionary, the macro has to support. What I'm not worried about is, you know, actually, I would say if the AI advances have to trickle drift to the businesses, I would actually believe that that is actually gonna support the discretionary to come back. It's gonna be a catalyst. It's gonna trigger a CapEx cycle on enterprises to drift that value. And it will flow through to us. So that's how I'm seeing it. Financial services is a starting point, which has already happened. The others will follow. James Faucette: Yeah. Thanks for pointing out financial services. That stood out to us as well. And then just quickly, I know you gave a quick summary of the work that you're doing, India listing. Can you just give us a rough idea of what you're thinking about in terms of time frame or when at least we should be able to put together a calendar and time frame list? I know that's a key concern or at least thought for a lot of investors. Jatin Dalal: Yep. So as I mentioned in the opening remarks, we continue to make progress. We are engaged with our advisers. At this juncture, we are still thinking through the decision, the regulatory framework, and therefore, the around the imminent secondary sorry, primary offering and secondary listing. And at some point, we should be able to come back and tell you more about this. But at this juncture, I think it's a continued progress would be what I would suggest as an update from the previous quarter to this quarter. Ravi Kumar: And we have had constructive discussions with the regulators. So we're continuing to do what is right for our shareholders and continue to look for more investors to be a part of our growth story. So we'll keep you updated on that. Maybe we'll take one. Thank you. Operator: Our final question today comes from the line of Rod Bourgeois with DeepDive Equity Research. Please proceed with your question. Rod Bourgeois: Okay. Great. And I'll just ask one. Given the time here, Hey. You already addressed the question about AI being applied to ERP implementation. There's also new Claude plugins geared towards workflow automation. I wanted to ask to what extent you see such workflow automation abilities impacting your market opportunity and to what extent you already have a partnership all in that area. Thank you, Ravi. Ravi Kumar: Thank you, Rod. Look. We announced a partnership with Anthropic last year, late last year. The more AI can do, the more is the opportunity for us. It's very simple. I mean, let's talk about the plug into legal. How much software has been implemented in legal? There is so much paralegal work happening. In fact, we work for a professional services and a legal services company where we are agentifying all their paralegal work. That never existed before. Now there's a lot of labor around classical software. And all that labor needs more productivity. If you want to drift that value to higher productivity to the workers, in every function of a company, AI can be the catalyst. And that is a net new spend area for us. And that is what we're looking for. Those net new spend areas. This is a totally new addressable spend. And if you're embedding technology, you are able to integrate this technology to the system of record written in SaaS software and you're able to build those workflows, build those flows where humans and digital labor can work together and amplify the productivity. If you're able to reinvent those processes for higher throughput, higher velocity, using this tool as a catalyst, we're gonna up the productivity of enterprises and bump up the productivity of workers and we're gonna be the bridge to do that. So I see this as a unique new opportunity. The more it comes in I mean, remember, this technology is smart enough already. I mentioned in our remarks that $4.5 trillion of labor is already exposed to AI and it can create higher productivity. The reality is none of that is drifted to enterprises. None of that is drifted to enterprises. Need that bridge. And that bridge is all about contextual engineering. It is about reinventing the process. It's about redefining redesigning these flows in a company, integrating it into the SaaS layer so that there is interplay between deterministic and probabilistic layers. And it is also about integrating it into the physical and the operational layers of the company so that you can get that value. So that is the way forward. And, don't I mean, at this point in time, it is not about getting the smarter technologies. We already have smarter technologies. At this point in time, how do you drift that value to businesses? And, there is an urgency because you know, there's $405.1 billion dollars which has been spent on infrastructure in the last two years. And you have to get that value here, and there's trillions of dollars of value. And the shelf life of this technology is short. So I see this as a net positive. For more work, more surface area, more addressable spend. For companies like ours, and we call it the AI builder because we have this unique to be the bridge. Jatin Dalal: Thank you. Ravi Kumar: So thank you so much for joining the call. Thank you for your continued support. We've had an exciting 2025. You know, we have outpaced our own expectations on revenue, margin, EPS, EPS growth has been higher than revenue growth, expensive margins. This is what we said in the investor day. And we are continuing to keep our trajectory, accelerating our trajectory. We are on the top of our charts on our relative growth in comparison to our peers. And we hope to keep the Minas Circle performance in 2026 expansive margins, and EPS higher than revenue growth revenue growth at the middle of our range is actually higher than what we presented last year. And we are in a solid foundation. I think the boldest chapters are gonna be in 2627 as we go forward. Operator: Thank you. This concludes today's Cognizant Technology Solutions year-end fourth quarter 2025 earnings conference call. You may now disconnect your lines. Thank you for your participation.
Gregory McNiff: Good afternoon, everyone, and welcome to the Clearfield Fiscal First Quarter 2026 Conference Call. A brief question and answer session will follow the formal presentation. Please also note today's event is being recorded. At this time, I'd like to turn the floor over to Gregory McNiff, Investor Relations. Please go ahead, sir. Thank you. Joining me on today's call are Cheryl P. Beranek, Clearfield's President and CEO, and Daniel R. Herzog, Clearfield's CFO. As a reminder, Clearfield publishes a quarterly shareholder letter which provides an overview of the company's financial results, operational highlights, and future outlook. You can find both the shareholder letter and the earnings release on Clearfield's Investor Relations website. After brief prepared remarks, we will open the floor for a question and answer session. Please note that during this call, management will be making remarks regarding future events and the future financial performance of the company. These remarks constitute forward-looking statements for purposes of the safe harbor provisions of the Private Securities Litigation Reform Act. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those expressed in the forward-looking. It is important to also note that the company undertakes no obligation to update such statements except as required by law. The company cautions you to consider risk factors that could cause actual results to differ materially from those in the forward-looking statements contained in today's press release, shareholder letter, and on this conference call. The Risk Factors section in Clearfield's most recent Form 10-K filing with the Securities and Exchange Commission and its subsequent filings on Form 10-Q provide a description of these risks. Additionally, as announced on November 12, 2025, Clearfield sold its Nestor cables business. Following the divestiture of Nestor, we are reporting only on the Clearfield segment. Clearfield is reflected as continuing operations with Nestor classified as discontinued operations and assets and liabilities held for sale for 2026 and all prior periods on our financials. With that, I would like to turn the call over to Clearfield's President and CEO, Cheryl P. Beranek. Cheryl? Cheryl P. Beranek: Good afternoon, everyone. Thank you for joining us to discuss Clearfield's results for 2026. I'll begin with an overview of the quarter and our strategic priorities, and then I'll turn the call over to Daniel R. Herzog to review the financial details and outlook. During the quarter, we saw signs of stabilization and an early rebound in community broadband demand, reinforcing confidence in our long-term outlook. Clearfield continues to operate as the leading provider of fiber management solutions for the community broadband market, guided by a disciplined strategy anchored in our three-pillar framework to deliver better broadband and beyond. This framework remains focused on protecting and strengthening our core business, expanding market share, and selectively extending our technology into adjacent markets. Turning to results, first-quarter net sales from continuing operations were $34.3 million, exceeding our guidance range of $30 million to $33 million. That outperformance reflected a favorable seasonal product mix and solid demand across key customer segments. Net loss per share from continuing operations was 2¢. As a reminder, in November, we completed the sale of our Nestor cables business. With this transaction behind us, our focus and portfolio are now fully centered on the Clearfield business and the execution of our core strategy. Following the end of the quarter, we introduced the Nova platform, a modular, high-density fiber system designed to make building and expanding modern networks simpler. The Nova platform takes the cassette-based modular design approach that has long defined our success in broadband, and it extends it into new environments, including AI, data center, and edge compute networks in which we expect our broadband service provider customers to play a key role in future build-out. This product launch represents an important step in the evolution of our Better Broadband and Beyond strategy. As networks continue to grow in size and complexity, customers are looking for solutions that reduce installation time and cost, improve day-to-day operations, and scale efficiently as capacity needs increase. While we expect near-term revenue contribution from Nova to be modest, the platform is strategically important as we focus on early customer adoption and validation. Over time, we expect the Nova platform to support new applications and customer opportunities, particularly as demand for higher-density fiber solutions expands across regional data centers, edge facilities, and enterprise environments. Alongside this product momentum, execution across our core business, our core broadband markets remained steady. Community broadband remains a foundational element of our business, supported by long-standing customer relationships and a portfolio-based approach that emphasizes selling multiple Clearfield solutions for customer deployment. Large regional service providers and MSOs also remain important growth drivers and reflect the flexibility of our platform. In addition, recent acquisition approvals involving large regional customers create a favorable backdrop for continued opportunity. As broadband providers look ahead to their next phase of investment, the BEAD program remains a major area of focus across the industry. We are encouraged by the progress that the NTIA has made in advancing the BEAD program and are pleased with the level of planning and network design activity we are seeing from both current and prospective customers. While we continue to expect BEAD-related revenue contribution in fiscal 2026 to be modest, service providers are actively preparing for deployment. Customers are working through planning, network design, and vendor decisions, and Clearfield is staying closely engaged to ensure we are ready when funding is released. To support this effort, we are taking a structured and proactive approach with expected BEAD recipients, focusing on where customers are in their planning process and how we can best support them as these projects take shape. This allows us to allocate resources thoughtfully and to remain aligned with customers as programs move forward. We believe community broadband providers are likely to move more quickly than tier-one operators once funding approvals occur, which aligns well with Clearfield's focus and customer mix. However, supply chain constraints of US-made optical fiber that is required under the BABA, the Build America, Buy American Act, could restrain near-term deployment. We are working alongside others in the industry to address the issue. Beyond fiscal 2026, we expect BEAD to become a positive contributor, with timing dependent entirely on federal funding releases and supply chain constraints. And with that, I'll turn the call over to Daniel R. Herzog to review our financials and our outlook in more detail. Daniel R. Herzog: Thank you, Cheryl, and good afternoon, everyone. I will now review our first-quarter results beginning with sales. As noted earlier, all financial results for fiscal 2026 and prior periods are presented on a Clearfield continuing operations-only basis. First-quarter net sales from continuing operations were $34.3 million, exceeding our guidance range of $30 million to $33 million and up 16% from $29.7 million in the prior year period. Gross margin was 33.2%, compared to 29.2% in the prior year quarter, driven primarily by improved overhead absorption and better inventory utilization. Operating expenses from continuing operations increased to $13.2 million from $10.7 million year-over-year, reflecting continued investment in technology and customer expansion initiatives. We had an income tax benefit from continuing operations of $1,000 for 2026 compared to an income tax expense from continuing operations of $53,000 for the year-ago quarter. The income tax rate for 2026 was lower than the statutory rate due to the impact of discrete items and a lower level of pretax book loss. Net loss per share from continuing operations was $0.02 in 2026 compared to a loss of $0.02 per share in the comparable period last year. Net loss from discontinued operations for 2026 was $340,000 or $0.02 per basic and diluted share compared to a net loss from discontinued operations for 2025 of $1.6 million or $0.11 per basic and diluted share. We ended the quarter with approximately $157 million in cash, short-term and long-term investments, and no debt, reflecting continued balance sheet strength and disciplined capital management. During the quarter, the company invested $5.2 million to repurchase 179,000 shares. In November 2025, our board of directors increased our share repurchase authorization from $65 million to $85 million, leaving $23.1 million available for additional repurchases as of December 31, 2025. For 2026, we anticipate net sales from continuing operations to be in the range of $32 million to $35 million, operating expenses to be up slightly relative to the first quarter, and net loss per diluted share in the range of $0.02 to $0.10. The earnings per share ranges are based on the number of shares outstanding at the end of the first quarter and do not reflect potential additional share repurchases completed. For the full year fiscal 2026, we are reiterating our guidance for net sales from continuing operations in the range of $160 million to $170 million. We expect growth to be driven by steady demand for fiber connectivity across our community broadband, large regional, and MSO customers, with BEAD-related revenue contribution expected to remain modest during fiscal 2026. We expect operating expenses as a percentage of revenue to remain consistent with fiscal 2025 and earnings per share from continuing operations to be in the range of $0.48 to $0.62. And with that, we will open the call to your questions. Operator: Thank you. We will now begin the question and answer session. To ask a question, you may press star then 1 on your touch-tone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble our roster. The first question will come from Ryan Koontz with Needham and Company. Please go ahead. Matt Cavanagh: Hi, this is Matt Cavanagh on for Ryan Koontz. Thank you for the question. On the Nova product line, it would be great to better understand who the target customer type is for these products and maybe how you're thinking about the revenue opportunity from Nova over the medium to longer term? Thank you. Cheryl P. Beranek: Great. Yeah. Nice to talk to you, Matt. The initial target customer, I think, we'll see is existing community broadband customers who are opening data centers for their enhanced revenue base. So this would be customers like South Dakota Networks or CoLogic, who understand the requirements associated with high density, and they're looking at how they're going to be able to do that. Additionally, as we move into adjacent markets, the products are designed in a different way with the concept of modularity, being able to do the same type of thing that we do with today's cassettes so that every rack unit is optimized for the type of connector or service offering, single mode, multimode, whatever the high speed, ultra-small form factor connector might be. So I think we'll see customers there of a traditional database type environment, but not the big superscale hyperscale markets that will require innovation and an additional product offering that you'll see from us probably in about a year. From a revenue perspective, we don't see a significant revenue contribution in '26. So we do see the Nova platform becoming, over the next two to three years, really the kind of the dominant product offering of the company, and then a lot of what we're doing with Nova will be brought back into community broadband so that we'll have a single cassette and a single platform for optimization of all density requirements throughout our customer base. Matt Cavanagh: Great. Thank you. That sounds really exciting. Cheryl P. Beranek: It is. Thank you. Matt Cavanagh: As a follow-up, you had also mentioned earlier on BEAD, community broadband customers maybe being more likely to move quickly on their projects than their larger counterparts. Could you expand on why this might be the case and how it's affecting Clearfield's outlook for the program over the next several years? Cheryl P. Beranek: Alright. Let's see. We've seen over the years that community broadband, by definition of being smaller, are more nimble players, and they'll be able to optimize their deployments and can switch easier from one opportunity to the other or can pounce onto the money availability and move forward. The larger providers absolutely are going to deliver their BEAD initiatives, but they already have their build plans for the year, and we don't see them moving the application from one point to the next. So we're optimistic that even with some supply chain challenges, our small providers are going to be in a position to be able to get a little bit of a head start. We're tracking there are 319 different broadband service providers who are slated based upon the early tentative awards to be part of the BEAD program. And we are systematically tracking each of those customers based upon our penetration as a customer, where we are at in regard to the sales cycle, and really trying to apply the same type of high sales and customer support that we've done for the last fifteen years to now really put the sauce on thick within BEAD. So we're excited about it, more to come in coming quarters. Matt Cavanagh: Great. Thank you. And just one more, if I may. Is there any way, as you're talking about the potential fiber shortage, to maybe quantify the revenue impact and how that's affecting your fiscal 2026 outlook? Cheryl P. Beranek: Yeah. I think it could vary. It's really difficult to quantify specifically what's going to happen with fiber supply, especially as it relates from a BABA perspective. The current suppliers of BABA-compliant fiber, it's hard there with the bare extruded fiber. They are on lead times of over a year. And that is not consistent with being able to have a good aggressive BEAD program, and I'm sure it is not what the NTIA intended when they said there was enough fiber to go around under the BABA program. And so we, as an industry, are looking at ways by which we can offer waivers or alternative types of means to ensure that we can get a head start. And because of the uncertainty of all of that, it's one of the reasons why there is really no guidance in fiscal year 2026 associated with BEAD revenue. Matt Cavanagh: Great. Thank you, Cheryl. Cheryl P. Beranek: You're welcome. Operator: The next question will come from Timothy Paul Savageaux with Northland Capital Markets. Please go ahead. Timothy Paul Savageaux: Hey. Good afternoon. Got a couple of, I guess, merger-related questions, not so much you, but customers and competitors. So I'd be interested if you had any observations or thoughts on the early impact of both Verizon's combination with Frontier. Clearly, they're guiding CapEx way down as a combined entity, but seeming to keep the fiber build steady. It's not increasing. And, also, anything out of the CommScope, Amphenol merger that might be driving any opportunities for Clearfield? Cheryl P. Beranek: Well, yeah, we're looking at the Frontier merger as a significant opportunity for Clearfield. We have been a key supplier to Frontier. I've been pretty open about that over the years, and Frontier is, as you said, full speed ahead on their program for fiscal year 2026 and not looking to make any changes that are going to interfere with the build season. Verizon has been in strong support of being very visible in saying the reason they acquired Frontier is because of the strength of their fiber network. So as we move forward and have an opportunity to learn more about the procurement process inside of Verizon, which is one of our large tier-one customers, we're looking to just really be able to optimize that. So, we see it as an opportunity and have invested in a broader sales organization by which to support it. In addition to what we've done in the past to do traditional regional sales managers who live and work in the communities in which fiber is deployed, we've added not only a national sales team calling on corporate but a national turf team that calls on the field offices of those national offices to introduce their product line and to continue to help support it. For an existing customer in a new market or for new customers as they get introduced to the modularity of our platform. So if you look at our SG&A investment, and you see the $3 million investment for this quarter, higher than a year-ago quarter, that's where those dollars are going. We're not going to get that new business in our core business until in pillar one or in some of those adjacent without those investments and strategies, but it's really a replication of the strategy that has worked for the last fifteen years just for new customers. As it relates to CommScope and Amphenol, it's really too early. There's still a lot of people figuring out who's going to sign their check and is their job going to change, and who am I reporting to? So from that perspective, I think it's an opportunity for Clearfield as we continue to be full focused and in supporting our customer base. We also have seen CommScope continue to be open for all markets, of course, but they really have done a nice job in the hyperscale space, and we see them focusing on that under the Amphenol umbrella, which, again, I think could provide an opportunity for Clearfield. Timothy Paul Savageaux: Right. And less focused on carrier and perhaps even more so rural carrier markets. Cheryl P. Beranek: Correct. In terms of the results, you saw cable come down pretty sharply. I wondered whether what you expect throughout the balance of the year there maybe in Q2? Looks like you're looking at flattish overall revenue. Any notable trends in terms of the segments driving the Q2 outlook and what do you expect for cable beyond that? Cheryl P. Beranek: Alright. Yeah. Well, I mean, community broadband was significantly up, and it was the driver across the company. And I think everyone will find that to be very refreshing because we saw last year that community broadband was the one that's most severely affected by the delay in the BEAD deployments, not only for the dollars themselves but for the inability to fund and have the time by which to engineer other projects. So I think community broadband will continue to lead our growth into future quarters. Cable was really down from the fourth quarter but consistent with the first quarter of last year. And what we see in the MSO markets because those orders tend to be at a little bit larger scale, is a little bit of lumpiness on a quarter-to-quarter basis. So I'm comfortable that the regional MSO, as I've talked about before, the mid-continents and the Blue Ridges, the cable ones, are committed to their fiber builds, they're seeing that fiber does not have the risk that you're going to see from a DOCSIS standpoint. It's a better long-term play. And especially as the telcos get aggressive in the deployment of fiber, as Verizon and AT&T continue to build out, the MSO market, especially the regionals, is ready to respond. So I am confident that you're going to see growth in that space as well. Timothy Paul Savageaux: Great. Thanks very much. Cheryl P. Beranek: You're very welcome. Operator: This concludes our question and answer session. I would like to turn the conference back over to Cheryl P. Beranek for any closing remarks. Cheryl P. Beranek: Thank you all. I hope everyone that is listening stays warm and is finding ways to enjoy this winter weather. Clearfield has, of course, been a Minnesota company from the beginning, and it has been a struggle for our winter for a variety of different ways. But I want to commend everyone in the US who is working to be each other's neighbor and look out for each other. We are looking out for you and all of broadband. And, we do not take your support for granted and we'll continue to be able to earn it as we move forward. I look forward to seeing you next quarter. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Welcome to the OMV Results January to December Q3 2025 Conference Call and webcast. [Operator Instructions] Please be advised today's conference is being recorded. At this time, I would like to refer you to the disclaimer, which includes our position on forward-looking statements. These forward-looking statements are based on beliefs, estimates and assumptions currently held by and information currently available to OMV. By their nature, forward-looking statements are subject to risks and uncertainties that will or may occur in the future and are outside the control of OMV. Therefore, recipients are cautioned not to place undue reliance on these forward-looking statements. OMV disclaims any obligation and does not intend to update these forward-looking statements to reflect actual results, revised assumptions and expectations and future developments and events. This presentation does not contain any recommendation or invitation to buy or sell securities in OMV. I would now like to hand the conference over to Mr. Florian Greger, Senior Vice President, Investor Relations and Sustainability. Please go ahead, Mr. Greger. Florian Greger: Thank you, and good morning, ladies and gentlemen. Welcome to OMV's earnings call for the fourth quarter 2025. With me on the call are OMV CEO, Alfred Stern; and our CFO, Reinhard Florey. Alfred and Reinhard will walk you through the highlights of the quarter and discuss OMV's financial performance. Following their presentations, the 2 gentlemen will be available to take your questions. And with that, I'll hand it over to Alfred. Alfred Stern: Thank you, Florian. Ladies and gentlemen, good morning, and thank you for joining us. Before I discuss the details of our fourth quarter performance, I would like to briefly reflect on the operational and strategic highlights of last year. Despite the challenging economic and geopolitical backdrop, we achieved a strong performance across our 3 business segments. In Energy, we were able to almost reach the prior year oil and gas production level if we exclude the divestment of the Malaysian business. We slightly increased our Fuel sales volumes reinforcing our position as a supplier of choice in the downstream sector. And in Chemicals, total polyolefin sales volumes, which include the joint ventures, rose by 3% year-on-year, underscoring our product strength in a challenging market environment. Our Clean CCS operating result reached a strong EUR 4.6 billion; however, decreased by 10% compared to the prior year quarter. Importantly, despite the difficult backdrop, our cash flow from operations, the basis for shareholder distributions amounted to EUR 5.2 billion and thus was just 4% lower than the year before. This resilience demonstrates again the strength of our integrated business model, delivering robust cash flows in a volatile market environment. A particular achievement worth noting is that by the end of 2025, we have already surpassed 70% of our efficiency program 2027 target demonstrating our steadfast commitment to operational excellence and supporting our strong cash flow generation. We have maintained a disciplined approach to investments. Our balance sheet remains very strong, reflected in a very healthy leverage ratio of only 14%. This strong financial position provides us with the necessary flexibility to navigate market uncertainties, while continuing to invest in future growth opportunities and OMV's transformation. Ladies and gentlemen, as promised, our shareholders will directly benefit from our success. For the financial year 2025, we will propose to the Annual General Meeting a regular dividend of EUR 3.15 per share and again, an attractive additional dividend of EUR 1.25. In total, this will amount to a cash dividend of EUR 4.40 per share, resulting in a dividend yield of 9.3% based on the closing price of last year. This payout will represent 28% of our cash flow from operating activities. Despite the weaker economic environment, OMV will once again offer attractive shareholder distributions. Let me briefly highlight our strategic progress in 2025. In the Energy segment, the flagship gas project of OMV Petrom, Neptun Deep remains firmly on track and within budget for a targeted start-up in 2027. This marks a major milestone in our ongoing commitment to diversifying and securing gas supply. We strongly believe in the Black Sea's potential for the region and have reinforced our position through further exploration in Bulgaria, partnering with NewMed Energy and the Bulgarian state. Exploration drilling in Han Asparuh began in December 2025 with the Noble Globetrotter 1 vessel contracted to drill 2 exploration wells. Having 2 rigs simultaneously in operation, 1 offshore Bulgaria and another offshore Romania, represents a significant achievement of OMV Petrom. We have successfully diversified our cost portfolio, ensuring continuous and uninterrupted supply to all our customers since more than 1 year. As a result, we are no longer dependent on any single supplier and now have the strongest gas portfolio in OMV's history. In Renewables, OMV Petrom achieved notable progress by expanding its renewable power capacity, advancing towards a leadership in Southeastern Europe. We have advanced geothermal energy projects. We completed drilling and the successful production test in Vienna and are on track to commission our first geothermal plant by 2028. In October last year, we have made an oil discovery in Libya in the Sirte Basin with estimated recoverable volumes between 15 million and 42 million boe. What makes this especially promising is the location, just 7 kilometers from existing infrastructure. Turning to Fuels. Our coprocessing plant is operational and producing renewable diesel. In April last year, we started up our 10-megawatt electrolyzer plant in Schwechat, the biggest of its kind in Austria. Construction of the SAF/HVO plant at Petrobras is progressing as scheduled with start-up targeted for 2028. We are also investing in around 200-megawatt electrolyzer capacity in Austria and Romania. These green hydrogen projects are fully integrated with our refineries and primarily designed to supply our own facilities captive demand. In Retail, we have nearly doubled our EV charging network in 2025 and rebranded our retail stations, underscoring our commitment to sustainable mobility and enhanced customer service. In Chemicals, the game-changing agreement with ADNOC to form Borouge Group International establishes a global polyolefin powerhouse and more resilient chemicals growth platform. We successfully commissioned our ReOil chemical recycling plant and continue to advance key growth projects such as Kallo and Borouge 4. Kallo is expected to start up in the second half of this year, while Borouge 4 production is expected to ramp up through 2026, as units are commissioned and brought online. First unit of Borouge 4 should come online till this quarter. Aligned with our Strategy 2030, we remain focused on an agile transformation, responding to evolving customer needs all while maintaining strong cash flow discipline and carefully managed investments to ensure attractive returns for our shareholders. Let me update you on the status of Borouge Group International. We made very good progress regarding the closing of the transaction and expect this, as previously communicated, in the first quarter of this year. We are pleased to report that we have already secured all necessary foreign direct investment approvals as well as almost all the other required regulatory clearances. In addition, in preparation for the acquisition of Nova Chemicals, we have successfully completed our financing process. We have secured $15.4 billion ensuring that sufficient liquidity is in place to support the transaction. At this stage, the primary remaining tasks are to obtain the outstanding clearances. Discussions regarding the recruitment of BGI Executive Board and Executive Leadership team positions are nearly complete. Announcements regarding these appointments, along with nominations for the Supervisory Board will be made in due course. Finally, the active collaboration between ADNOC, OMV, Borouge, Borealis and Nova Chemicals has resulted in detailed plans for day 1 and beyond. And we have established a robust framework from the very outset of the integration to realize the synergies of more than $500 million. Overall, these developments clearly demonstrate strong momentum, and we remain confident in the successful closing and integration of Borouge Group International. Let me now move on to the details of our fourth quarter performance. Our Clean CCS operating result reached around EUR 1.15 million, representing a decrease of EUR 222 million or 16% compared to the same quarter of 2024. Excluding the positive net effect of EUR 210 million arbitration award received in the fourth quarter of 2024, our Clean CCS operating result would have been broadly in line with the prior year quarter despite lower oil and gas prices. The quarter was marked by significant geopolitical volatility. Brent crude prices declined, driven by weak short-term demand outlook and increased OPEC+ output. The introduction of new U.S. sanctions against major Russian oil exporters were somewhat supportive. European gas prices also fell despite the onset of the winter season as demand was easily met thanks to ample LNG supply. Refining margins increased further, supported by product tightness resulting from the announced sanctions on Russian refiners and unplanned outages at other refineries. In the Chemicals market, we observed some improvement of the olefin indicator margins. However, overall demand remains subdued with many customers focused on reducing their inventories before the end of the year. The Clean CCS tax rate saw a significant decline from 50% to 36%. This was mainly due to a reduced share in the overall group of certain companies in the Energy segment located in high-tax countries as well as stronger contribution from equity-accounted investments. As a result, Clean CCS earnings per share remained nearly stable at EUR 1.7 per share. At EUR 1.7 billion of cash flow from operating activities was truly exceptional this quarter, jumping by over 60% year-on-year. This very strong operating cash flow clearly demonstrates our continued ability to generate strong liquidity even in the face of a challenging market environment. The clean operating result in the Energy segment dropped markedly to EUR 586 million. Around 40% of the decrease is explained by one-time effects. The Malaysia divestment and the net arbitration award of EUR 210 million received in the prior year quarter. The remainder approximately EUR 390 million was largely attributable to decreased oil and gas prices as well as lower sales volumes. The realized oil price fell by 13% to $62 per barrel, mirroring the movement in Brent prices. Our realized gas price decreased by 14%, averaging EUR 26 per megawatt hour, thus less than European gas hub prices, which declined by 28%. This was mainly due to changes in portfolio composition following the divestment of SapuraOMV. Additionally, negative currency developments impacted our results by about EUR 80 million compared to the prior year quarter. Production volumes decreased by 11% to 300,000 boe per day. The main reason was the sale of the Malaysian assets, which had contributed 24,000 barrels of oil equivalent per day in the fourth quarter of 2024. Excluding the effect from the divestment, E&P production declined by about 4% due to production declines in Norway, Romania and New Zealand, reflecting their fields natural decline, partly offset by slightly higher output in the UAE. Unit production costs rose slightly to above $10 per barrel. This increase resulted mainly from lower production volumes and unfavorable exchange rate movements. Cost reductions -- cost reduction measures taken had a mitigating effect. Sales volumes decreased by 65,000 boe per day, thus stronger than production. In addition to the missing volumes from SapuraOMV, the sales in Norway and Libya were lower due to the lifting schedule. The result of gas marketing and power declined to EUR 116 million, primarily due to the missing positive impact from the arbitration award received in the fourth quarter of 2024. Aside from the arbitration award, Gas West decreased mainly due to lower release of transport provision. The contribution of Gas East rose strongly, driven by excellent results across both the gas and power business lines, supported by higher gas sales volumes and increased production of the Brazi power plant in the context of power market deregulation. The Clean CCS operating result of the Fuel's segment more than tripled to EUR 346 million, primarily driven by substantially stronger refining indicator margins, a significantly higher contribution from ADNOC refining and global trading and improved results of the marketing business. This strong performance was partially offset by, amongst others, negative production effects related to repairs at the Burghausen refinery. The European refining indicator margin rose sharply to $14 per barrel, while the refining utilization rate remained high at 89%. The marketing business delivered a higher contribution compared to the prior year quarter with retail performance benefiting from slightly improved fuel margins due to a more favorable quotation development for oil products, higher nonfuel business profitability and slightly higher sales volumes following the acquisition of retail stations in Slovakia. The performance of the commercial business came in slightly better as well, supported by higher contributions from the aviation business and increased sales volumes. The contribution of ADNOC Refining and Global Trading increased significantly to EUR 51 million, mainly due to a better market environment. The Clean operating result of the Chemicals segment rose sharply to EUR 236 million, driven to a large extent by the stop of Borealis depreciation. In our European business, we recorded favorable market effects totaling EUR 58 million, reflecting higher olefin indicator margins. Inventory effects were slightly lower. The utilization rate of our European crackers stood at 72%, which is significantly below the level of the prior year quarter. This was mainly because of weaker demand and inventory optimization measures at year-end. Nevertheless, the result of OMV-based chemicals improved due to stronger olefin margins. The contribution from Borealis, excluding joint ventures, increased to EUR 89 million, mostly driven by the stop of depreciation. However, the results of both base chemicals and polyolefins declined. The base chemicals result was affected by lower utilization rate as well as decreased feedstock advantage and phenol margins. Improved olefin indicator margins in Europe and lower fixed costs provided some support. For polyolefins, the contribution decreased primarily due to softer indicator margins and greater market discounts. This was partially counterbalanced by reduced fixed costs. Polyolefin sales volumes for Borealis, excluding joint ventures, grew by 4%, largely attributable to higher sales in the infrastructure and consumer product sectors. Contributions from our joint ventures rose by EUR 41 million, mainly reflecting the deconsolidation of Baystar. The contribution from Borouge remained broadly stable versus the fourth quarter of 2024, as a less favorable market environment in Asia was compensated for by substantially higher sales volumes. Thank you for your attention, and I will now hand over to Reinhard. Reinhard Florey: Thank you, Alfred, and good morning from my side as well. At the beginning of 2024, we launched a comprehensive efficiency program aimed at generating at least EUR 0.5 billion of additional sustainable annual operating cash flow by the end of 2027. This initiative helps to mitigate inflationary cost increases we have experienced over the past years as well as effects from lower commodity prices. In October, we had announced that even considering the BGI transaction and resulting deconsolidation of Borealis, we expect to achieve the originally targeted at least EUR 500 million, from the efficiency program, as we introduced a new cost savings program of EUR 400 million by end of 2027, further derisking the program's implementation. This program is well on track. By the end of 2025, we successfully delivered more than EUR 350 million of additional cash flow compared to 2023, which represents around 70% of our 2027 target. We achieved this through technical improvements in oil production, optimization of gas flows, reduction of E&P cost base as well as various margin improvement measures and refining optimization related to utilities, crude supply and energy efficiency. Overall, more than EUR 100 million are attributable to operational cost reduction measures. This builds upon our continued drive for operational excellence, following initiatives from prior years with the impact clearly visible on our cash flow from operating activities. Turning to cash flows. Our fourth quarter operating cash flow, excluding net working capital effects, was EUR 821 million. This figure was impacted by a significant net cash outflow related to CO2 emission certificates of around EUR 330 million, which is always booked for the year-end in the fourth quarter. In the fourth quarter of 2024, the net cash related to CO2 emission certificates was around EUR 270 million, largely offset by the one-off net gas arbitration award of more than EUR 200 million. The year-on-year decline also reflects a lower contribution from energy, partially compensated by lower tax payments and a higher contribution from fuels. Net working capital cash inflows were very strong. At EUR 860 million, it more than reversed the minus EUR 400 million recorded in the third quarter of 2025. This was largely driven by substantial inventory reduction in the fourth quarter 2025, whereas in the prior year quarter, we recorded a negative effect of around EUR 140 million. As a result, the cash flow from operating activities amounted to around EUR 1.7 billion in the fourth quarter of 2025, an increase of more than 60% compared with the previous year's quarter. Let us now look at the full year's picture. At EUR 5.2 billion, cash flow from operating activities was once again very strong, only 4% below the high 2024 level. After payment of dividends of EUR 2.3 billion, our free cash flow stood at positive EUR 180 million, supported by inorganic cash inflows coming from the Ghasha divestment and Bayport loan repayment. Our balance sheet remains very strong with a leverage ratio of only 14% at the end of 2025, despite ongoing macro challenges. Our financial strength is also reflected in our investment-grade credit ratings, A- from Fitch and A3 from Moody's, both with stable outlook. This strong rating underscores our healthy capital structure and prudent financial management. Following the closing of the BGI transaction, we anticipate our leverage ratio to increase mainly as a result of the deconsolidation of Borealis equity and net debt from our balance sheet as well as the agreed equity injection of up to EUR 1.6 billion into BGI to equalize OMV's and ADNOC's shareholdings. I think it's worth highlighting that even after this game-changing transaction, we anticipate our leverage ratio to be in the low 20s by year-end, well below the mid- and long-term threshold of 30%. This reflects our commitment to maintaining a robust capital structure and healthy balance sheet. Such a strong financial position provides us with the ability to do both, continue with attractive shareholder distributions and moving forward based on our headroom with our strategic growth initiatives. We once again deliver on our promise and offer our shareholders attractive distributions. We will propose to the Annual General Meeting an increased regular dividend of EUR 3.15 per share plus an additional dividend of EUR 1.25 per share. Thus, we will distribute total dividends of EUR 4.40 per share, which is an attractive yield of 9.3% based on the closing price year-end 2025. With the total payout of 28% of our operating cash flow, we once again went to the upper part of the guided corridor of 20% to 30% of operating cash flow. Since 2015, we have delivered every single year on our progressive dividend policy, which aims to increase the dividend every year or at least maintain it at the respective prior year level. Over that period, we have more than tripled our regular dividend from EUR 1 per share to now EUR 3.15 in [ 2022 ] to further enhance our shareholder distributions. We had introduced an additional variable dividend, which we now also paid for the fourth consecutive year. OMV remains committed to pay attractive dividends to its shareholders. As announced on our Capital Markets update in October last year, we are introducing a new dividend policy effective as of this financial year that builds upon our previous approach and incorporates the clear benefits arising from the BGI transaction for our shareholders. Under the new policy, OMV will distribute 50% of the BGI dividend attributable to OMV in addition to distributing 20% to 30% of cash flow from operating activities from our consolidated businesses. Our dividend will continue to consist of 2 components: a progressive regular dividend, which we strive to increase each year or at least maintain at the previous year's level; and an additional variable dividend, which will be paid if our leverage ratio remains below the 30% threshold. This approach aligns with our commitment to deliver attractive and growing shareholder returns supported by strengthened cash flows and a solid capital structure. Based on the estimated closing in the first quarter of this year, we expect Borouge Group International to pay at least the floor dividend for the full year 2026, which means net to OMV at least USD 1 billion. The dividend will be paid in 2 tranches. Now let me move to the outlook, beginning with capital spending. For the year 2026, we expect organic CapEx to be around EUR 3.2 billion, substantially lower than the past few years reflecting the deconsolidation of the Borealis business and our ongoing capital discipline. The major growth projects in 2026 are the Neptun Deep project, which is scheduled to start up next year, the South HVO plant in Romania and the green hydrogen plant in Austria and Romania. In the following years to 2030, the average organic CapEx will be below the guided level of EUR 2.8 billion per annum outlined at our Capital Market updates. About 60% of our organic CapEx in 2026 will be allocated to energy with the majority of the remaining spend going to fuels. Following the BGI transaction and the deconsolidation of the Borealis business, organic investments explicitly shown in our financial statements in Chemicals will be relatively small, reflecting only our fully consolidated Chemicals business, specifically the refinery integrated crackers in Austria and Germany and the new plastic waste sorting plant in Germany. The latter is expected to start up this year. Around 70% of our organic CapEx in 2026 is dedicated to growth, positioning OMV for the future. In addition to Neptun Deep, major organic growth project initiatives include developments in Norway, Austria, the UAE and renewable power initiatives in Romania. In the Fuels segment, we are advancing key projects like the SAF/HVO plant as well as the 2 hydrogen plants in Romania and Austria. Around 30% of the investments planned for 2026 are allocated to sustainable projects in line with our average guidance for 2030. Please note that our guidance for organic CapEx of EUR 3.2 billion in 2026 excludes any expenditures related to Borealis. Let me conclude now with our outlook for key market assumptions and operations for 2026. We forecast an average Brent price of around $65 per barrel. The average TAG gas price is estimated to be above EUR 30 per megawatt hour, while the OMV average realized gas price is expected to be below EUR 30 per megawatt hour. In Energy, we expect average oil and gas production of slightly below 300,000 boe per day, reflecting natural decline and assuming no interruption in Libya. The unit production cost is expected to stay below $11 per barrel, supported by various plant cost initiatives. Exploration and appraisal expenditure for the group is expected to be below EUR 200 million, in line with previous year's spending. In Fuels, the refining indicator margin is projected to be around $8 per barrel. We anticipate the utilization rate of our European refineries to be above 90%. No major maintenance is planned throughout the year at our refineries, supporting high operational availability. Total fuel sales volumes are expected to be higher than last year. Retail margins are projected to be slightly below the levels seen in 2025, while commercial margins are also anticipated to decline. In Chemicals, we do not anticipate a significant market recovery in the first half of 2026. Following the closing of the BGI transaction, Borealis will become part of the new company in which OMV and ADNOC will hold equal shares. BGI will be reported at equity within our financial statements. Hence, we will no longer report separate KPIs for the polyolefin business, these will henceforth be published by BGI. However, we will continue to provide an outlook for European olefin indicator margins, which will impact our fully consolidated Chemicals business. We expect market indicator margins to be slightly below the levels of the previous year with realized margins continuing to be affected by prevailing market discounts. The utilization rate of our 2 crackers is expected to rise to approximately 90% in 2026. There are no major turnarounds planned for the year. The clean tax rate for the full year is expected to be around 45%. Thank you for your attention. Alfred and I will now be happy to take your questions. Florian Greger: Thank you, Alfred and Reinhard. Let's now come to your questions. [Operator Instructions] We begin the Q&A session with Josh Stone from UBS. Joshua Eliot Stone: Yes. Two questions. Firstly, on CapEx. It looks like there was a slight overspend in '25 as compared to your initial guidance. So anything you want to flag on what might have been driving that? And then also for 2026, at least the spending outlook a bit higher than what I had in or certainly higher than the long-term guide. So any comments around what the key building blocks within that? And any potential risks that you can see in this year's budget? And then second one, I wanted to focus on your Chemicals result, particularly on the olefins side, which everyone has been extremely bearish on European chemicals and you've got sort of almost doubling of your monomers profit this quarter. What would you say is driving that better results? And any one-offs? And then if we're thinking about next year, given this is the business that will stay on your balance sheet, what should we be thinking? Alfred Stern: Okay. Maybe let me start a little bit with chemicals and olefins part and then Reinhard will add and explain the CapEx. On the Chemicals side, I would really say, as you could see, right, 2024 our Chemical sales went up some 10%, last year was plus 3%. And this is really because of the position that we have in the Borealis crackers with mainly Nordic crackers having light feedstock advantage. They are on the -- they are very cost competitive and thus able to run at high rates. While the OMV crackers in Germany and in Austria are fully integrated into our refineries, and we can use that integration advantage to also optimize our margins. So while we see, as you can see on our outlook for 2026 more or less flat kind of margin expectation for ethylene and propylene. We do believe that we are in a strong position also as a local and integrated supplier here. Reinhard Florey: Yes, Josh. Regarding your CapEx observation, you're, of course, right. I would rather like to explain. We had guided for EUR 3.6 billion, we came out with EUR 3.7 billion. In fact, we only had an overrun of EUR 90 million, which is around 2%. And this happened very much in the downstream part with the new activities, specifically around our big projects with electrolyzers and the HVO plants where we already started with some spending on long lead items. So this is more or less distributed among a variety of projects. There is not a significant big overspend in one project. In 2026, it is very clear that we start with a higher CapEx compared to the average of the years until 2030 because we still have the Neptun project in full, the HVO/SAF plant in full and also the main part of the spending on the electrolyzer plant. So therefore, this average is, of course, a little bit distorted and we are geared towards a little bit higher but significantly lower though compared to 2025. So therefore, regarding risks that you see, we do not see significant risks of overspend because we have contracted out the projects in a very, very high degree. That is also true for Neptun project. And we are going with the speed that we anticipate in spending in order to make sure that 2027 is the year for start-up of Neptun project. Florian Greger: Thanks a lot, Josh, for your questions. We now move to Gui Levy from Morgan Stanley. Guilherme Levy: I have 2 questions, please. First one, maybe on working capital. The company, of course, enjoyed a very strong release in the fourth quarter. And you know it's still early in the year, but I was wondering if you could say a few words in terms of how much and how quickly you would expect that working capital release to reverse over the course of this year? And then secondly, on exploration, if you could share with us if you have any initial results from your exploration well in Bulgaria, expectations in terms of drilling completion and also following the recent announcement of the Bulgarian Government joining the block, if you are currently happy with your stake in that asset? Or if we could -- you expect further dilution for OMV Petrom from here? Reinhard Florey: Let me start with the working capital. We indeed enjoyed a strong cash inflow from working capital optimization in the fourth quarter. However, this does not reflect any, I would say, unnatural levels. This, on the one hand side, reflects very much the business environment in which we operate and we were able to significantly also reduce our inventory levels actually in all 3 segments. Why am I saying that because also the inventory levels in the Energy business with our gas storage are now at a lower level, maybe compared to earlier years. This is a attribute to the cold winter and also to the very, I would say, small summer-winter spreads that have been available throughout 2025. So we anticipate that also after first quarter, we will come out with even lower level of inventories of storage in there. How fast will the recovery be? It depends very much on the boundary conditions that we see. If economy picks up strongly in both refining as well as in chemical, of course, also our inventories will go up. This is not what we expect as a situation in the first half of 2026. And we will also then, in Q2 and Q3, see how much of gas storage will be available for decent prices that we can lock in and then put the gas storages again on the level appropriate for surviving the next winter for all our customers. So this is something that will come across the full year in smaller stages. But as I said, this is not an unusual levels of working capital that we have at this point of time. Alfred Stern: Okay, Gui, and regarding the exploration in the Black Sea in Bulgaria. Maybe just to recap here quickly, OMV Petrom is operator with a 45% share, together with Newmet Balkan with 45% share and the Bulgarian Energy Holding with 10% share. And we have contracted the Noble's Globetrotter 1 drillship that will drill 2 offshore exploration wells. The first drill started in December. And then as it is with all these explorations, right, we need to beat for the results what we get there. Maybe also on the estimated costs for the 2 wells, that's about EUR 170 million for the 2 wells together and the agreements that OMV Petrom made with the partners are such that total cost for OMV Petrom for both wells will be about EUR 30 million. But it's exploration, right, so let's wait and see what we find. Florian Greger: Thank you, Gui, for your questions. And now we come to Henry Tarr, Berenberg. Henry Tarr: Two, if I may. The first, just on the Fuels business. We've obviously seen weaker refining margins this year. Where are you averaging sort of Q1 to date? And how do you see the outlook here for the rest of the quarter and then 2026? Alfred Stern: You said 2 questions, Henry. Henry Tarr: That's the first. I can come back on the second... Alfred Stern: Yes, yes. Okay. Then let me try and answer your question. Yes, indeed, the refining indicator margins what we what we found in the fourth quarter last year, we were at about 14%, but with declining kind of thing through the quarter, right? So in December, we saw the margins coming down and then we picked up in January at around 8%. So more or less, what we see as an expectation for the average for the year. I have to say, right, looking back at the last years refining indicator margins were extremely volatile, very difficult to predict. Supply chains are rearranging themselves, we see outages and so on. So our prediction would be around 8% January also started around that level. And I would see that maybe that's about what's the predictability of the segment, let's say, right? Henry Tarr: Okay. That's great. And then the second question is just on BGI and the floor dividend. So I think you've said but I just wanted to double-check that if the merger goes ahead as planned and completes in Q1, you'd expect the floor dividend to be paid in 2026. I guess are there any -- if the merger takes a little bit longer, is there a risk that the dividend gets prorated or anything like that just for this year or is it fixed for '26 at that floor dividend level? Reinhard Florey: Yes. Thanks, Henry. The floor dividend contractually is fixed to be a full dividend for 2026. That is our expectation, and this is the way how we also calculate. Personally, I do not have any doubts that we will not close in Q1. Florian Greger: Thanks, Henry, for your questions. We now come to Adnan Dhanani from RBC. Adnan Dhanani: Two for me, please. Just 1 follow-up on the BGI dividend. Just in the context of your comments earlier saying that the 2026 dividend would be at least at the floor level. I think at the CMD, you mentioned that the dividend would likely be the floor for 2 to 3 years. So is there a change in the thinking there that it could be at least floor level this year could be higher? Or is that still the thinking that it's going to be 2 to 3 years of just being at the floor level? And then the second question, just on your upstream production guidance. Obviously, with the 2030 target that was upgraded, just wanted to get your view on the current M&A landscape and just how you're seeing the market right now for barrels? Reinhard Florey: Yes. Adnan, maybe on the first questions. You know me, I never lose my optimism. But realistically speaking, I expect that there will be the floor dividend, which already is a very attractive thing for the current situation of the market. But theoretically, if the market picks up and the whole economy fires up, then I'm confident that also the dividend policy will kick in and could have an upside. But realistically speaking, I calculate with the floor dividend level and enjoy around USD 1 billion coming to OMV. Alfred Stern: Okay. And let me try on the upstream, Adnan. So just as a reminder, right, we said from 2025 level, we have natural decline and then we have organic projects. One is a very big Neptun project, which contributes directly the 50% share in OMV Petrom 70,000 barrels to our production target and then there's other organic projects that we have across our portfolio that contribute in the 70,000. And that means we have about another 70,000 more or less that we need to close inorganically and we said our strategy will be that we want to strengthen the portfolio in and around Europe that we have to make sure we can move this forward. We are actively trying to fill a pipeline to do that. But at this point, nothing has progressed enough that I could give you specifics on any kind of deal. Florian Greger: Thank you, Adnan, for your questions. Before we come to the next, we have one more in the queue. [Operator Instructions] And now let's come to Oleg Galbur from ODDO BHF with the next question. Oleg Galbur: Congratulations on the robust results. I have 2 questions. The first one is on the Fuel segment and more specifically, the marketing business. In the past, you were disclosing the average EBIT contribution per filling station. And I wonder if you could already give us the number for 2025? And my second question is on Chemicals. You mentioned earlier the startup expected at or planned PDH Kallo and Borouge 4. So taking into consideration that the recovery of the petrochemicals market is not yet in sight. What level of annual EBITDA would you expect to be delivered by PDH Kallo and Borouge 4 in the current market environment? And since I'm at the end of the list, maybe I can take advantage and ask a very short third question. On Libya discovery, you mentioned earlier, when do we expect the new discovery to start contributing to production from Libya? Alfred Stern: Oleg, thank you for your questions. Let me start with the fuel question on the marketing business. So what we did in the Capital Market update last year, we updated to give, let's say, a deeper look into our Fuels segment, we updated on the EBIT contributions of our retail marketing type of business. We do not and we have not regularly in the quarterly updated on this number, right? But what I can tell you is that this is something that helped last year and also in the fourth quarter that we were able to continue to not just grow the contribution from the fuel business in retail, but also nonfuel has grown there and making good contributions and we continue to see this as a value growth driver that we can do. This is our VIVA stores where we sell both [ gastronomy ] and other shop products, but it is also around EV charging, it is also around car washing and so on. So good contributions from this will continue to grow. Then on your Chemical question. I would maybe go -- want to go back to also what we disclosed in the Capital Market update that hasn't changed. We think Kallo will contribute EBITDA after full ramp-up of about EUR 200 million. And then on Borouge 4, we have said it's about $900 million, yes, that will be at full ramp-up. However, right, so we the Kallo or PDH more towards the second half of this year. And we see Borouge 4 is a very big complex with 1.5 million tonnes of production. And there is multiple plants involved, and you will see that we need to take those into operation step-by-step in stages. The first stage -- first plants will come on stream in the first quarter, but then you will see that throughout the rest of the year ramping up. You were -- so and last, your question around the Chemicals segment. I do believe, and you can see in our sales volume growth that we have, both in Europe, but also with Borouge and our joint ventures, you can see that there is underlying demand there. However, the challenge is supply/demand and unbalance. There is too much supply, new capacity that has come on stream. And -- but what we see now is increasingly old, not optimal plants being taken out of operation. In total, this is more than 20 million tonnes globally now, a big part of this is in Europe, a significant part in South Korea, but it looks like there are some first actions now also in China on rationalization with their evolution program that they have in China. Florian Greger: Thanks, Oleg, for your questions. We now come to Sadnan Ali from HSBC. Sadnan Ali: Two, please. The first one on -- just want to go back to Neptun Deep. I know you mentioned that the project is on track to deliver a start-up in 2027. I just wanted to check if you can provide any more clarity on when in the year we can expect it to start up? And what are the key milestones we should expect between now and then? And do you see any risks to that time line or any of those elements that would present more of a risk to delay if there's a delay in the project? And secondly, just wanted to clarify, your comments today said I believe that post BGI closing, you're expecting leverage in the low 20s by year-end. Just want to clarify, if I'm not mistaken, the prior communication was, I think, it was at 22% after the deal closes, so does this now mean potentially that you expect something higher than 22% upon closing immediately and that's to taper off by year-end? Alfred Stern: Let me maybe start with the Neptun project and then Reinhard will follow up on your second question. So project progress, right, just as to recall here, Neptun Deep consists of 2 fields. One is the Pelican field and the other one is the Domino field. In the Pelican field, which -- we -- OMV Petrom wanted to drill 4 wells. They have done so in 2025 and now the Transocean Barents rig is moving on to the deepwater wells in Domino field, where it's 6 wells that have to be drilled. Then there's, of course, not just the wells, but there's a lot of other activities that need to happen to bring this into production. One was the construction of natural gas metering station, which is making good progress, is ongoing and the equipment is arriving there to the site. We have also finished a microtunnel that is basically bringing then the underground pipeline connection to the onshore. We have also made good progress on the shallow water platform that is moving ahead on the construction and then has to be transported into the Black Sea later this year with good progress on umbilicals, field support vessels and so on. So all this is running. And so far, we are on track according to the plan. We have not finalized completely when in 2027 this startup will happen, but we will be able to do so in the course of the year. Reinhard Florey: Yes. And Sadnan, thanks for your question on the leverage. I admit that it's courageous to predict leverage on the single-digit percentage. I still stick to what we said that after close, we will be around 22%. And for the rest of the year, so if that happens in Q1, we still have Q2, 3 and 4. We want to reaffirm by that statement that we stay in the low 20s percentage, which should be really an affirmation of our statement of low leverage, including also the transaction of BGI. Florian Greger: Thank you, Sadnan, for your questions. There is a follow-up question from Oleg Galbur. Oleg Galbur: Yes. Well, it's rather the question that I asked, but was not answered about Libya discovery when do you expect it to turn into production? Reinhard Florey: Oleg, sorry, that we overlooked the third question. First of all, Libya has been a successful discovery and the beauty about this discovery is that it's only around 10 kilometers from existing infrastructure. This means that the tie-in of that well should go rather fast, and we're expecting it the latest by next year. Florian Greger: Apologies, Oleg, for not taking the third question, but now we come to Ram Kamath from Barclays. Ramchandra Kamath: I have a question on natural gas sales. So can you talk a little bit about what you are seeing in the gas business on demand side particularly? Because I note that the sales in your West business, in particularly, was -- I mean, has come down. I think possibly this year, it's averaging around 40 terawatt hours down from over 50. So how do you see shaping up here, particularly on if you can talk about if it is particularly on the industrial sector demand, which is coming down. And of this volatile time, how do you see this business evolving or the demand evolving? Alfred Stern: Yes. Ram, let me try and provide some insights into this. I think if you look further back a little bit, we -- so before the Russian attack on Ukraine. Since then, we have seen significant decline in market demand, both in industrial areas, but also in household and other areas. I think this was driven by very high gas prices and so on. However, last year, there was, in the markets, some rebound into the gas usage probably also again driven by normalization of the gas prices as we saw that last year. What we have done in OMV, of course, is also that we have also commercially optimized our gas portfolio, diversified it into different sources, and this is probably what you are seeing from our sales figures there. However, looking out a little bit longer, we do see the demand signals now that Europe will remain a net importing gas region until 2050, at least. And this is also the opportunity that we want to address with our Neptun Deep or some of our other gas production projects. Florian Greger: Thanks, Ram, for your questions. We now come to the end of our conference call and would like to thank you all for joining us today. Should you have any further questions, please contact the Investor Relations team. We will be happy to help you. Thank you again, and goodbye, and have a nice day. Alfred Stern: Thank you very much. Have a good day. Reinhard Florey: Thank you. Bye-bye. Operator: That concludes today's teleconference call. A replay of the call will be available for 1 week. The replay link is printed on the invitation, or alternatively, please contact OMV's Investor Relations Department directly to obtain the replay link.
Operator: Good day, ladies and gentlemen, and welcome to TomTom's Fourth Quarter and Full Year 2025 Results Conference Call. [Operator Instructions] Please note that this conference is being recorded. I would now like to turn over to your host for today's conference, Claudia Janssen from Investor Relations. You may begin. Claudia Janssen: Thank you. Good afternoon, everyone, and welcome to our conference call. In today's call, we will discuss the fourth quarter and full year 2025 operational highlights and financial results with CEO, Harold Goddijn; and CFO, Taco Titulaer. Harold will begin with an update on strategic developments. Taco will then provide further insight into our financial results, our Automotive backlog and our outlook. After their prepared remarks, we will open the line for your questions. As always, please note that safe harbor applies. And with that, Harold, let me hand it over to you. Harold Goddijn: Yes. Thank you very much, Claudia, and good morning, good afternoon, everybody. 2025 was an important year for TomTom as our product strategy clearly matured and we gained commercial traction. We introduced several new products with our Lane Model Maps standing out as a major milestone. Orbis Lane Model Maps provide lane-level intelligence, including geometry and lane markings, but at a true urban scale. And by leveraging our AI-powered map factory, we can now produce lane accurate maps with exceptional efficiency and freshness, and this has been proven to be a differentiating capability. A strong validation is that we secured a record amount of new business, and that includes a collaboration with CARIAD where TomTom Orbis Lane Model Maps were selected as a core component of the automated driving system supporting the Volkswagen Group brands. In Enterprise, Orbis Maps broadened and diversified our customer base. In the beginning of 2025, we announced a new cooperation with Esri, through which we provide maps, traffic data to support businesses and governments with location intelligence, addressing various use cases from maintaining critical infrastructure to analyzing traffic flows. And more recently, we deepened our global partnership with Uber, expanding our collaboration to enhance on-demand travel experiences worldwide. Looking ahead to 2026, I'm confident that continued advancements in our product portfolio will further strengthen our commercial traction across both our Automotive and Enterprise business, supporting top line growth over time. We will continue to expand and enhance our product offering, and we will make it easier for developers and for businesses to access our data, which will support future growth. We see meaningful commercial opportunities emerging in automated driving and infotainment as well as in high potential verticals such as insurtech and state and local government. Thank you very much. This is my part of the presentation. I'm handing over to Taco. Taco Titulaer: Thank you, Harold. I will cover our financial performance, the key trends we're seeing, an update on our Automotive backlog and our outlook. After which, we will take your questions. Automotive IFRS revenue for the fourth quarter amounted to EUR 77 million, down 3% year-on-year. Automotive operational revenue was 12% lower compared to Q4 last year. The Enterprise business delivered EUR 39 million, a 10% decline versus the same quarter last year. Approximately half of this decline is explained by a weaker U.S. dollar versus the euro year-on-year as around 3/4 of our Enterprise revenue are U.S. dollar-denominated. The remainder of the decline reflects a continued phase out of a large customer, partly offset by a broadening of our customer base over the course of the year. Gross margin was 89% in the fourth quarter, a 2 percentage point improvement compared with Q4 2024, mainly driven by a lower proportion of hardware in our revenue mix. Operating expenses were EUR 110 million, a reduction of EUR 21 million compared with the same period last year, reflecting the combined effect of capitalizing development costs associated with our Lane Model Maps and disciplined cost management. For the full year 2025, we recorded group revenue of EUR 555 million, 3% lower than in 2024. Automotive IFRS revenue was EUR 323 million, down 2% from last year due to lower car volumes at some customers and the phaseout of certain car lines, partly balanced by new model starting production. Operational revenue in Automotive dropped 1%, staying largely stable versus 2024. Our Enterprise revenue for the year was EUR 159 million, 2% lower year-on-year. For the full year, the picture is similar as in the quarter, normalized for the currency fluctuations. Enterprise revenue showed a marginal increase compared with last year. For the full year, gross margin was 88%, an improvement compared with 2024. This continued shift away from consumer hardware structurally strengthened our gross margin from 85% in 2024 to 88% in 2025, and we expect it to move north of 90% in 2026. Operating expenses decreased to EUR 489 million, a EUR 19 million reduction, same as for the Q4 trend. This reduction was due to capitalization of our map investment, lower amortization charges and reduced personnel costs from the second half of 2025, partly offset by the reorganization charge booked in Q2 2025. Looking ahead, the quarterly OpEx run rate entering in 2026 will likely be a few minutes -- a few million euros higher than what we saw in Q4. But for the year as a whole, we expect the total operating expenses to remain below 2025 in 2026. Free cash flow, excluding the cost for the reorganization we announced halfway in the year, EUR 19 million. This was an inflow of EUR 32 million compared with EUR 4 million outflow last year. Having covered our results, let's move on to the Automotive backlog. Our Automotive backlog at the end of the year reached EUR 2.4 billion, a net increase of EUR 300 million compared with the end of 2024. Our Automotive backlog represents the expected IFRS revenue from all awarded deals. Accordingly, the backlog decreases as revenue is recognized and increases when new deals are won. Its value can also fluctuate when customers revise their vehicle production forecast and with ForEx revaluations. The increase in backlog this year was driven by a record level of new deals. Our book-to-bill ratio was well above 2 last year, partly offset by negative impact from ForEx revaluations, which has a more pronounced than usual effect on the backlog valuation. A large portion of the Automotive revenue we expect to report in 2026 and '27 is already covered by the backlog generated from prior year's order intake. The majority of the value from the 2025 order intake is expected to start being recognized from 2028 onwards. From a product perspective, we see Automotive RFQs increasingly gravitating towards Lane Model Maps, the maps that enable autonomous driving functionality and support a growing range of advanced safety features. The products accounted for approximately half of last year's order intake, and we expect this [ should ] continue to grow. OEMs are clearly increasing their product and engineering focus in this area as Lane Model Maps enable both improved vehicle performance and meaningful differentiation. Our strong positioning in this area reflects a decade of sustained investment in these capabilities, and we're now seeing those investments translate into tangible commercial results. An additional benefit is that securing Lane Model Maps deals opens the door to road model map awards for the navigation use cases, supporting further market share gains. Now let's move to the 2026 outlook. Looking ahead to 2026, our revenue will reflect the transition of some customers. However, this impact is temporary. 2026 group revenue is projected to be between EUR 495 million and EUR 555 million, with Location Technology contributing EUR 435 million to EUR 485 million. We expect our operating result to improve year-on-year, while free cash flow is expected to turn temporarily negative due to the sustained investment in our Lane Model Maps. Operating margin is expected to be around 3% of group revenue. A return to top line growth is foreseen in 2027. Higher revenues combined with disciplined cost control are set to drive a further step-up in operating margin as well. To conclude, let me summarize our prepared remarks. We closed 2025 with a strong strategic momentum, marked by a record Automotive order intake and an expansion into automated driving. Despite modest top line declines driven by market conditions and customer transitions, EBIT and cash generation improved meaningfully. With an expanded EUR 2.4 billion Automotive backlog, new product launches and strengthening commercial partnerships, TomTom enters 2026 well positioned for a return to growth in 2027. And with that, we are ready to take your questions. Please, operator, please start the Q&A session. Operator: [Operator Instructions] And our question come from the line from Marc Hesselink from ING. Marc Hesselink: Yes. I have a couple of questions on the lane model. I think this is the new product versus the HD Maps that you previously had. But I think under the hood, a lot changed in the way you build your process, you build your map, how you can integrate with the client. Just if you can explain how this product currently looks like? And also how are your clients going to integrate it? And if you can also talk about what is your competitive position there? Is this now something that is really unique for TomTom that none of the competition has something like this? And if you then compare it, there's always sometimes still the debate between for this kind of functionality, do you need a map, yes or no? What's the status there also with things like the redundancy of the safety features? Harold Goddijn: Yes, Marc, thank you. Yes. So the lane model is fundamentally different from a road model map because it is a representation of the actual road and all the lines on that road and the dividers and whatnot. So you get a replica encoded of what is the road surface, what the road surface looks like. And the problem with building that map is that it's always been very expensive and not -- didn't scale very well. But with new advances in technology and new data that are becoming available, we can now produce those maps to a high degree of automation, not completely automated, but there's a high degree of automation is possible now. And that means that it's becoming economically viable to do this on all roads, not just the motorways. And it also means that you have a process for upgrading and change detection. So you can build maps that are fresher. All those capabilities are critical for self-driving and automated driving. We see that those maps are used in those systems as not only as backup, but also as a sensor. The challenge for self-driving technologies is to reduce the number of interventions of the driver of the vehicle and maps data play a very critical role in reaching that objective. Marc Hesselink: Yes. And the competition at this stage? Harold Goddijn: Well, so we don't have full visibility, but we believe that the method that we are deploying is novel, differentiating, leads to better results, scales better than what our competitors are capable of producing. Marc Hesselink: Okay. And if we look at the client side, you obviously have a big success with the CARIAD. But what about the discussions with other OEMs? Is this something that you -- I'm sorry. Harold Goddijn: Yes, go on, Marc. Marc Hesselink: Yes, I said -- and I wanted to add to -- do you speak to many other clients, including also the Chinese OEMs? Harold Goddijn: Yes. So the interest is coming from a broad range of car brands. People of carmakers want this. They can see the value of having that dataset available for the self-driving function, and that is broadly shared amongst all our customers and also potentially new customers. So we see a profound deep interest in understanding what's going on and how this technology can help them to make those cars and bring the level of automation to the next level. And next to that, we also see interest from software developers who are developing the self-driving software stack. There are a number of independent software developers who are doing this, but some based in -- mostly based in China. And they also show strong interest in understanding what this technology can bring and how it can help them to mature their own technology stack. Operator: [Operator Instructions]. Claudia Janssen: Let me -- if there's no -- I see -- if there's no further questions, let me give the opportunity to some of the analysts if they want to take the questions. If not -- no. If there's no additional questions, I want to thank you all for joining us today. And operator, you may now close the call. Unknown Executive: There is... Claudia Janssen: Oh, sorry. Andrew, sorry. Operator: I have a question that's come through now. So we are now going to take the next question from Andrew Hayman from Independent Minds. Andrew Hayman: Yes. Could you maybe give some guidance to how negative you think the free cash flow will be in 2026? Taco Titulaer: Yes. Thank you, Andrew. So 2 things I want to say about that. One is -- the second thing is to answer your question. But the first thing is that we introduced new guidance metrics in 2020. So we gave guidance on the top line and the bottom line. The top line was the group revenue and the Location Technology revenue. And the bottom line, we chose free cash flow because free cash flow at that time was the best tracker of our profitability. That had to do with the disparity -- the difference between operating and reported revenue in Automotive and the big delta between amortization and CapEx that we saw in the OpEx line resulting from the acquisition of Tele Atlas. Now both effects are kind of gone. So you also saw last year that reported revenue and operational revenue in Automotive is at parity. They're kind of almost the same. And also, we have -- we don't have any amortization left that's related to the Tele Atlas acquisition. So we want to normalize our guidance towards a revenue and an EBIT forecast. And that said, as we also have -- and then coming into your second or your primary question, the fact that Automotive is declining next year temporarily and we sustain our investment at the same level as we had last year, we will see free cash flow being negative in this year. How large it will be, I don't know exactly, but I expect it will be above EUR 10 million, but not much more than that. And then if our revenue, our top line is recovering in 2027, I expect that free cash flow will be positive again as of 2027 onwards. But an official guidance will follow in 12 months from now about that. So we'll continue to provide direction about free cash flow, but the primary guider or primary KPI for profitability will be EBIT. Andrew Hayman: Okay. And then in terms of the bookings that came in, how much of that is new customers? And how much is just more business from existing customers? And then maybe just tied in with that, how does the funnel of business look for 2026? Is there going to be -- is it a bit quieter after so much activity in 2025? Taco Titulaer: Well, yes, so if you look at order intake, you can make a 2x2 matrix. In the horizontal, you say existing customers and new customers. On the vertical, you say lane model or road model, where lane model is the automated driving and safety use cases and where road model is more for the driver itself to navigate from A to B. What I already mentioned in my prepared remarks is that what we've seen is that if you break down the order intake of last year that roughly half of that order intake is related to lane model. And that percentage will only grow further. So also for 2026, we think that the proportion of lane model RFQs and potential wins will be tilted towards lane and not so much road. Road models can be a tag-along deal. Increasingly, OEMs want to focus on securing the right quality and the right vendor of lane models. And also that gives us opportunities to also secure extra deals in road modeling. The majority -- yes, CARIAD is an existing customer, of course, because we already do software with them. So in that sense, the majority of the order intake was with existing customers. Harold Goddijn: But I want to add to [Audio Gap] first time that we deliver map data at scale to the VW Group. Taco Titulaer: Yes, that's different. But before it was navigation software and traffic, et cetera, but now it is also including map data. Andrew Hayman: Okay. And how does the funnel of potential sales look for this year? Because it looks like -- I mean... Harold Goddijn: There's a broad and deep book of opportunities out there, not dissimilar from 2025. So the activity is really -- is there from what we can see now. But what we also have seen in 2025 is that timing is very difficult to predict also because of ambiguity in product planning in all sorts of market conditions. But I think the way we look at it now, there is substantial opportunity available again in 2026 for further building of the backlog. And there are also opportunities available to us for extending and growing our market share. Operator: And the questions come from the line of Marc Hesselink from ING. Marc Hesselink: A follow-up. One on the Enterprise segment. I think in previous calls, we've discussed a lot about the momentum for the small clients being quite good. But then for the bigger, longer sales cycles, is that still ongoing? Are you still talking to these bigger potential clients? And would we expect something beyond '26 in the '27 period? Is that likely? Harold Goddijn: I don't think there's -- we don't anticipate a big shift in market opportunities in 2026. No extraordinary, but we think that the momentum we have to an extent in the long tail opportunities, that will continue throughout 2026. The composition -- yes, so there's a lot to go after in -- also in the Enterprise sector. Marc Hesselink: Okay. And -- but the big clients, they sort of stick to their own products or... Harold Goddijn: Well, we have a good market share with the big tech companies already. There are not that many of them, but our market share there and our representation with big tech is significant. So the growth and the expansion need to come from companies below that tier. There's a lot of them in the EUR 10 million kind of category. There are a lot of them in the -- between EUR 1 million and EUR 10 million category that are available to us to win. Marc Hesselink: Okay. Okay. That's clear. And then the second follow-up was on -- you mentioned also for next [ year, so '27 ] to be cautious on the cost side. And I just want to understand that a bit because I think that you say you're moving towards the more automated process. It's almost now already almost fully automated. Is that something that you can still take a bit of steps there to further automate it and at that stage, decrease the cost a bit? Harold Goddijn: Yes. Well, we -- so there's a number of things that we can achieve through -- on the cost side. I think the most important one is that our product portfolio is maturing and coming together. And we're more product-driven than in the past. And that means that we can do things more effectively, better at higher quality and we can leverage that software much better than we've ever been able to do in the past. We see also opportunities to further leverage the power of AI, especially in the engineering side. We're making some meaningful progress in that area. So the combination of a simpler product portfolio at a higher quality that is reaching completeness now after a long period of transition, those are all indicators that we can do things more faster at higher quality, but also with -- allow us also to keep a lid on the cost and not let that grow. There will be additional costs in maturing lane level product, as Taco already indicated. But all in all, I think we are in a good position not to let the cost and the OpEx run away from us, but rather contain it and manage it carefully without that giving strong limitation on our ability to get things done. Claudia Janssen: Okay. With that, I want to thank you all for joining us today. And operator, now you can really close the call. Thank you. Operator: Thank you. This concludes today's presentation. Thank you for participating. You may now disconnect.
Philip Ludwig: Welcome, everyone, joining us today for the Melexis Fourth Quarter and Full Year 2025 Earnings Call. I'm Philip Ludwig, Investor Relations Director at Melexis, and I'm joined today by our CEO, Marc Biron; and CFO, Karen Van Griensven. Earlier today, we published our press release and presentation, which can be found on our website. We will start with some brief remarks on the business and financials before taking your questions, starting with Marc Biron. Marc, the floor is yours. Marc Biron: Thank you, Philip. Hello, everyone, and welcome to this earnings call. Let me start by sharing some perspective on the full year of 2025 and how we see 2026 as of today. Then we will discuss the last quarter of 2025. Looking back at 2025, at the beginning of the year, we had entered a phase of customer inventory correction later than our peers. We are now in a period with more geopolitical uncertainties and more short-term volatility in demand. The period of customer inventory correction was largely completed by the summer. As a result, our sales were stable or grew sequentially as the year has progressed. High in-quarter ordering has started in Q2, which we could serve from our strategic inventory. Still in 2025, sales in our largest region, APAC, has increased as a percentage of group sales. China has followed an alternating pattern of very strong sales in one quarter, lower the next quarter and strong again in the following quarter as it was in Q4 when we recorded our highest ever sales in China. Now looking ahead to 2026, we remain in the recovery phase of the automotive demand cycle. We expect that these sales will not be linear given all the uncertainties and the late ordering behavior of our customers. Following the very strong Q4, sales in China continued their alternating pattern in Q1, also influenced by Chinese New Year mid-February. We are also facing the expected volatility in our nonautomotive business such as digital health application. Finally, we have to factor in the impact of the annual pricing agreement that we have closed at the end of 2025. Those effects translate to a similar level of sales in the first half of '26 in comparison to '25. We expect growth in the second half of '26 with a similar dynamic as in '25. Now turning to the last quarter of '25. Sales of EUR 214.5 million means that we returned to a year-on-year growth of 9%. China posted its highest ever sales and the rest of Asia was also strong. Total APAC sales were up double digit year-on-year and sequentially, while Europe and the Americas were lower sequentially. On the innovation front, we leverage our technology leadership with strong design wins and an expanded pipeline of opportunities across China, Europe and South Korea. This trend is also valid in robotics with the pipe of opportunities up by a factor of 5 in Q4 versus the previous year. We have launched 19 new products targeting structural growth trends in automotive and robotics. In the last quarter, this included a game-changing inductive sensor for steer-by-wire application that simplifies design and reduces cost, paving the way for the next generation of electrified and autonomous vehicle. We have launched also a code-free driver for automotive ambient lighting, which streamlines the development cycle and reduce the cost of our customer. We also see the high potential in power electronics, and we are extremely proud to offer a world premier protective device called snubber. This unique solution protects and enhance power density of silicon carbide power module. All major power electronic manufacturers have shown interest in our product. A great example is Leapers Semiconductor, a Chinese manufacturer of advanced power module incorporating our snubber in their next generation of module. Our new protective device family will continue to expand to meet the evolving needs of power modules and emerging power applications. We have been growing faster than many peers in China over the past 5 years with our broad offering on high-performance and high-quality product and our strong local team to support customers. From my side, I came back from China 2 weeks ago. I'm really impressed how hybrid is gaining traction and how content reach -- are reaching mid-range car much more heavily than in Europe. To continue our trajectory in China, we are accelerating the implementation of our China strategy, including localization of our supply chain. A key step is to have local wafer supply, and we are fully on track to start shipping product this summer based on the 12-inch wafers from our local partner. We also established a dedicated robotics team in China to respond to the stronger interest with more than 60 projects currently underway. As part of our strategy to win in faster-growing markets, we are increasing our effort in India, where we enjoy strong double-digit growth. India presents great opportunities in automotive as well as in alternative mobility, playing to our strengths. We are finalizing the setup of a Melexis entity in India to show our commitment to serve customers locally and further develop in this attractive and growing market. I will now hand it over to our CFO, Karen Van Griensven, to provide more detail on our financial results and outlook. Karen Van Griensven: Thank you, Marc. So sales for the full year 2025 were EUR 839.6 million, a decrease of 10% compared to the previous year. The euro-U.S. dollar exchange rate evolution had a negative impact of 2% on sales compared to 2024. The gross result was EUR 324 million or 38.6% of sales, a decrease of 19% compared to the last year. R&D expenses were 13.8% of sales, Q&A (sic) [ G&A ] was at 6.5% of sales and selling was at 2.4% of sales. The operating result was EUR 134 million or 16% of sales, a decrease of 39% compared to EUR 219.9 million in '24. The net result was EUR 112.5 million or EUR 2.78 per share, a decrease of 34% compared to EUR 171.4 million or EUR 4.24 per share in 2024. Sales for the fourth quarter of 2024 were EUR 214.5 million, an increase of 9% compared to the same quarter of the previous year and stable compared to the previous quarter. The euro-U.S. dollar exchange rate evolution had a negative impact of 3% on sales compared to the same quarter of last year and no impact on sales compared to the previous quarter. The gross result was EUR 82.3 million or 38.4% of sales, an increase of 6% compared to the same quarter of last year and a decrease of 1% compared to the previous quarter. R&D expenses were 14.5% of sales. G&A was at 6.7% of sales and selling was at 2.5% of sales. The operating result was EUR 31.5 million or 14.7% of sales, an increase of 14% compared to the same quarter of last year and a decrease of 17% compared to the previous quarter. The net result was EUR 22.6 million or EUR 0.56 per share, an increase of 24% compared to EUR 18.3 million or EUR 0.45 per share in the fourth quarter of '24 and a decrease of 18% compared to the previous quarter. Now turning to the dividend. The Melexis Board of Directors approved on February 2 '26 to propose to the Annual Shareholders' Meeting to pay out over the result of '25, a final dividend of EUR 2.4 per share, which will be payable after approval of the Annual Shareholders' Meeting. This brings the total dividend to EUR 3.7 per share, including the interim dividend of EUR 1.3 per share, which was paid in October 2025. Now for our outlook. here, Melexis expects sales in the first quarter and first half of 2026 to be around the same levels as the previous year. Sales in the second half of 2026 are expected to grow compared to the first half of 2023. For the first half of 2026, Melexis expects a gross profit margin around 40% and an operating margin around 17%, all taking into account a euro-U.S. dollar exchange rate of EUR 1.17. And for the full year 2026, Melexis expects CapEx to be around EUR 40 million. Our outlook includes the first benefits of our cost actions taken in 2025, such as improvement in the cost of yield. We remain disciplined in executing our cost improvement road map, for example, a shift in some operations to be closer to customers in Asia, and this to keep moving towards our long-term margin objectives. This concludes our remarks. We can now take your questions. Philip Ludwig: Thank you, Marc and Karen. [Operator Instructions] Operator, can you now give instructions and open up for Q&A? Operator: [Operator Instructions] The first question is coming from Aleksander Peterc from Bernstein. Aleksander Peterc: I think the first one was pertaining to your guidance. So as in last year, this year, you also refrained from a full year guidance, could you give us a bit more color. So just help me understand if I got this right. So H1 flat. And then I think, Marc, you said in your introductory remarks that second half should be higher than the first half in a similar manner to what we've seen in '25. So is it then right to assume we're looking at a ballpark something about flattish for the full year? I'm not trying to extract the full year guidance for you. I'm just asking if the math is correct here. And then I have a quick follow-up. Marc Biron: Yes, I confirm your understanding. In my introduction speech, I have indeed mentioned that H2 will grow in a similar manner than H2 last year. Karen Van Griensven: But we can indeed -- yes, that volatility remains -- it's very low. So the -- if you look purely at Q1, we see that mostly Asia is staying behind. So Asia was very strong at the end of last year. We see it -- the order intake there is much lower than, for instance, for Europe. Europe is actually increasing. So it's all attributable to Asia and particularly also China. And we know that in China, there is a lot of volatility in order behavior and also very late ordering. So I want to put that also in that perspective. Aleksander Peterc: Very useful. And then secondly, on China versus Europe, we have a lot of debate going on about Chinese vendors, automotive brands gaining share in Western markets. What does this imply for your market share? Do you have your market share with local Chinese players that is similar to what you have in Europe? Or is there a discrepancy there? Marc Biron: Looking at the past 5 years, the CAGR of Melexis grew by 10% -- a bit more than 10% over the last 5 years. And in China, the CAGR grew 14%, which is higher than the majority of the peers in China. And I do believe we are gaining market share in China if we compare to the CAGR of Melexis with the competition. And there is nothing structural that would tell me that this will change in short term. And I would say, in the longer term, when we consider our design win, our pipe of opportunities, we see also that those design wins and the opportunity pipe is increasing faster in China or in Asia than in Europe. Operator: The next question is coming from Amelia Banks from Bank of America. Amelia Banks: Yes. My first question is just on gross margin. You sort of said last quarter that you saw around cumulative sort of 4 percentage points of temporary headwind stemming from yield issues and wafer inventory revaluation. I'm just wondering if you could maybe break down what you were seeing in Q4 and then also in terms of bridging sort of how you're seeing that guide to get to 40% in H1? Karen Van Griensven: Yes, we still had that same headwind in Q4 indeed because of inventory revaluation. We also still had high cost of yield. But this we -- this cost of yield, both effects -- well, particularly cost of yield is what will drive margin improvement in 2026. It will be a major contributor, and that is the reason why we expect around 40% gross margin in the first half of the year. Amelia Banks: Okay. And is that largely just reliant on sort of revenues picking up and demand picking up to get sort of through the sort of yield issues, the wafers that you're seeing in your inventory. Is that the main sort of driver of that? Karen Van Griensven: No, it's that we get more material out of one wafer. So it's not volume related. Amelia Banks: Okay. I just remember last quarter, you were saying about how you have sort of yield issues in one of your fabs, and that's led to sort of impacted wafers in your inventory that you're still having to work through. Is that still relevant? Karen Van Griensven: Most of that material has now been -- is now out of the inventory. So we now have in inventory wafers with higher yields, and that is helping us to improve the margin. Amelia Banks: Okay. Perfect. And then just my quick follow-up. Just on the sort of annual price resets. So just wondering if you could maybe guide on what sort of ASP change you've been seeing in '26 sort of versus 2025. Karen Van Griensven: I believe the average selling price in '26 will be close to the '25 average selling price. That is the expectation today. Operator: The next question is coming from Janardan Menon from Jefferies. Janardan Menon: I'm just looking for your second half guidance. I'm just wondering what is giving you the confidence that you will see the kind of increase in the second half like you saw last year, especially given your commentary on quite a lot of volatility in the China market. Are you expecting that market to stabilize over the next couple of quarters and therefore, give you some upside there? And just associated with that question is we just came off the Infineon call, and they said that perhaps because some of the customers, including in automotive and other areas is concerned about strong AI demand getting to -- giving rise to supply tightness even in areas outside of customers are willing to put more longer-term lead time orders now just to avoid any future capacity tightness. So is that something that you're seeing, which is also giving you some confidence on the second half of the year? Marc Biron: I think there is indeed multiple reasons for this statement on the second half of the year. First, we know that the inventory at our [indiscernible] in Asia, in particular in China is very low. And we know that they will reorder later in Q1 or in Q2 because the inventory is really low, especially in China and especially for the magnetic products, I would say. The second reason is we are -- in many big customers, we are changing the version of the products. And this change of version will happen in Q2, Q3. And it's why our customers are now busy to reduce their inventory of the previous version before they order the new version, let's say, the more modern version. This is clearly visible for drivers product, but also for some ASIC. Yes, in our price negotiation that has been finished in December, we have also received the forecast from our customers. And clearly, the forecasts are stronger in H2 versus H1. Those are the different reasons, let's say, that bring this comment. To follow up on your question about the, let's say, the supply problem, we have some sign, let's say, for example, of assembly house, where indeed those assembly house are moving, let's say, their capacity to different kind of package, more complex package in order to incorporate those complex AI chips. Yes, we have this view, let's say, from the assembly house, no really yet consequence on Melexis, no real consequence on any allocation, but there is indeed this trend, which is a bit more than the noise, I would say. Operator: The next question is coming from Craig McDowell from JPMorgan. Craig Mcdowell: The first one, I'll just go back to the gross margin. And just can you help us understand the step-up from Q4 into Q1? On the face of it, the sequential improvement, I think, around 150 basis points. It looks quite difficult given volumes, annual price inflation kicking in, currency likely worse. Just trying to understand what's going to get us to that sort of 150 basis point step-up in the face of those headwinds. I've got a follow-up as well. Karen Van Griensven: Yes. I can only repeat the biggest reason why that will happen is indeed that we have gone in inventory through most of the products with high cost of yield loss. So we will -- and as you remember, that was a high contribution of reduction in gross margin in '26, close to 2%. So -- but as we are now leaving that mostly behind, we will see improvement as of Q1 already. Price erosion that we also see in Q1, of course. We still expect a step-up because of this big improvement in cost of yield. Craig Mcdowell: And then just a follow-up. I realize it's early, but I appreciate your thoughts on the acquisition announced with MSO around sensor portfolio by Infineon. Just wondering your reaction of how that might change competitive dynamics in that segment of the market where obviously you're strong. Marc Biron: Yes. In our, let's say, product scope or application scope, yes, OSRAM is not a real competitor of Melexis, meaning that I think this acquisition will not change a lot for us. Operator: The next question is coming from Francois Bouvignies from UBS. Francois-Xavier Bouvignies: I have actually really one question. I mean when I look at your revenues, so you mentioned flat year-on-year in Q1 and Q2. Now when I look at your competitors like Allegro, for example, which I think is the closest, I mean, they are growing their auto revenues by more than 20% year-on-year in December quarter and March, by the look of it, is still 19%, 20% year-on-year. So they are really growing significantly. You mentioned China growing 14% in the last 5 years, but I would imagine that the growth in China was actually higher than 14%. I mean, given all the EV growth that you have seen, the car sales as well in there. So the content and the growth in China was clearly higher than that. So what I'm trying to understand is, is there anything structural here? I mean, a bit more because it feels a bit more than an inventory correction, especially when you compare the growth with some other peers. Even NXP is growing 11% in autos. TI is growing low teens. STM is growing mid-teens in March quarter. So you seem to be well below the others. So I'm just wondering why is that? Marc Biron: I think there is for sure, nothing structural. I repeat that I was in China last -- 2 weeks ago. Yes, my conclusion from the trip, which was the same when I was in China in November, I think that the Chinese customers, they like the Melexis product. They have a lot of trust on our quality. Yes, they like our support, technical support is very important in China. I confirm there is no structural -- there are no structural problem in China, also not in Europe. Yes, we are facing this volatility. The order in China was very high in Q4. In Q1, it is lower because of this Chinese New Year, also because the incentive scheme for EV in China have changed from '25 to '26. But from my perspective, we still have the same traction. And we -- when we refer to the design win or when we refer to all the pipe of opportunity, the discussion with customers, I don't feel any problem there. Karen Van Griensven: Yes. And I also want to add that Melexis went -- started the cycle much later than all the other players in the market. Usually, we started later, but we also come out later. In general... Francois-Xavier Bouvignies: I understand that. Yes. But versus Allegro, I mean, I would say why they would see differently than you. I mean they do similar things, not only the same. But what is your revenue in China? I mean, in Q1, was it -- how much down it is China, you would expect to be? Karen Van Griensven: China, it will be down quite a bit compared to -- well, based on the order intake we have now because January was still strong. February, March is still obviously still order intake. February looks quite weak, but that's probably a lot to do with China New Year. And March, yes, orders are still coming in. So it's also -- even in Q1, it is difficult to predict where exactly we will be landing because of, yes, the very late order intake, certainly also in China. But it's particularly low compared to Q4. But as I mentioned, we don't -- yes, there is no reason to believe why that wouldn't throughout the year pick up again. Q1 tends to be always a lower quarter -- well, not always, but usually a lower quarter in China anyway. Francois-Xavier Bouvignies: So on the year-on-year China, what do you expect your guidance? Karen Van Griensven: On a year-on-year, yes, it will be probably close to what we had a year ago. It might be slowly lower. But like we said, order intake is coming in quite late. Philip Ludwig: Francois, maybe just to come back to some of your comparisons, it's Philip here. Allegro, I think the 5-year CAGR is 2% to '24, okay? We can update for '25 as well, whereas ours is 14%. In China, we outgrow Allegro as well over a 5 years period. So I know we look ahead. Of course, we also look ahead. But I think if we look over time, as Karen mentioned, the quarters are not always in sync. I think the long-term growth track record of Melexis stacks up well versus many, if not the majority of our peers. Operator: The next question is coming from Robert Sanders from Deutsche Bank. Robert Sanders: Yes. Sorry, the line just went bad. I didn't hear the answer to the last question. Did you say the year-on-year decline in U.S. dollars or euros for Q1 China alone? Did you answer that? Karen Van Griensven: Well, like I said, order intake is very late. There could be a decline in the first quarter, although in January, we haven't seen it yet. And this is what -- that's the reality. February and March is still in orders. So very difficult to predict even in 1 quarter where we will land, particularly for China. Robert Sanders: Got it. My question was more around in the medium term. So you've seen a lot of the BEVs being canceled by Western OEMs, more than 30% of launches have been canceled. It looks like EV demand is just not flying without big fingers on the scale. And now that they're taking away subsidies in the U.S. and China, it just doesn't seem to be as strong. So you're going to see a lot of people moving back to plug-in hybrids and zonal architectures as a kind of bigger source of differentiation. So does that affect your TAM growth? Because if I remember rightly, you brought it down at the CMD, your long-term growth. Does it affect how you think about that? Or are you kind of agnostic still to that trend? Marc Biron: I share your view indeed that hybrid, let's say, seems to be the preferred option for many of the customers and many of the manufacturers. And I would say hybrid is great for Melexis because there is -- and an electric engine and a combustion engine. Then we -- let's say, we win 2x because we contribute to the electric engine and we contribute to the ICE. Then for us, it's the best of both worlds, the hybrid motorization. And what I said during the introduction speech, in China, I was really impressed how much those hybrids were taking over because initially, let's say, the hybrid had a battery with, let's say, 50 kilometer range, but now it's 100, 150 and 100 to 150 kilometers. In Shanghai, for example, it's more than enough to move in the city during 1 day. And it's the reason why this hybrid is gaining traction. Robert Sanders: And what you see at the Western OEMs, obviously, they're restarting their development. I mean, a lot of their combustion engine R&D was shut down. Now they're restarting those teams. Is that a good thing for you because they will get more involved in the engine management side? Or is it there's a short-term issue because of cancellations and then a long-term gain because of plug-in hybrid ramps? Marc Biron: Yes, discussing with our customer, the Tier 1, the Tier 1 have faced indeed in '25, a lot of or some cancellation of platform. I think it's also one of the reasons of the current situation. They all told me that '27 will be different. And in '27, they forecast a lot of new platform, which is one aspect. And to answer your question, for Melexis, what is important is that either the electric engine or the combustion engine come with a new platform because the new platform is usually much more electronic rich with much more comfort, much more safety features, then those new platforms are always a benefit for Melexis. But it could be combustion engine or electric engine, it doesn't make a lot of difference for us because we are -- we have the same kind of contribution in both type of motorization. I repeat my previous answer, but hybrid is the best of both worlds for us. Operator: The next question is coming from Guy Sips from KBC Securities. Guy Sips: My question is on the inventory level of EUR 300 million plus. We see it increasing quarter-over-quarter. How comfortable are you with this inventory level? And do you expect that we are now on the peak? Karen Van Griensven: Yes, it is our -- it's indeed a peak level. As we progress in '26, we will probably keep it around that level, maybe a bit lower. But we don't have the intention to further increase it. Marc Biron: And I think this inventory is a strategic asset for Melexis because we have a lot of in-quarter order, and we can respond positively to those in-quarter order because we have the inventory with the right product. And when the business will pick up anytime soon, we'll be ready to ship to our customers, thanks to these inventories, and we really see this as an asset. And I think it's much more expensive to lose business in the future than to keep this inventory as it is today. Guy Sips: And a follow-up question on your sales in Europe, which is just above EUR 50 million in the fourth quarter of '25. And I think you have to go back to COVID times to see this kind of level. What is actually -- what could be a point for your European sales? Is it -- yes, can you elaborate a little bit on that? Marc Biron: Yes, the center of gravity of the business is indeed for the time being, at least moving from Europe to China or to Asia. That being said, yes, Europe remains very important. Also U.S. remains important. But this move from Europe to China is indeed the trigger for us to focus our organization on China. We have -- at the end of '25, we have updated our organization in China in order to give to this organization in China more autonomy, more autonomy in the business aspect to give them the opportunity to answer very quickly to our customers because we do realize that in China, speed is really a essence, and we should avoid the communication flow between China and Europe, then the autonomy has been given to the China team to be on top of the business discussion. And I think this is a very important asset for the future to strengthen our China team because indeed, for the time being, and I repeat for the time being, the business is moving to China. But we also see that in the expectation of the OEM, the European OEM in '26, but even more on '27, they will launch more and more new car with new platform, EV, cheaper, and it's not impossible that a kind of rebalance will happen later this year or later next year. Karen Van Griensven: And I just want to repeat that Europe had a strong start. Q1 is higher than Q4. Marc Biron: Yes. Operator: The next question is coming from Marc Hesselink from ING. Marc Hesselink: Yes. First, I would like to come back a little bit on the volatility that you call out on the revenue because I think the fourth quarter was a bit below what you initially expected, then another step down in the first quarter and a quite significant step-up in the second quarter sequentially. Just trying to understand that a bit better. What changed there? Because I think earlier, we talked more about small sequential improvements quarter-over-quarter. And now you certainly see this volatility. I think you discussed it, but just to really square what is really happening causing this volatility? Karen Van Griensven: Yes. So like we mentioned, what we -- the drop is fully for Asia and then also particularly for China. And China from one quarter to the other also last year can really move up EUR 10 million in one -- easily move up close to even EUR 10 million from one quarter to the other. So we don't have really snubber reason than there is huge volatility in China in general and that it is obviously also impacted seasonally by China New Year. Marc Biron: Yes. And it has been also amplified, sorry. It has been amplified by the change of incentive scheme in China at the end of '25. Marc Hesselink: Okay. Okay. And then the second one is a clarification on what you said on the pricing because I think you said that the ASP will be very close to '26 level to the '25. But you do call it out as one of the reasons for maybe a bit slower revenue in the beginning of the year or less -- no growth in the first half of the year. So just wanted to understand if you -- like product for product, are the ASPs stable? I think that would be probably a bit better than what you initially guided, which was the normal decline of 3%, 4%, I guess. Karen Van Griensven: No, we need to make that -- we need to clarify that. Stable ASP doesn't mean that we don't have price erosion. The price erosion is mid-single-digit expectation for '26, but the product mix has a positive effect in '26. This can vary from 1 year to the other, the product mix effect. Operator: The next question is coming from Michael Roeg from Degroof Petercam. Michael Roeg: I have a question about the China business, which was very strong in Q4. Do you have a sort of a crude estimate how much of your products end up with the top 5 Chinese carmakers and how much ends up with all the other names? Marc Biron: On the top 5 carmaker, I cannot answer. What we know is that, let's say, half of the Chinese business is for Chinese OEM and the other half is for the European OEM. Michael Roeg: And within those Chinese OEMs, you do not really have a good view on how much ends up with sort of the big companies, the familiar names and how much ends up with that very long tail? Marc Biron: No. Michael Roeg: Okay. Do you see a risk that if there eventually will be a shakeout of all those smaller players that eventually their car volumes will move to the big players, the big domestic players, which have much better pricing power than those smaller players? Have you done scenario analysis for that? How much that could impact your business? Marc Biron: Yes, the consolidation will indeed happen. There are a lot of OEM in China then for sure, consolidation will happen. But we don't have an accurate answer to your question. I think indeed, innovation will also help at the end, it's all about new products that we bring on the market to compensate this price erosion. Yes, we have -- in the product that we have launched recently, we have products with much more ASP, much more margin. I don't see any reason why this consolidation will be negative because on the other hand, having a lot of small customers, it's also -- it requires a lot of effort to support all those customers, especially in China, we have a lot of application engineers working with all those small customers, then there is also a very negative effect to have so many small customers. And I could also add that it's the case in Europe. In Europe, we have a lot of big customer and a very limited number of small customers, then it will probably indeed move in this direction in China, but we are able to manage it in Europe, then we will manage it in the same way in China. Michael Roeg: Okay. Well, my impression was that the bigger OEMs in China have much more favorable purchasing conditions so that if the volumes were to move to them, that it could affect your overall ASP in China. But you will be -- you think there will be some compensation in being able to lower your OpEx. Marc Biron: I think it's the same in Europe. The big customers in Europe. Our big customers in Europe have also a better pricing than the small customer. And it's why also we like this long tail for the reason you mentioned. But yes, it will be the same in China, and we will manage the situation in the same way. I think it's -- the price metric is always high volume, lower price. Karen Van Griensven: But overall, we expect high price erosion in China than in the rest of the world. That is calculated in our model. Operator: We go on now to the last question, and it's from Nigel van Putten from Morgan Stanley. Nigel van Putten: I just wanted to talk about the growth or the guidance for the full year, which is flat, maybe not comparing it to others, which have indeed sort of implied some growth you guys aren't able to. So how do I sort of get from -- I think in the past, you would say on sort of 0 SAAR growth still penetration would add, what, high single digits. Let's say that's mid-single digits today. You said pricing in the mix is kind of flat. There's no real inventory digestion going on. So how do I get from, let's say, mid- to high single-digit volume growth to 0 on the euro side? Is that the dollar? Is that sort of headwinds from the nonautomotive business? Is there a mix? Could you just give us some more color on the pieces -- the building blocks how to get down from a volume number to revenue number in euro? That's my first question. Marc Biron: It's a mix, as you mentioned, we did not discuss in the Q&A about the nonautomotive business. I mentioned it in the introduction speech. But yes, one of our big nonautomotive customer has decided to alternate their supplier. And I think it's quite normal. We had the chance to be during 3 years in a row in the application. In '26, they have decided to make the alternate, which affects our revenue. Yes, again, it's not abnormal. We are -- we have good hope that we will come back in the next years. We have good technical features. But this is indeed in the midst of answer. This is one of the reasons that we did not mention in the past. Nigel van Putten: It's great to receive one of the reasons. Can you quantify the impact and also give us just a bridge from -- because it's -- yes, I mean, I've covered companies for quite a while. It's always been volume growth. It used to be teens and high single digit. I think it's now mid-single digit, but still this is a material step down. And I don't have any ways to calculate that, then it would be super helpful, very helpful for you to guys to give a little bit more disclosure and color on how to model the business into '26 and what are the moving parts? Marc Biron: And our customer and probably also OEM are navigating to cautious recovery in auto, and it's why this volatility in sales order is coming. I think it's difficult to give more color and really to give the building block for your answer because of this high volatility. Nigel van Putten: But the whole volatility in the near term, and then I'll move on after this one. But I do want to try again. It's for the full year. So it shouldn't be -- it's not exactly normalized, but it's not the month-to-month volatility that you point out. I fully comprehend that. But it's just compared to peers and also compared to your -- the financial model, the growth model that I'm used to, this is very different. I mean I could have understand it. It used to be the bullwhip inventory effects, that is a big impact, but that doesn't seem to be driving it. So I'm just -- I need to update my understanding about how I model your top line, I think, and it would just be helpful if we can get a little bit more color on that. Marc Biron: In the longer term, we confirm our high single-digit growth. What we have mentioned to the CMD is still fully valid. We have the design win, we have the opportunity pipe. We have in our development, the relevant product to reach this growth. And in long term, I think the model did not reach. In short term, we have this volatility that we mentioned. We have the price erosion that we have mentioned, mid-single digit, low to mid-single digit. This is the reason of the change. But I repeat in long term, we are fully confident that what we have said to the CMD is still valid. We need now to face the short-term headwind. Nigel van Putten: Okay. More math now on the gross margin. I think, Karen, you've talked about the potential of sort of 4 percentage points worth of idiosyncratic or self-help or specific items. I think 2 percentage points related to the yield improvement. I think that's probably what we're seeing in the first half, if I'm not mistaken. And then on top of that, there was potential further improvement or the dollar, I think some normalization would have helped. You've mentioned the restructuring impact of about 1 percentage point before. So I'm just trying to get to the full year gross margin. It seems like given there's no growth either, we probably should assume like 40% for the full year. Yes, can you maybe elaborate a little bit if that's the correct way of thinking? Or is there an element missing? Karen Van Griensven: That is correct. Indeed. We need more operating leverage to push it beyond that 40%. Nigel van Putten: Okay. And maybe then just a quick follow-up. You've guided first half gross margin, not first quarter. I think it's just how you usually talk to the market. But should we assume that improvement towards 40% in the first quarter? Or is it more towards the second? So we step up from I don't know, 39.5% and then... Karen Van Griensven: From Q1, we expect. Operator: This was the last question in the queue. There are no more questions at this time. So I hand the conference back to the speakers for any closing remarks. Marc Biron: Thank you, operator. To summarize, 2025 was a year of navigating through cautious and choppy demand while maintaining our cost discipline. In parallel, we have introduced many innovations for automotive applications, grew business opportunities, accelerated our China strategy and took action to improve margins. These efforts will start to deliver in '26, and we will continue to build on them to further strengthen our business and to move towards our long-term objective. Thank you for joining the call, and goodbye. Operator: Thank you for joining today's call. You may now disconnect.
Operator: Good day, and welcome to the American Assets Trust, Inc. Fourth Quarter and Year-End 2025 Earnings Conference Call. [Operator Instructions] I would now like to turn the conference over to Meleana Leaverton, Associate General Counsel of American Assets Trust. Please go ahead. Meleana Leaverton: Thank you, and good morning. The statements made on this earnings call include forward-looking statements based on current expectations, which statements are subject to risks and uncertainties discussed in the company's filings with the SEC. You are cautioned not to place undue reliance on these forward-looking statements as actual events could cause the company's results to differ materially from these forward-looking statements. Yesterday afternoon, American Assets Trust's earnings release and supplemental information were furnished to the SEC on Form 8-K. Both are now available on the Investors section of its website, americanassetstrust.com. It is now my pleasure to turn the call over to Adam Wyll, President and CEO of American Assets Trust. Adam Wyll: Good morning, everyone, and thank you for joining us to review our fourth quarter and full year 2025 results, as well as our outlook for 2026. For the full year, we earned $2 of FFO per share, about 3% above our initial expectations. As we discussed coming into the year, we positioned 2025 as a reset, reflecting several known offsets versus 2024, including the roll-off of onetime revenue items and the end of capitalized interest on certain projects. At the same time, we continue to invest in office leasing at our development and redevelopment projects, and recycled capital into a high-quality San Diego multifamily acquisition that has performed in line with our underwriting. Against that backdrop, delivering above our initial guidance speaks to the quality of our assets and the teams executing across our markets. In fact, portfolio-wide same-store NOI ended slightly positive for the year, supported by strong collections and disciplined expense management, with our office and retail segments offsetting mixed performance from our multifamily and mixed-use segments. Importantly, our 2025 results reflected the themes we highlighted throughout the year. Office made continued progress leasing newer and redeveloped space with tenant engagement improving in the second half and increasingly concentrated in well-located Class A product. Retail, again stood out, supported by low vacancy, limited near-term expirations and a smaller watch list than a year ago. Multifamily worked through elevated new supply in our markets, which constrained near-term rent growth and our teams focused on occupancy, revenue management and expense discipline. And in Waikiki, we operated through a softer tourism year than expected, and our hotel results reflected that. But we believe that asset remains well positioned within its competitive set as conditions improve. While macro uncertainty persists, we believe our coastal infill locations and high-quality real estate position us to capture demand as it materializes. With that context, I'll walk through each segment and then conclude with our priorities for 2026. Across our West Coast office markets, we are seeing continued signs of stabilization and gradual improvement in leasing activity with tenant engagement increasingly concentrated in the best assets. Conversations are becoming more active, decision time lines are improving and demand is extending beyond renewals. In markets like San Diego and San Francisco, vacancy trends are showing early signs of stabilization, supported by declining sublease availability and a more active leasing environment. In Bellevue, while overall vacancy remains relatively elevated, conditions have been comparatively much stronger than in Seattle with improving demand dynamics, reduced sublease pressure, and increased interest from technology and innovation-driven tenants, particularly in the CBD, which we expect over time to spill over into the surrounding suburbs. In Portland, our scale and long-standing presence continue to be an advantage in a market with relatively few institutional owners, which helps us compete effectively and win more than our fair share of leasing opportunities. Overall, while office market conditions continue to normalize at different paces, we are encouraged by the direction of travel and believe our portfolio is well positioned to benefit as leasing momentum continues to build. Our office portfolio ended the quarter 83% leased, and our same-store office portfolio was 86% leased, up about 150 basis points from Q3. In addition, we have approximately 140,000 square feet of signed office leases that have not yet commenced paying cash rents. Same-store office NOI increased just over 1% for the quarter, and nearly 2.5% for the full year. Looking ahead, roughly 8% of our total office square footage is scheduled to expire this year, which is consistent with the typical level of expirations we see each year. We are actively engaged on that rollover, and that figure includes known move-outs of about 4% of our office square footage, which we anticipated and are managing as part of our leasing strategy. During the fourth quarter, we executed 23 leases totaling over 193,000 square feet, with positive cash leasing spreads of 6.6% and GAAP leasing spreads of 11.5% for the quarter, and achieved our highest ever average base rents in our office portfolio. For the full year, total office leasing volume increased 55% over 2024, and leasing spreads increased 6.4% for cash and 14% for GAAP. We continue to see the strongest interest for well-located space that is move-in ready and amenity supported, and that is where our development and redevelopment efforts have been concentrated. At La Jolla Commons Tower III, we ended the quarter at 35% leased with another 15% in lease documentation currently and our active prospect pipeline is growing. At One Beach Street, we ended the quarter at 15% leased and subsequently executed leases for an additional 21%, bringing the property to 36% leased today, with proposals for another 46% currently in negotiation. In response to increased demand for move-in ready space, we are advancing spec suite development at One Beach Street with permitting complete and work underway. As we move into 2026, we started the first quarter with momentum, having already executed approximately 68,000 square feet of leases with an additional 214,000 square feet in lease documentation. We have meaningful prospects engaged across the portfolio and remain focused on converting activity into signed leases and commenced rent. While larger blocks still require thoughtful execution, velocity has improved and the path from engagement to execution is shortening. At this point, we are targeting to end the year between 86% to 88% leased across our entire office portfolio, an increase of about 400 basis points at the midpoint from the end of 2025. We will do our best. Turning to retail, which remains a cornerstone of stability and represents 26% of portfolio NOI, we ended the year at 98% leased. Fourth quarter leasing totaled 43,000 square feet with positive cash and GAAP leasing spreads for the quarter. In fact, for the year, leasing spreads were 7% on a cash basis and 22% on a GAAP basis, all supported by healthy sales and steady traffic across our centers. While a moderating labor market is impacting the broader consumer, higher income households continue to drive a disproportionate share of spending. Given the quality, location and demographics of our retail assets, that backdrop remains supportive of demand across our centers. As we've said in prior quarters, we really like the setup for our retail platform. Nationally, retail availability is expected to remain near record lows given limited new supply, which should continue to support asking rents. Our portfolio benefits from high barrier supply-constrained submarkets, strong occupancy and a well-laddered expiration profile, which includes just 4% of our retail square footage expiring this year. Looking to 2026, we expect continued favorable performance and we will stay disciplined on renewals, tenant quality and CapEx prioritization. In multifamily, we ended the year 95.5% leased, excluding the RV Park, and achieved approximately 1% net effective rent growth year-over-year versus the fourth quarter of 2024, a steady result in a competitive leasing environment. At the same time, operating conditions remain influenced by new supply across markets such as San Diego and Portland, which continues to weigh on near-term rent growth. Occupancy held stable through 2025, while pricing remained competitive as deliveries were absorbed and concessions persisted in certain submarkets. Consistent with the broader industry backdrop, we are not assuming a rapid improvement in 2026, which we view as more a period of stabilization and recovery, and we remain focused on execution, optimizing pricing and concessions by submarket, maximizing occupancy, enhancing the resident experience and tightly managing controllable expenses. In San Diego, our communities ended the fourth quarter 96% leased, excluding the RV park. Renewal rents increased while new lease pricing was more competitive as we prioritized occupancy, including more meaningful use of concessions late in the year. Genesee Park continues to perform in line with our underwriting, ending the year 97% occupied, and we continue to see attractive long-term mark-to-market opportunity as we execute the value-add plan. In Portland, Hassalo on Eighth ended the year 91.5% leased. Blended net effective rents were approximately flat between new leases and renewals. At Waikiki Beach Walk, 2025 reflected softer tourism trends, which pressured both rate and occupancy at different points during the year. While overall visitation moderated, spending per visitor was steadier, supported by longer stays and higher daily spend. Industry data reflected this mix with RevPAR down year-over-year despite relatively steadier demand among higher spending guests. Bob will provide more details on the strength of our balance sheet and capital allocation, but I want to address a point of significant frustration for our management team and Board, which is our current share price. It is clear that many listed real estate companies have remained largely out of favor with the broader investment community throughout much of 2025, often trading at a substantial discount to the intrinsic value and quality of the underlying assets. AAT is no exception. The public market valuation, in our view, fails to reflect the trophy nature of our primarily coastal portfolio and our long-term growth prospects. While we cannot control macro sentiment, it is our job to close that disconnect to the best of our abilities by delivering consistent operational execution, demonstrating the cash flow durability of our new developments and redevelopments, continuing to execute our strategy with discipline to create long-term value for our shareholders and position AAT to capture opportunities, whether or not the environment is volatile or stable. Note that our Board has declared a quarterly dividend of $0.34 per share for the first quarter, payable on March 19 to stockholders of record on March 5. At this point in time, we expect to maintain the dividend at current levels with the outlook for our dividend coverage ratio improving as our office developments stabilize and begin to contribute more meaningfully to cash flow. That said, our approach remains measured, and we will continue to allocate capital prudently and reevaluate as conditions evolve. Looking ahead, we view 2026 as an opportunity to build upon the progress we made in our reset year. Our priorities are straightforward. One, continue to drive office leasing with a focus on converting improving prospect activity into signed leases and commence revenue at our newer and repositioned assets. Two, maintain retail momentum by keeping our centers full, proactively managing expirations and staying focused on tenant quality. Three, manage through the multifamily supply cycle with disciplined revenue management and cost control, positioning the portfolio for better growth as supply moderates. Four, operate our hotel prudently, while staying responsive to market demand and focused on managing costs and driving performance. And five, continue to be thoughtful with our capital and strengthen the balance sheet, all with the obvious goal of improving our valuation over time. You'll note that our FFO guidance in 2026 at the midpoint is 1.5% above 2025, and portfolio-wide same-store NOI growth, excluding reserves, is over 2%, which Bob will provide more details on in just a minute. Note that these estimates reflect our current view of leasing velocity, market rent growth and operating costs across the portfolio, as well as the timing of lease commitments and the cadence of operating expenses across the year. As always, we take a realistic, yet conservative, approach to guidance with the goal of executing ahead of our midpoint over time. In closing, I want to thank our employees for their dedication and our tenants, partners and shareholders for their continued confidence and support. With that, I'll turn the call over to Bob to discuss our financial results and initial guidance in more detail. Bob? Robert Barton: Thanks, Adam, and good morning, everyone. Last evening, we reported fourth quarter and full year 2025 FFO per share of $0.47 and $2, respectively. Net income attributable to common shareholders for the fourth quarter and full year 2025 was $0.05 per share and $0.92 per share, respectively. Fourth quarter FFO decreased by approximately $0.02, to $0.47 per share compared to Q3 '25. This decline was primarily attributable to termination fees recognized in Q3 that did not reoccur in Q4. Let's talk about same-store cash NOI. For the full year ended 2025, same-store cash NOI increased by 0.5% compared with 2024. The key drivers of same-store NOI were: Number one, office increased 2.3% for the year, driven primarily by higher base rent and improved expense recoveries, including contributions from the Databricks expansion and new leasing at City Center Bellevue, partially offset by known move-outs at First & Main, Torrey Reserve and Eastgate. Secondly, retail increased 1.2% for the year, reflecting strong first half growth of 5.4% in Q1 and 4.5% in Q2, '25, partially offset by the impact of 4 tenant move-outs in Q3 and Q4, two at Waikele Center and two at Gateway Marketplace. Of note, the Gateway spaces have since been backfilled through an expansion by Hobby Lobby, and new lease with Wingstop, both scheduled to commence rent on July 1, 2026. Thirdly, multifamily declined 3.2% for the year, driven by flat to modestly lower rents, elevated concessions amid new supply in our two markets, and higher operating expenses, trends we've seen across the multifamily industry in our markets as well. And fourth, our mixed-use declined as well by 6.7% in 2025 versus 2024. As softer Waikiki hotel demand, continued pressure from Japan-related travel and higher operating expenses weighed on results. Occupancy averaged roughly 82%, about 360 basis points lower year-over-year, while ADR was essentially flat at about $370, driving RevPAR down approximately 7% to about $296. Despite the soft year, we continue to outperform our comp set in Waikiki, and we believe the fundamentals of Waikiki remain attractive over the longer term as this cycle normalizes. Meanwhile, the retail portion of Waikiki Beach Walk increased 8% year-over-year, driven by higher base and percentage rents and lower bad debt expense. As it relates to liquidity, at the end of the fourth quarter, we had liquidity of approximately $529 million, comprised of approximately $129 million in cash and cash equivalents, and $400 million of availability on our revolving line of credit. We are currently in the process of renewing our credit facility, which now matures in early July. As a reminder, we previously extended the maturity to move the renewal cycle away from the first week of the year, which created timing challenges for all parties. We expect to close on our recast in Q2. Additionally, as of the end of the fourth quarter, our leverage, which we measure in terms of net debt to EBITDA, was 6.9x on a trailing 12-month basis and 7.1x on a quarter annualized basis. Our objective is to achieve and maintain long-term net debt to EBITDA of 5.5x or below. Our interest coverage and fixed charge coverage ratio ended the quarter at 3x on a trailing 12-month basis. Let's talk for a moment regarding the dividend payout ratio. For a REIT, we look at it as total dividends divided by funds available for distribution, also known as FAD or AFFO. As Adam mentioned, we continue to expect our dividend to remain at current levels. While our 2025 payout ratio is just under 100% due primarily to elevated CapEx spending, our 2026 outlook implies a payout ratio of approximately 89%. Assuming continued progress in leasing and a stable operating environment, we would expect the payout ratio to trend lower beyond 2026 towards our goal of 85%, and we will continue to monitor coverage closely. Let's talk about 2026 guidance. We are introducing our 2026 FFO per share guidance range of $1.96 to $2.10 per FFO share, with a midpoint of $2.03, which is approximately 1.5% increase over 2025 actual FFO of $2 per share. Starting with 2025 FFO of $2 per share, there are 9 items in aggregate that drive the change to our 2026 midpoint. They are, number one, same-store cash NOI for all segments combined, excluding reserves, which I will discuss in more detail in a few minutes, is expected to increase by 2.2% in 2026. By segment, and on the same-store NOI basis versus 2025, the expected contribution to FFO per share is as follows. Office is expected to increase approximately 3.3% or $0.06 per share. Retail is expected to increase approximately 1.7%, or $0.02 per share. Multifamily is expected to increase approximately 2.2%, or $0.01 per FFO share. And mixed-use is expected to decrease approximately 3.3%, or $0.01 per FFO share. For Embassy Suites in Waikiki, our 2026 outlook prepared in collaboration with our partners at Outrigger assumes approximately 2.5% revenue growth and 4% expense growth, reflecting inflationary pressures in Hawaii, including food, labor and overhead. Within that, we assume average occupancy is expected to increase by approximately 1%. Average ADR is expected to be flat and increase approximately 0.5% from $360 in 2025, to $362 in 2026. Average RevPAR is expected to increase approximately 2% from $296 in '25 to $302 in 2026. Number two, let's talk about non-same-store cash NOI. It's driven primarily by two assets. La Jolla Commons III, which was completed in the second quarter of 2024 and Genesee Park, our multifamily acquisition that closed in the first quarter of 2025. Together, these non-same-store assets are expected to contribute approximately $0.03 per share to FFO in 2026. Number three, credit reserves that we are budgeting are expected to reduce 2026 FFO by approximately $0.04 per share. Of that amount, roughly $0.02 per share is allocated to office and $0.02 per share to retail. In total, these reserves represent about 64 basis points of our expected 2026 revenue, which we believe is a reasonable level. As we did last year, we are taking a conservative approach given the uncertainty in the macro environment, and our goal is to reduce these amounts over the course of the year as performance and collections materialize. Number four, G&A is budgeted to decline in 2026, which we expect will contribute approximately $0.04 per share to FFO. This is primarily due to meaningfully lower professional fees and other nonrecurring costs that were incurred in 2025 and are not expected to repeat at the same level in 2026. Number five, interest expense is expected to increase in 2026, primarily due to the end of the capitalized interest related to La Jolla Commons III, which we expect will reduce FFO by approximately $0.02 per share. Number six, other income is expected to be lower in 2026, primarily due to lower budgeted interest income, which we expect will reduce FFO by approximately $0.02 per share. Number seven, nonrecurring termination fees recognized in 2025 will not be included in our 2026 guidance, which will reduce FFO by approximately $0.025 per share. Number eight, 2026 GAAP adjustments are expected to increase FFO by approximately $0.01 per share. The majority of the variance relates to the related impact of straight-line rents. Number nine, we have no contribution from Del Monte Center in 2026 following its sale in 2025. Because the asset contributed for roughly 2 months in 2025 prior to the sale, the year-over impact is expected to be a reduction of approximately $0.01 per share. These items in aggregate represent approximately $0.03 per share, which bridges 2025 FFO of $2 per share to the midpoint of 2026 guidance of $2.03 per FFO share. While we believe the 2026 guidance is our best estimate as of the date of this earnings call, we do believe that it is possible that we could perform towards the upper end of this guidance range. Key factors that would support that include, number one, converting a meaningful portion of our speculative office leasing activity earlier in the year. Number two, continued rent collections from the tenants for which we have reserved. And three, better-than-budgeted performance in both multifamily and mixed-use through improved occupancy and pricing, and/or lowering operating expenses. As always, our guidance, our NOI bridge and these prepared remarks exclude any impact from future acquisitions, dispositions, equity issuances or repurchases, future debt refinancings or repayments other than what we have already discussed. We will continue our best to be as transparent as possible and share with you our analysis and interpretations of our quarterly numbers. I also want to briefly note that any non-GAAP financial measures that we discussed like NOI are reconciled to our GAAP financial results in our earnings release and supplemental information. I'll now turn the call back over to the operator for Q&A. Operator: [Operator Instructions] The first question comes from Haendel St. Juste with Mizuho. Haendel St. Juste: Appreciate all the detail. Maybe I wanted to start with the office portfolio. I noticed that TIs, especially for renewals were elevated. I guess I'm curious if that's the strategic decision you're making there, more reflective of a weak demand environment, concerns about AI? And what can you tell us about the conversations for your upcoming expirations? The rents on some of those, I think, are pretty elevated. Curious kind of how that compares to current market. Adam Wyll: Let me kick that off, and I'll hand it over to Steve real quick. And hello, Haendel, nice to have you on the call today. As you know, it's true that office leasing today obviously carries a higher capital burden than pre-pandemic, mainly from whether that's amenities or TIs, commissions and the investment needed to deliver space that's move-in ready. And we expect that to moderate over time as occupancy improves and availability tightens, particularly in our better buildings and submarkets. The pricing power and the concession levels will tend to normalize. But Steve's got some more specific information in particular to our portfolio that he can share on that front. Steve Center: Haendel, good question. And there's a really positive answer to it. Really, it skewed high because of Autodesk going as long as they could on the second floor, which is a critical space for them. They approached us to add term early. So their lease wasn't up for a couple of years, but that second floor is critical to them. So they came to us and said, would you extend? And we did that at almost -- well, a very positive rate, and we gave them $35 a foot TIs to do so. And that's a big -- that's 45,000 feet. So added to that Smartsheet did the same thing. They extended their second floor space, which is where the company gathers. They extended it by 6 years. They came to us early, said, this is a critical space for us. We want to rejigger it. And so we need some money to do that, and we want to go 6 years longer. So when you strip those two renewals out of the metric on the TIs, the remainder is at $6.41, versus $31. So I would agree... Adam Wyll: Yes, those two don't create a trend. Those are an anomaly. Haendel St. Juste: Got it. Got it. No, I appreciate that, Steve. I wanted to also ask about the balance sheet, Bob. I know you've got some pretty good liquidity on hand. The leverage is still sitting here at kind of 7x plus EBITDA. You mentioned the 5.5x target. I guess I'm curious if there's any sense of time line to get there? I'm presuming that's going to come from kind of internal cash flow. But just curious kind of what the steps and potential time line to get to that target. Any thoughts there would be appreciated. Robert Barton: Haendel, good question. The time line is really -- as soon as we lease up La Jolla Commons III and One Beach, and Steve will have more information on that in a few minutes. But the sooner we can get those properties leased up, we will be at the very low end of 6x. And then from there, we'll work down to the 5.5x. We were at 5.5x before COVID. So a lot of things have happened. But anyway, that's the time line. Haendel St. Juste: Got it. I appreciate that, Bob. And then last one, if I could. Adam, just going back to some of the comments you made in your initial remarks, I understand the frustration with the stock. And obviously, it seems front and center for you guys. I guess just curious on kind of what some of the steps you might be willing to take there beyond the kind of the execution as you laid out? Are you open to any strategic asset sales to capture that arbitrage between where the private market is, where your stock is trading? Any asset sales? I mean, anything that perhaps you see that you can -- from an action perspective, steps you could take to really reinvigorate the stock, the multiple? Adam Wyll: Yes, that's a good question. It's a billion-dollar question. Look, Haendel, we continue to be pragmatic on asset sales. If we can sell an asset at a price we think reflects long-term value and redeploy those proceeds to improve the balance sheet, or fund higher return opportunities, we'll do that. But we're not going to sell assets at a discount just to check a box either. So the main messaging for us is more so discipline. And as retail continues to perform well and office really seems to be improving from what we're seeing, we feel like we have time on our side to be selective. So to kind of force that issue is not something we're going to do. But we'll continue to look at opportunities. The bar is high for us to find something to buy. We would certainly need a compelling basis, durable cash flows, a clear path to value creation. And at today's pricing and financing levels, that's a much narrower set for us. So we're just trying to be smart with what we've got and not chase external growth for the sake of activity. Operator: The next question comes from Todd Thomas with KeyBanc Capital Markets. Todd Thomas: First, I just wanted to ask about the guidance assumptions in the office segment first related to the 86% to 88% year-end lease rate. Relative to where you ended the year, 83.1% for the total portfolio. Where are you today pro forma what's been leased already year-to-date, including One Beach Street where it sounds like there's been some good progress and all of the known move-outs that you discussed? I'm just trying to get a sense for how much of that target is speculative in nature as you move through the year. Steve Center: So right now, I think Adam mentioned it, we've got -- we signed 68,000 feet in 11 deals already this year. And we have another 13 deals in lease documentation for a total of 214,000 feet. And then behind that, we've got another 235,000 feet of proposals that I'd put better than 50-50. So the pipeline is significant. They're in that 86% to 88%. There is speculative leasing. But we've had some really interesting positive surprises lately. For instance, we had a full floor tenant in Portland that was a known move-out that came back and said, we're no longer interested in moving to the suburbs. We're back to being committed to the downtown market. And so we have RFPs to renew them, and downsize them, slightly in the existing space that they're in. And also our First & Main property is a candidate for them as well. But candidly, we think we're going to get a letter of intent today that makes First & Main not a viable alternative anymore. So that's one example. We've had tenants come out of nowhere that turn into leases, looking at a spec suite, touring it 1 week and then we're in leases the next. That happened at Torrey Reserve. That happened -- we had a tenant that thought they were going to be purchased. This is City Center Bellevue, a 7,000-foot space. They thought they were going to be purchased. They turned it down, took additional VC money. And now they signed a lease for 7,000 feet there. And we had another one do the same thing at City Center. So we're seeing a lot of positive surprises, and we're fortunate we've been making the investment to make these spaces ready to move into because we're reaping the benefits of that now. So to that end, at La Jolla Commons III, for example, we spec-ed out the fourth floor and with a lease that we have out for Signature, we have one space left on that floor. We're delivering the fifth floor spaces later this year, end of summer, early fall. We've already leased one of them, and we're in play on a handful of others. So the spec suite development and delivery leads to very quick lease -- we can convert to leases and cash flow. And so I think we're speccing about 44% of our vacancy right now. And so with these experiences I'm telling you about and the pipeline we've got ahead of us, we're feeling pretty good. Todd Thomas: Okay. All right. That's helpful. And then is there additional leasing assumed in the non-same-store portfolio, I guess, primarily La Jolla Phase III as it pertains to the guidance? I guess I would have thought that the contribution from lease-up could be potentially more meaningful. What's assumed in the guidance for lease-up at La Jolla Phase III? Robert Barton: Yes. Well, what we said -- I mean, is driven primarily by the two assets, La Jolla Commons III and Genesee Park. So La Jolla Commons III, I think Steve touched on that just a minute ago. So -- yes, we've put approximately -- the two assets together was approximately $0.03 per share of FFO that's contributing on the non-same-store cash NOI. Adam Wyll: And Todd, as we -- this is first-generation space at La Jolla Commons III. So we're not reflecting those rents until they commence and those are later in the year. Todd Thomas: Okay. Got it. Right. So there's concessions initially. I guess, Bob, yes, you've talked about $0.30 of FFO from the combination of La Jolla, One Beach, and I think the Bellevue redevelopments. Can you sort of provide an update as to how much of that is expected to be online in '26, versus how much more there is to come beyond '26 from that -- from those assets and the lease-up and stabilization? Robert Barton: Yes, we can put something together, but I don't -- kind of put those numbers together with the activity that Steve has just recently seen at One Beach. I think it's going to be positive, significantly positive. But Steve, do you want to mention anything on that? Steve Center: Well, sure. The first lease signed at One Beach, 13,000 feet roughly on -- that's going to commence April 2. That's when we move them in. And then that same tenant is taking the rest of the floor. That lease commences February 1 of next year. And there's 2 months of free rent on that one. So you're going to get a bunch of cash flow next year from that one. The spec suites are -- at La Jolla Commons III are going to produce revenue this year. We've got a larger tenant for 25,000 feet that we're in lease documentation with that will take us to -- and one spec suite in play that will take us to 50% leased. The small spec suite 4,000 feet, that rent will commence immediately as soon as we sign the lease. And then the larger deal will take some time to build out. That's going to be a tenant build that will start paying rent next year. And then let's talk about 14Acres or Eastgate. We've got a spec suite program in place there, but we've got several deals that are signed already, or in the process of being signed that will kick in. So we've made really good progress there. That's one where we have known move-outs that are offsetting that progress, but we're leasing the spaces that we're delivering in spec conditions. So that's another big contributor. Robert Barton: Yes. So Todd, just to get back to your question on that $0.30 that we had talked about on one of our presentations, and we'll update that in the next month or so. But basically, I stick to that $0.30. It's just a question of timing. Steve Center: 14Acres in Q4, we signed two deals totaling 19,000 feet. At La Jolla Commons III, we signed three deals totaling 17,500 feet. One Beach, we signed the 13,000 footer, and we just signed yesterday the remainder of that third floor. So that's just some color on Q4 and where we are right now. Todd Thomas: Got it. That's helpful. So it seems like some of the leasing progress will be better reflected when cash rent commences later in '26, and really more meaningfully in '27 at the rate and pace that activity is picking up here. And then I just wanted to ask one more question, just back on the balance sheet and Bob, your comments around the revolver. Any expectations on changes in pricing as you look to, sort of, amend the facility? And do you plan to maintain the $400 million of capacity? Robert Barton: Well, we -- our banking syndicate supports us whether we go $400 million or $500 million. So we're just talking internally, trying to make the best decision, what's the best outcome for us on that. Right now, we're leaning towards the $500 million. But if we go $400 million, that's okay, too. So we have a very supportive bank syndicate. It's just an absolute -- it's a great team to work with, and they're open to whatever we want to do on that. So -- but pushing it out to a July -- early July maturity will be better for all people. I mean we used to have the cadence where everybody, both the banking syndicate and AAT were running in circles trying to get that closed every 4 years. And so now it's a lot easier for the banking syndicate and our team just to push it out a little bit further. Adam Wyll: And Todd, we expect the pricing grid to stay the same. Operator: The next question comes from Ronald Kamdem with Morgan Stanley. Unknown Analyst: This is Matt on for Ron. You guys mentioned in your prepared remarks, there's a lot of leasing activity going on with One Beach and La Jolla Commons. Could you guys talk to any of the tenant types driving the demand? How you guys are feeling about the stabilization of the assets compared to the past few quarters? Just any additional color there would be helpful. Adam Wyll: Steve, you want to start? Steve Center: One, we're feeling very positive. We're feeling much better about the pipeline. The quality of the tenants at La Jolla Commons III, it's diverse. We have a legal Software as a Service. We have a really prominent insurance company that we just signed up. So it's -- and then we had an international bank, and it's a wealth management arm of an international bank. So we're seeing these really high-quality tenants that -- they're looking to take advantage of that A+ environment. And so we're just seeing more and more of that. We just signed a letter of intent. We're in leases, as I alluded to earlier, with another -- it's a consulting firm. It's an engineering firm -- an international engineering firm that this is their headquarters in San Diego. So we're going to -- we expect to see more of the same and diversity, but really high-end tenants at La Jolla Commons III. At One Beach, the first tenant is AI, and several of the tenants we're seeing in Bellevue are AI as well. The other proposal we're entertaining right now is not AI. It's not -- well, it's technology related, but it's not part of the AI wave. So it's good. That would be a long-term lease and take the entire second floor. So we'll see how that plays out. Unknown Analyst: Okay. Great. And then I also noticed in the quarter that 92% of the office leasing was from renewals versus 70 -- I want to say 73% in 3Q. Was that just largely due to the large renewals that you guys did in the quarter with Autodesk, some of the other top tenants? And if we could expect kind of more of the same going forward? Or is that just like a lumpiness factor? Steve Center: No, it's a great question. I'm glad you asked it because I think there's a gap in what we exhibit. So what I'm getting at is, we did 193,000 feet in the quarter of leasing. What you're talking about the 135,000 feet is comparable leasing, new and renewal. We did 60,000 feet of new leases on top of that. So all of the Tower III, One Beach and all of the leases we're doing at 14Acres or Eastgate are all noncomparable leases. And so if you look at the year, we did 246,000 feet of those noncomparable leases in 2025. That's 5.8% of the portfolio that if you just look at same-store or comparable leasing, you're going to miss that. And so we need to do a better job of articulating that going forward. And then in terms of the overall year, over 53% of the leases were new or expansion. Operator: The next question comes from Dylan Burzinski with Green Street. Dylan Burzinski: Most of my questions have already been asked. But I guess just going -- maybe speaking a little bit to the credit reserves of $0.04 that you guys have baked in the guidance. Can you kind of just talk about that? I know you mentioned half office, half retail, but are these sort of tenants that are -- have a looming bankruptcy? Or are you guys, just sort of, baking in some sort of conservatism as we get into 2026 here? Adam Wyll: Yes, Dylan. So on the retail side, which we mentioned is a steadier part of the portfolio. We're not really seeing much of a broad-based deterioration in tenant health right now. And so our watch list is manageable. We're keeping an eye on a theater in one of our projects and maybe a few on the fringe like pet supply companies. But other than potentially mom-and-pops, there's nothing on the radar that we're expecting. So we're just kind of taking a kind of a generalized reserve on retail. And then on the office side, it's kind of a hybrid of credit reserve and speculative leasing reserve. Like we're ambitious in our office leasing expectations and the credit quality, of course, but we want to be measured, too. So there's no specific office tenant that we have kind of acute concerns about. But we're just going to take a reserve because things fall out throughout the year every so often, and we just want to model appropriately. Dylan Burzinski: That's helpful. And then maybe just touching on the office side of things. You guys mentioned expectations for a big jump in office lease percentage this year. I guess, how do you guys sort of envision the path back to sort of 90% plus occupancy? Do you guys view that as sort of being able to do that in the next sort of 2 years? Or is that sort of more a longer-term goal in your guys' mind? Robert Barton: I would say 2 years is reasonable. Adam Wyll: I mean it's within the realm of reason for sure, but we don't want to overpromise that. That's our goal to get back to the 90% threshold, but we're going to take it a year at a time or quarter-to-quarter and get there. But we're really poised to do it. Now we've made the investment in the spec suites. There'll be -- everything we're doing is completed this year. So we've got really -- a lot of great inventory that's not going to take a bunch of time to deliver. So we're anticipating some good results. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Adam Wyll for any closing remarks. Adam Wyll: Thanks, everybody, for joining us on the call today. We appreciate your time and continued support, and hope you have a great first quarter. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Good day, and welcome to the Powell Industries Fiscal First Quarter 2026 Earnings Conference Call. [Operator Instructions] This event is being recorded. I would now like to turn the conference over to Ryan Coleman of Investor Relations. Please go ahead. Ryan Coleman: Thank you, operator, and good morning, everyone. Thank you for joining us for Powell Industries conference call today to review fiscal year 2026 1st quarter results. With me on the call are Brett Cope, Powell's Chairman and CEO; and Mike Metcalf, Powell's CFO. There will be a replay of today's call, and it will be available via webcast by going to the company's website, powellind.com, or a telephonic replay will be available until February 11. The information on how to access the replay was provided in yesterday's earnings release. Please note that the information reported on this call speaks only as of today, February 4, 2026, and therefore, you are advised that any time-sensitive information may no longer be accurate at the time of replay listening or transcript reading. This conference call includes certain statements, including statements related to the company's expectations of its future operating results that may be considered forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Investors are cautioned that such forward-looking statements involve risks and uncertainties and that actual results may differ materially from those projected in these forward-looking statements. These risks and uncertainties include, but are not limited to, competition and competitive pressures, sensitivity to general economic and industry conditions, international, political and economic risks, availability and price of raw materials and execution of business strategies. For more information, please refer to the company's filings with the Securities and Exchange Commission. With that, I'll now turn the call over to Brett. Brett Cope: Thank you, Ryan. Good morning. Thank you for joining us today to review Powell's fiscal 2026 1st quarter results. I will make a few comments and then turn the call over to Mike for more financial commentary before we take your questions. Our fiscal year is off to a strong start. As our first quarter results continue to demonstrate Powell's unique and advantaged position against a backdrop of what are secular and increasingly durable growth trends, the growing and broad investment in power generation and grid modernization to support data center and AI capacity growth, domestic manufacturing, electrification and the nationally important export of energy resources like LNG, are validating our now nearly decade-long strategic effort to transform Powell into a more diversified manufacturer of electrical distribution products and systems. During the first quarter, we saw revenue grow 4% compared to the prior year. And as a reminder, our first fiscal quarter typically exhibits some level of seasonal disruptions associated with fewer working days. While ongoing high levels of project execution drove improved profitability compared to the prior year. Gross profit expanded 20% to drive a gross margin of 28.4%, an improvement of 380 basis points year-over-year. We recorded $439 million of new orders, the highest quarterly total in over 2 years, as activity was widespread across oil and gas, specifically LNG, data centers and the electric utilities markets. Within our total bookings number, we were awarded a contract for a large LNG project that exceeds $100 million to support gas liquefaction and export along the U.S. Gulf Coast. As the permitting process for LNG restarted a year ago, activity in support of new greenfield and brownfield trains resumed and Powell has and continues to support this strategic market. We anticipate activity within the LNG market to continue in 2026 relative to the more modest activity levels throughout 2024 and most of 2025. Commercial dynamics within our commercial and other industrial markets have accelerated in recent quarters as we continue to see increased demand within the data center market. During the first quarter, our commercial and other industrial market accounted for nearly 1/2 of the order total and included our first mega project order for a single data center, which totaled roughly $75 million. Our commercial and other industrial market now comprises 22% of our backlog as of quarter end, with data centers accounting for roughly 15% of our total backlog, both of which are record levels for Powell. Over the past few quarters, we have continued to experience increasing levels of interest among a growing list of data center customers. The increasing power demand driving greater compute power and the desire to expedite construction time lines creates a value proposition that is well aligned to an increasing portfolio of Powell's electrical distribution products and automation solutions, including our first orders in the United States for our newest team members at Remsdaq Limited in the U.K. In response to the growing market demand, we continue to take measures to expand productive capacity, including adding additional leased facilities to support the expansion of production lines, increased inventory needs, broader collaboration with our supply base to ramp supply and improve cycle times as well as rebalancing and reallocating the manufacture of select products across our facilities in North America to further optimize capacity. Meanwhile, order trends in our Electric Utilities segment remained very encouraging as we experienced another solid quarter of award activity from this end market. Overall, the oil and gas and petrochemical business remains healthy. We are experiencing some degree of divergence across markets and geographies that we compete with some performing very well and others exhibiting softer activity levels in areas such as refineries and polyethylene and polypropylene facilities. We finished the quarter with a backlog of $1.6 billion which was sequential growth of 14% compared to the September quarter and is the highest in Powell's history. The growth in our backlog over the past year has been primarily driven by booking trends in the electric utility and commercial and other industrial markets as these 2 markets now account for the majority of our backlog for the first time ever. Overall, our backlog is well balanced across the markets we serve, and we continue to benefit from a healthy mix of large projects as well as small and medium-sized core projects that help maximize productivity across our manufacturing plants. We also benefit from project visibility that now extends into our fiscal 2028. The expansion of our Jacintoport facility is progressing on schedule and remains on track to be completed during the second half of our fiscal 2026. This incremental capacity will be critical to ensuring our ability to support all of our end markets, but specifically, our oil and gas customers as we anticipate the wave of LNG project development work that is projected to come to market over the next 3 to 5 years, and this investment ensures that we continue to advance our industry-leading role in the fabrication of engineered to order power distribution solutions for critical applications. We continue to actively review and evaluate our total manufacturing capacity to ensure the delivery and execution of our project backlog. This includes the potential for future investments in plant and equipment, along with actions noted earlier in my comments, where we are now adding lease properties to support near and midterm growth in our medium voltage distribution products. As we look ahead through the remainder of 2026, the commercial environment for each of our major end markets remains positive. We continue to have robust activity in support of the North American gas market. The fundamentals of the U.S. natural gas market continue to support investments in LNG and the funnel of projects that we are tracking compares favorably to past cycles in terms of the total number of projects moving forward. The outlook for our electric utility market remains robust and balanced across the customers and geographies that we serve. The growing wave of investment in electrical infrastructure to meet growing demand levels is broad and durable and we expect another strong year of activity in 2026. Lastly, we are increasingly encouraged by order trends and demand levels within our commercial and other industrial markets. The acceleration of order activity driven by data centers leaves us confident in our ability to continue to grow our presence in this dynamic market. Overall, we are very pleased with our first quarter performance and our outlook for fiscal 2026. Demand trends remain robust, and we are well positioned to execute our backlog and grow within our targeted markets. With that, I'd like to turn the call over to Mike to walk us through our financial results in greater detail. Michael Metcalf: Thank you, Brett, and good morning, everyone. In the first quarter of fiscal 2026, we reported net revenue of $251 million compared to $241 million or 4% higher versus the same period in fiscal 2025. New orders booked in the first fiscal quarter of 2026 were $439 million, which was 63% higher than the same period 1 year ago and included 2 mega orders. The first mega orders for a large domestic liquefied natural gas project valued at greater than $100 million, which is being constructed on the Gulf Coast. In addition to this LNG mega order, the business also secured a number of orders during the quarter, supporting the electrical infrastructure for various data center projects. Collectively, these data center orders totaled more than $100 million in the first quarter of fiscal 2026. These data center orders booked in our commercial and other industrial sector included a notable mega order for electrical distribution equipment and was valued at approximately $75 million that will be deployed at a single data center. Notwithstanding these significant wins, the orders cadence across most of our reported market sectors continues to be active, particularly across our domestic end markets. As a result of this commercial activity, the book-to-bill ratio in the period was 1.7x. Reported backlog at the end of the first quarter of fiscal 2026 was $1.6 billion, $219 million higher than 1 year ago and $191 million higher sequentially and continued strength across the oil and gas, utility and commercial and other industrial sectors. As we exited the first fiscal quarter, backlog across our oil and gas and utility sectors, each represent roughly 30% of the total backlog while the commercial and other industrial sector has grown to 22% of the backlog, increasing substantially on both a sequential and year-over-year basis. Compared to the first quarter of fiscal 2025, domestic revenues were slightly lower by 1% or $3 million to $195 million while international revenues were up 29% or $13 million to $44 million in the current fiscal quarter. The increase in our international revenues during the quarter was driven in large part through the projects that we're currently executing in the Middle East and Africa, Asia Pacific and Europe regions. From a market sector perspective, revenues across our utility sector marked the most substantial increase during the quarter, higher by 35% compared to the same period 1 year ago, while revenues from the oil and gas sector increased by 2%, offset to some degree by the petrochemical sector, lower by 31% versus the first quarter of fiscal 2025. Lower revenue in the petrochemical sector was mainly driven by the completion of a large project booked in fiscal 2023, coupled with softer commercial activity in this market. In addition, the commercial and other industrial sector was 8% lower on project timing, while the light rail traction power sector was 5% higher on a relatively small revenue base. Gross profit in the current period increased by $12 million to $71 million in the first fiscal quarter versus the same period 1 year ago. Gross profit as a percentage of revenue was higher by 380 basis points versus the same period 1 year ago at 28.4% of revenues primarily driven by strong project execution, generating a higher level of project closeouts versus the prior year. Sequentially, gross profit was lower by 300 basis points on the predicted seasonal softness. As we noted in our fourth quarter release, we anticipated a challenging sequential comparison considering that our first fiscal quarter is historically the softest quarter across our fiscal year due to the holiday period. Selling, general and administrative expenses were $25.2 million in the current period and were higher by $3.7 million on increased compensation expenses across the business versus the same period a year ago. SG&A as a percentage of revenue increased 110 basis points to 10% in the current fiscal quarter. In the first quarter of fiscal 2026, we reported net income of $41.4 million, generating $3.40 per diluted share which is a 19% increase compared to a net income of $34.8 million or $2.86 per diluted share in the same period of fiscal 2025. During the first quarter of fiscal 2026, we generated $43.6 million of operating cash flow on favorable income generation through the period. Investments in property, plant and equipment totaled $2 million in the quarter, with the capital deployed primarily to address capacity and productivity initiatives. At December 31, 2025, we had cash and short-term investments of $501 million compared to $476 million at September 30, 2025, and the company does not hold any debt. As we look ahead to the remainder of fiscal 2026, we remain encouraged by the commercial tailwinds across all of our end markets. Given the current market conditions, coupled with a stable pricing environment, we are optimistic that we can sustain the quantity and the quality of our backlog throughout fiscal 2026. Combined with our ongoing focus on optimizing margin levels, increasing product throughput and the overall strength of our balance sheet, Powell is well positioned to deliver strong revenue and earnings throughout the rest of fiscal 2026. At this point, we'll be happy to answer your questions. Operator: [Operator Instructions]. Our first question comes from John Franzreb with Sidoti & Company. John Franzreb: Congratulations on another great quarter. I'd like to start with the comments on the gross margin that you can -- that based on what your current backlog looks like that you can sustain the 2025 gross margin profile. I wonder, does that consider potential change orders or short-cycle business? Or is that just based on the backlog configuration? Michael Metcalf: John, this is Mike. I'll address that question. So we had a very strong quarter with respect to project closeouts as I noted in my prepared comments, 380 basis points overall on reported margin versus prior year. Of that $300 million was attributable to project closeouts, which was favorable to last year and that was really driven by strong execution and risk management and our ability to recover costs via change orders, et cetera, in the project environment. The remainder of that upside was just playing productivity and operating leverage across the business. As a barometer of level of margin levels over time, I would point to the trailing 12-month performance. If you took a look at the trailing 12 months in the business, our reported margins are running about 30% and of this, there's approximately 175 basis points of project closeout gains, again, which includes change orders and the like changes in estimates. So maintaining a base level margin in the upper 20s while continuing to drive for 150 to 200 basis point upside resulting from favorable closeouts is a reasonable assumption. And that reflects what we see that base assumption is what we see in our backlog. John Franzreb: Got it. Got it. That's very helpful, Mike. And I'm actually kind of curious about the record backlog, it's great to have. It's wonderful to see. But I'm wondering if there's any concerns that customers are just buying to get in line and that the backlog might not be firm in use past given maybe the new customer shift. And just any thoughts about that? Brett Cope: John, it's Brett. It's a good question. We've talked about that in the past, and we -- are we open to cancellations, what would that potentially do? I don't think -- yes, I think the 1.6% is very durable. Some of the new market growth in the commercial and other is, if you look at the timing and our understanding of the project, I feel very good about it. I think as we look out what's going on in that space, are people talking to us and others about reservations and locking capacity, yes, those conversations are happening. And Mike and I and the management team are discussing what that might look like in the next couple of quarters, the next couple of fiscal years as the demand looks like it continues how to best handle that risk potential. So that -- I think that's a future concern that's on our radar, and we're taking it quarter by quarter, but not currently in the backlog. I feel pretty good with what we've got here today. Operator: Our next question comes from Chip Moore with ROTH MKM. Alfred Moore: I wanted to ask drilling on data center, maybe a little bit more. I think you're talking about larger and more numerous opportunities and obviously, that megaproject great to see. Maybe just -- can you expand, Brett, maybe on cadence of deliveries in data center? And then I believe many of these facilities are being built in phases, just potential for follow-on orders at some of these sites. And capacity questions. You mentioned adding some leased facilities, just how quickly you can ramp and get the switchgear supply going up. Brett Cope: Yes, I could have probably done a whole script on the data centers when you look at us in the broader market out there that's involved in the space because we are admittedly learning a lot as it's growing quickly in Powell. First of all, on the cadence of the activity that's ongoing. There is an interesting dynamic. It is project work, but still, a lot of our backlog that we just shared in the prepared comments is still outside the data center, even this large mega project. It is a large amount of work for a project to handle a lot of the outside of the work. And it's a lot of design one, build many. So it is supporting more of a product strategy. It's a project as we look at it as Powell. And so -- but it's going to create a lot of -- a lot more flow down production lines. We think there is a lot of opportunity there that we're working through over the -- and we will be working through in the next couple of quarters about efficiency, productivity and delivery. So we spent a lot of time last quarter, quarter before, working on supply chain, doing the blocking and tackling on the production line. The prepared comment, we added a 50,000 lease square foot lease facility, which we're just taking ownership now. During the quarter to support this product line flow to store the inventory that needs to ramp to match. But it's going to be a lot of that repetitive product build down the line, and we anticipate more of that in the next quarter or 2. We're evaluating -- we're under evaluation right now, some additional facilities. We're challenging whether or not we should go larger and along with even investment in our model. We like to own our PPE. But right now, the lease makes sense. As we better understand and become more confident, we'll build out more permanent investments, I think, to match, not just this, but of course, the things we've been doing organically to drive growth in all of our 3 verticals. Alfred Moore: Very helpful. I appreciate the color there, Brett. And if I could ask one more. Supply-demand environment, I guess, more broadly to the point on margins, a lot of announcements around capacity expansion from a number of equipment suppliers floating out there? Just maybe it sounds like things are quite stable right now, but just how you think about the future several years out, what might take place? Brett Cope: Every quarter, I'm getting more confident. The -- notwithstanding John Franzreb's question about the concern on this massive demand environment. I mean the number of customers were having more thoughtful strategic discussions with is increasing, and they're engaging Powell in a way that fits us well. And so I talked early on, maybe a year ago about finding alignment with clients that meet well with what we do culturally and how we do it, we'll learn from that and we'll grow. So we're not going to stay static as to who we were. We want to build a part of the company that is quicker on the cycle, can meet the need. There is a lot of demand. We understand the urgency and the return on their capital. But at the same time, we want to make sure we're hitting the dates for all 3 verticals that we're serving. So the number of customers is increasing. It is going out further in time and the programmatic approach about your comment about phasing, yes, we see the initial on the initial design and the potential train -- I'll call it, train expansion, but the size of the data center potential that could be added on to it is definitely part of the conversation. So that fits our model, right? If we execute and deliver for our client. We absolutely want these relationships to be sticky, just like there are other verticals, and we're very open with them in that approach. And so we use that as a an early-on engagement sort of screening discussion of, hey, we'd like to help all of you, but we want to align with those that really match us well. Operator: Next question comes from Manish Somaiya with Cantor. Manish Somaiya: Michael and Brett, it's Manish Somaiya. Just a couple of questions. One is on pricing. Perhaps if you can just give us some comment on what you're seeing as far as pricing in your end markets, the intensity of competition pertaining to that? And then related, how should we think about raw material prices and how they get passed along and what you absorbed? Perhaps if you can just give us a sense as to how you protect yourself in this ad of rising commodity prices. Brett Cope: Manish, thank you for joining today. I'll take the first part of that. Mike can add some color and jump into the input cost side. On the pricing environment, we've been asked that last couple of quarters. No real change. I think everything is holding pretty steady in all our verticals in terms of the competitive status of the market, if you will. The one dynamic that I would point to that we are learning, and I touched on this with Chip in the last call -- last question a little bit, is that on these data center jobs, they are with how we price in the market. I would say, that said, the way we're going to build these lines, I anticipate we have some potential upside because in the long cycle project -- when we build a project and they're large full of products and integrated scope in their year, 2 years, 3 years, these have a much quicker cycle on average compared to some of those on their demand curve to meet the need. And so when we get up to speed and build these products over and over and over, I think that the efficiency factor, something that we don't largely do as Powell today, and we're building out that product side of the company. I think there's -- I think we'll see some potential upside in there. I don't know how much yet. But I do think that we see the potential for it. So that in a sense would be price. If you back calculate it in the next couple of quarters, I think that will become more apparent to our to our understanding. Michael Metcalf: And following on that, Manish, this is Mike. Regarding the input costs, clearly, we watch this very closely. We kind of bifurcate it into 2 buckets. The raw materials, as you noted, copper, steel, very volatile. The metals market is very, very volatile today. We do hedge our copper to some extent and any drastic increases that we see, we roll those into our pricing models internally. The second bucket, I would note, are we buy a lot of engineered components, things that we don't make, HVAC, fire systems, things of that nature. And as you know, our projects could range from 1 year to 3 years. So we lock those not those commodities, those engineered components, in when we signed the contract. So we're locked into the engineered components and we watch the commodities very closely and roll those into the pricing model. So that's how we manage those businesses -- those elements of the business to mitigate the risk. Manish Somaiya: And then just as a follow-up, how should we think about the lead times on specific components like switchgear, for example, obviously, you have a significant backlog at this moment. What are sort of the potential constraints on the component side that could impact revenues? Brett Cope: That's a discussion we have every day and along with per couple of comments on the capacity additions that we're working through. I think we're in a good spot. If you look at the mix of products that we make and if you just kind of go back to data centers, Manish, the power levels have increased coming off utility or if they're doing GTG, self-generation on site or any kind of multifuel, there's a lot going into the 38 kV line, and that is ramping quickly. That's a product that we're rarely adept at. It actually fits Powell really well. But when you look at the 5 and 15 different product levels, they're not as robust. We actually have capacity. And so some designs of data centers out there, if you look at how they're doing their data halls, not all of them are just massive 1 gigawatt or 3x 300 gigawatts. There's new designs coming out that are 90 or 100 or 150-megawatt data halls that we still have really good capacity running 35 to 40 weeks on gear, which is very competitive in the market for 15 kb. So when you get into the mix of how they're doing their power design, we are driving future capacity for those higher levels that are really under demand, but then there are other designs that we still have opportunity to fill out that will benefit the back half of this year and into the early part of '27. So those are the really thoughtful conversations we're having with those clients that engage us that way. We can fate, we can build, we can invest meet their needs and then we can phase our deliveries to really make a win for both parties. Operator: Our next question comes from John Braatz with Kansas City Capital. Jon Braatz: Brett, you've spoken a lot about doing things to increase capacity and product flow and so on and so forth. And I guess, 2 questions. Number one, how much might you have to ramp up your CapEx spending to achieve that? And then secondly, when you think about your capacity now and what you want to bring on board in the future, if your top line, if you could do, let's say, if your top line growth was x percent, what might that new capacity be able to drive revenue growth in the future? Are we talking about mid-teens then? Or what kind of new growth -- new top line expectations might there be with this new capacity? Brett Cope: Well, that's a really good question, John. First, on the CapEx side, yes, we've been evaluating for the better part of the year a new facility owned by Powell. A lot of that started off in support of our organic investment in R&D and some of the products we aspire to bring to market to pursue more share of wallet and utility spend. I really like the utility vertical for Powell long term, and we've done really well in there. And I really think the team is -- what we've done is really driving value for our client in the utility space and vice versa. And so we don't want to lose focus on that. So add to that what's going on in the market in this newer dynamic, we're considering right now something on the order of another $100 million type facility. We've not pulled the trigger on that. Really active discussions with the Board. Meanwhile, we saw an opportunity on the lease side. When you look at both in terms of how they could potentially drive revenue, yes, I think double digits is possible. We got to get a few more products organically out like I noted earlier, if we -- and maybe a little bit more -- I'd hedge a little to say when, given how many data center companies are engaging us get inside the data center, -- it will be a pretty chunky add. The low-voltage content, even on the AC designs that are going on now and the momentum that's built because there's a lot of talk on the future DC designs, which we're also involved with but it will be a step change. And some of that with that -- with the investment we did last year at the breaker plant here in Houston, the 50,000 square foot, we're already prepped for some of that. Well, we could quickly need some additional facilities beyond that just to hold the inventory. So we can see out there some potential nice steps to add to the growth of the company. Jon Braatz: Okay. And Brett, on the LNG market, obviously, it's a little bit different today than it was 3 years ago when sort of the initial construction rollout began. Is the competitive environment a little bit different today than 4 or 5 years ago? Brett Cope: It's different, but it's no less intense. And my color comment on that would be, if you go back 4 or 5 years ago and you look at the players that were in the market from the international people that we compete with, along with some of the local building makers and integrated partners at the -- our competition would use, there was a set of competitors that was x. If you look at today, 5 years on and you look at like in our investor deck, we present who we think about every day when we get up to compete on the electrical side. What's changed is their strategy, I think. Our core strategy around industrial oil and gas utility, which we've been working at for the better part of a dozen years. And now this latest piece, we're not going to forget who we are in these first 2 verticals. And we really enjoy that complex industrial hard to do job. And so there's still competition, it's still intense, but there are some new players because of changes on the other side that happened from 5 years ago, maybe the focus is different, I don't know. You have to listen to their calls. But for us, we're still focused on that. And we really like that business, and we're very engaged on it. And the investment we've made in offshore is built for that, and we're out trying to earn all that business that's potentially coming through FID in the next couple of quarters. Jon Braatz: Okay. So Brett, if you -- when you look at the margin that you achieved a couple of years ago on the new projects, new LNG projects, do you think you can see similar margins going forward? Brett Cope: I think so. I mean, there's -- all the segments, that's the one that is given the size of the capital investment in these facilities. There's still a lot of focus on the return of the facilities. And so it's good, but I -- you got to be careful to be fair and what you're really looking to do. And so if there's something that's unique or there's time elements that we can provide, that's unique to our model, for instance, using our offshore facility for large single piece that will help reduce cost at site. We just asked a rare value in return for that for the site, but not to be silly about it. Operator: Our next question comes from John Franzreb from Sidoti & Company. John Franzreb: Brett, I'm just curious about the opportunity pipeline. It seems phenomenal. I wanted to kind of look at it and say, listen, we're going to have an exit book-to-bill ratio of above 1 point for the next coming 2 years. Is that something reasonable to expect? Brett Cope: I think it's reasonable, John. I mean there's no guarantee of future results. You know the phrase -- the amount of conversations we're having across all 3 verticals. I think it's a reasonable expectation, which is why we had chats with the Board, and we had the change in some of the metrics that we're driving the company for. And so the volume potential is definitely there. And as a team, we've got to solve that. And I feel good that we've got the right team and the right environment to make that happen for all the stakeholders. John Franzreb: Got it. And I was wondering, has the Board considered a stock spread at this level? I mean, compared to historic levels, it's fairly impressive. Brett Cope: Yes. We have -- some of the color on that really is more, if you think about our team and the growth of the employees as just critical to the success of all the stakeholders' interests using equity within our structure has become very much more of the forefront discussion with the Board and Mike and I and our CHRO. And so yes, the stock split from a math standpoint about making sure it's a tool that we use for our team to support their engagement in the process here is definitely very active. John Franzreb: Got it. And I guess kind of just one last one. How should we think about the cash on the balance sheet, over $500 million when does that number start to get drawn down a little bit as you use more working capital as these larger projects come on board? Brett Cope: Well, let me just make a couple of comments there and let Mike jump in. As I noted, already this morning, I definitely think we're thinking about allocating some of that to some new facilities. I can't really pin down the timing yet. We've got a board here, 2 weeks. It will be in the discussion -- and then we're not slowing down on the M&A side, even though we did the one with Remsdaq in last summer. There are still some ideas out there that when we can get out in the market and do the strategic work. There's still some really nice potential out there. So there's that. And then I think the capital needs, Mike. Michael Metcalf: Yes. As a follow-up on that, John. From a working capital perspective, roughly 40% to 50% of that balance will be deployed at some point in the future to that $1.6 billion backlog number. But that said, when you look at what's the free cash available for the capital deployment in some way, shape or form, it's probably $200 million to $225 million mentioned that we're thinking about capacity requirements across the business. So I'm sure some of it will get deployed in that fashion. Operator: Our next question comes from Chip Moore with ROTH MKM. Alfred Moore: Just one more for me on Remsdaq, I think you called out getting some traction here in the U.S. So just an update there now that you've had them for not too long, but a little longer -- and then service more opportunity, I guess, more specifically around data center, in particular, just talk to that. Brett Cope: Well, thank you for the question. Yes, Remsdaq, great strategic add, great set of folks in the U.K. We -- when you have these dynamic times in the market, Chip, you -- every market has an approved approach, the way they bring in technology. Remsdaq was so experienced in their market in the utility space. That was one of the things that attracted us to them initially plus their technology road map. The data center market, the commercial and other industrial has definitely opened the door to allow us to get that technology in quicker than we anticipated into the U.S. market. So we've had some technical meetings with some of the customers that have come to us on applying this technology to the powertrain that speeds in the data center for some protective and control logic and it's opened the door. And it's created new opportunities for us even on the high-voltage side. We just took our first order for a high-voltage control protection substation the utility connect, if you will, the high voltage into the medium voltage, which would be a new space for Powell. And again, that was underscored by our ability with having Remsdaq and their technology as an enabler. So super exciting time. I have high expectation for the growth of this business. It is accretive to margin significantly, and Powell has a long history of success here. Service. yes. Thank you, Mike. On the service piece, yes, there is clearly opportunity on the data center front, the commercial and industrial. We haven't taken anything significant yet. But over the last quarter I've been involved myself in some of the discussions where we do see an opportunity for service to come in. On the build side, quite frankly, initially, we've not entered on the OpEx side after. I think that will come. Still a new market for us. And as these assets get installed, I think we'll see some installation and long-term support work. But we right now are developing some ideas with clients on how our team can help the constructability, the timing, given our know-how on the skid and the integration of the mechanical side of these solutions with how they're trying to speed up the time line. And so our service team is engaged and we're actually out providing some quotes for what we think we can do. We haven't closed anything yet, but it would be -- we do see it as a big opportunity as we go forward. Operator: Our next question comes from Manish Somaiya with Cantor. Manish Somaiya: Mike, I'm not sure if you mentioned the next 12 months backlog. Would you mind giving that to us? Michael Metcalf: Manish, you'll see that in the Q that we submit later today. Of the $1.6 billion backlog, roughly 60% of that is convertible over the next 12 months , I think in the Q, you'll see $933 million. And on top of that, we refresh what the book and bill rates been on average over the last 12 months. And that's running $65 million to $70 million cadence every quarter. So those are 2 of the key metrics as you look forward. Manish Somaiya: Okay. Wonderful. And then, Brett, you talked about strong demand across the board, strong activity, strong backlog my big question is the shortage of skilled labor in this country. And is that going to be a constraint as far as your growth ambitions are concerned? Brett Cope: Well, it's always a concern, Manish. It has been the entire 15 years I've been at Powell through any cycle. Is it a concern today? Absolutely. The management team discusses it routinely. On the variable side, there's always a time where there's a skill set within the company that has a need. On the variable side, we're doing fairly well. In fact, I'd say in the last couple of quarters, we've solved some problems. As I sit here today on the fixed side, we do have some needs that are challenging us with this step change in -- especially on the commercial side. The growth in this segment is challenging some growth needs today on engineering. So that's a problem that we're out working and I feel confident in the next 90 days or so, we'll figure out how to solve that one. But it's not unique or new to us. We -- because we are a long-cycle project company by historical sense, we've been here before, and I'm confident the team will find a way to solve the need. But given the growth of the backlog, yes, we've got some needs right now, and we're going to go out and solve them. Manish Somaiya: Well, thank you again, and congrats on the quarter. Operator: This concludes our question-and-answer session. I would like to turn the call back over to Brett Cope, CEO, for any closing remarks. Brett Cope: Thank you, Bailey. Our first quarter delivered solid performance with improvements in our top and bottom line. Powell's employees consistently embrace the challenge while keeping our core focus on executing the most complex of industrial electrical distribution projects, our team is responding to meet new and growing market opportunities, which underscore our ability to secure future business and drive new strategies to improve productivity and profitability. I would like to thank our valued customers and our supplier partners for their continued trust and support Apollo. We're very pleased with our first quarter, and we expect another strong year for Powell. Mike and I look forward to updating you all next quarter. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Good day, and welcome to the Horace Mann Educators Fourth Quarter and Full Year 2025 Investors Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Rachael Luber, Vice President, Investor Relations. Please go ahead. Rachael Luber: Thank you. Welcome to Horace Mann's discussion of our fourth quarter and full year 2025 results. Yesterday, we issued our earnings release, investor supplement and investor presentation. Copies are available on the Investors page of our website. Our speakers today are Marita Zuraitis, President and Chief Executive Officer; and Ryan Greenier, Executive Vice President and Chief Financial Officer. Before turning it over to Marita, I want to note that our presentation today includes forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. The company cautions investors that any forward-looking statements include risks and uncertainties and are not guarantees of future performance. These forward-looking statements are based on management's current expectations, and we assume no obligation to update them. Actual results may differ materially due to a variety of factors, which are described in our news release and SEC filings. In our prepared remarks, we use some non-GAAP measures. Reconciliations of these measures to the most comparable GAAP measures are available in our investor supplement. I'll now turn the call over to Marita. Marita Zuraitis: Thanks, Rachael and hello, everyone. Yesterday, Horace Mann reported record 2025 full year core earnings per share of $4.71 and shareholder return on equity of 12.4%. These are the highest earnings. Horace Mann has ever reported and a powerful confirmation of the strength of our business strategy and execution. All segments are in line with or exceeding our profitability targets and top line momentum continues across the board. Total revenues were up 7% over prior year with net premiums and contract deposits earned up more than 7%. Individual supplemental sales increased nearly 40% over prior year, while Group Benefits recorded a 33% increase. I'm proud of all of our Horace Mann's team members for their contributions in exceeding our 2025 goals. We delivered record core earnings while providing our deserving educator customers with distinctive service. Today, I want to review the highlights of our 2025 performance as well as add some detail to our financial targets for the next 3 years. We delivered record earnings in 2025 on the strength of solid underlying business performance and continued growth momentum. Results also reflected unusually light severe weather activity with pretax catastrophe losses of $62 million, contributing approximately $28 million or about $0.55 per share to core earnings relative to our original assumptions. Let me walk through performance by segment. In Property and Casualty, the underlying combined ratio was 84.3%, a 5-point improvement year-over-year reflecting rate and non-rate actions we've taken to reduce segment earnings volatility. P&C sales increased 6% year-over-year policyholder retention in both auto and property remains stable and continues to compare favorably with industry peers. In auto, the reported combined ratio of 96.5% and improved nearly 2 points over prior year. Given we are in line with our mid-90s profitability target with solid retention, we are well positioned to navigate a competitive auto environment in 2026. In Life and Retirement, top line momentum continued with record life sales in the fourth quarter, up 21% over prior year. These results build on the success we saw last quarter and reflect the continued improvement in our marketing campaigns, growing brand awareness, higher agent productivity and stronger engagement with educators. Retirement deposits increased 4% in the quarter and for the full year, net written premiums and contract deposits for the segment rose 7%. Supplemental and Group Benefits delivered record sales results in 2025, this high-margin, capital-efficient business generated 25% of core earnings, playing an important role in diversifying our earnings and reducing volatility. Overall, this segment's benefit ratio of 37% continues to move toward our long-term expectation. Individual supplemental delivered record results with sales up nearly 40% year-over-year, reflecting strong demand, improved distribution reach and deeper customer engagement. Group Benefits also posted record sales up 33% over the prior year, supported by expanding distribution. Over the past year, we have meaningfully expanded our distribution organization and strengthen our marketing capabilities to support sustained profitable growth. A few highlights. Through disciplined increases in marketing investment, and thoughtful execution of strategic partnerships, we have significantly strengthened Horace Mann's brand awareness in our target market. Unaided brand awareness reached 35% in 2025, up from less than 10% a year ago. We are increasing recognition within the educator market through partnerships with trusted brands like Crayola. Recently, we partnered with Get Your Teach On, an organization that provides top professional development for teachers and school leaders. Through this partnership, we will reach a highly engaged audience of more than 800,000 educators through e-mail, social, live events and other channels. We continue to optimize our marketing programs to be more efficient and effective. New business customer interactions are up 37% in the fourth quarter, and we are realizing productivity gains from our spend. We continue to enhance our distribution channels to ensure educators can research, shop and purchase with us when, where and how they choose. We increased points of distribution by 15% across all channels. Upgrades to our website and an improved digital customer experience led to website traffic and online originated quotes more than doubling over the course of the year. We have also expanded our commitment to supporting the educational community. This week, we introduced the Horace Mann Club, a new platform that lets educators access financial wellness tools, classroom resources and educator-specific perks in 1 place. The club creates a strong foundation for delivering resources, services and programs that reward, celebrate and give back to educators. We will continue to expand the club over time, ensuring it meets the changing needs of educators and provides unique benefits to support them in and out of the classroom. In the fourth quarter, we donated $5 million to the Horace Mann Educators Foundation. Created in 2020, this charitable organization provides funding to support students and educators success. This includes grants to fund food and security programs, essential classroom supplies and educator professional development. Looking ahead to provide a clearer baseline to evaluate Horace Mann's strategic progress, we have included a normalized 2025 core earnings per share exhibit in our investor presentation. This excludes the earnings benefit from catastrophe losses that came in below our original guidance assumptions as well as other items not included in management guidance. This normalized view aligns with how management internally evaluates performance and represents the appropriate baseline to compare our 2026 guidance. While 2025 catastrophe losses were unusually favorable, driven by fewer catastrophe events and lower overall activity, we do not expect a similarly low level in 2026 or subsequent years. Against that normalized 2025 baseline, our 2026 core earnings per share guidance range of $4.20 to $4.50 represents progress consistent with the financial goals outlined at Investor Day. As a reminder, those goals include delivering a 10% average compound annual growth rate in core EPS and a sustainable 12% to 13% shareholder return on equity. To achieve these goals, we will continuously evaluate and balance growth initiatives and expense optimization. In times of outperformance, such as the record year we had in 2025, we may choose to accelerate investments in growth initiatives. Last year, we accelerated investments in marketing, infrastructure improvements for distribution force and product and distribution expansion in supplemental and Group Benefits. We will continue to thoughtfully invest in initiatives that expand our capabilities and support long-term growth. And we are confident that these actions, combined with ongoing operational efficiencies position us to achieve our targeted 100 to 150 basis point reduction in the expense ratio. While more of that improvement is expected to be realized towards the back half of our 3-year plan, we have a clear line of sight to the actions and execution required to deliver on that goal. Our balance sheet remains strong and well positioned to support strategic growth and shareholder returns. We continue to take a disciplined approach to capital allocation, balancing reinvestment in the business with returning capital to shareholders. In 2025, we deployed $21 million of capital to share repurchases, the highest annual level since 2022, and the Board's additional $50 million authorization in May underscores our commitment to using share repurchases as a meaningful lever for shareholder value creation. In closing, 2025 was a record year that underscores the strength of Horace Mann's value proposition for the educator market. By maintaining business profitability, delivering sustained profitable growth optimizing our enterprise spend and strategically investing in growth enablers, we will achieve our 3-year goals. We are operating from a position of strength. We have a strong competitive advantage and we have the confidence that we will deliver sustained market-leading growth and accelerate shareholder value creation. Thank you. And now I'll turn the call over to Ryan. Ryan Greenier: Thanks, Marita. I'll walk through how we think about normalized 2025 earnings, outline our 2026 outlook in key assumptions and then review full year 2025 performance by segment. 2025 was a record year for Horace Mann with core earnings of $196 million or $4.71 per share, an increase of 39% over the prior year. Trailing 12-month core return on equity increased to 12.4%, reflecting continued strong underlying profitability across the business. Total net premiums and contract charges earned increased 7% and with total revenues also up 7% year-over-year. As Marita discussed, 2025 benefited from a few favorable items that are not assumed in our planning framework, when we normalize for catastrophe losses that were more than one standard deviation below historic averages in 2025 as well as favorable prior year reserve development, opportunistic share repurchases and incremental strategic spend. normalized core earnings per share were approximately $3.95. This is in line with our original 2025 guidance range of $3.85 to $4.15 and represents the appropriate baseline to compare 2026. Importantly, even on a normalized basis, our businesses delivered strong underlying profitability with all segments in line or exceeding profitability targets and top line momentum continued across the board. Against that normalized baseline, we expect 2026 core earnings per share to be in the range of $4.20 to $4.50 and a nearly 10% increase consistent with the 3-year financial goals we outlined at Investor Day. Guidance includes total net investment income in the range of $485 million to $495 million. In our managed portfolio, we expect net investment income between $385 million to $395 million, which reflects the continued benefit of higher new money yields in our core fixed income portfolio. Commercial mortgage loan fund returns of 6.5% and limited partnership returns of 8%. Looking specifically at commercial mortgage loan funds, one fund, Sound Mark Partners is in runoff. And as I've mentioned before, we expect continued underperformance from this one fund, which will modestly pressure reported commercial mortgage loan fund yields. This impact is idiosyncratic, well understood and already reflected in our planning assumptions. Turning to catastrophe losses. Our full year assumption of approximately $90 million reflects our established planning framework which uses a blend of industry standard catastrophe model losses and our own historic experience. Our approach to setting guidance has not changed and continues to provide a consistent basis for managing variability across cycles. Now I'll turn to full year 2025 results by segment. In Property and Casualty, core earnings were $112 million, more than double the prior year. Net written premiums increased 7% to $830 million, driven by higher average premium. The reported combined ratio of 89.7% improved more than 8 points year-over-year, reflecting strong underlying results, lower catastrophe losses and favorable prior year development. The $19 million in favorable prior year development was driven primarily by lower-than-expected claim severity and continued improvements in claims handling across shorter tail property and auto coverages. As we've stated, prior year reserve development is not assumed in our guidance, and we continue to approach reserving with a prudent long-term view. Auto net written premiums increased to $502 million, the combined ratio improved nearly 2 points to 96.5% in line with our mid-90s profitability target. Household retention remains near 84% and continues to rank in the top quartile relative to industry benchmarks. Property net written premiums increased 14% to $328 million, reflecting rate actions and solid sales momentum. The combined ratio of 78.3% improved significantly primarily due to lower catastrophe losses, while retention remained strong, above 88%. We completed our 2026 reinsurance renewal in January with very favorable results, including a nearly 15% reduction in rate online, we use that improvement to increase the size of our property catastrophe tower. Purchasing $240 million of coverage while maintaining a $35 million attachment point consistent with the prior year. We purchased additional coverage to maintain our disciplined approach to risk and capital management which includes the recent update to air catastrophe models. Coverage at the top of the tower was attractively priced, and it was a prudent risk management decision. Importantly, even including the additional coverage, our total annual reinsurance spend remains flat year-over-year. In Life and Retirement, core earnings increased 13% to $61 million and net premiums written and contract deposits grew to $612 million, up 7% year-over-year. In the Life business, mortality experience for the year was modestly favorable relative to expectations. Life persistency remained strong, near 96%. In the retirement business, net annuity contract deposits increased by nearly 7% and persistency rose to 92%. Moving to supplemental Group Benefits. The segment contributed $59 million of core earnings and net written premiums rose to $267 million. Individual supplemental net written premiums increased 4% to $126 million. The benefit ratio of 26.8% reflects favorable policyholder utilization trends. Persistency remained steady over 89%. Group Benefits net written premiums increased 6% to $142 million. The benefits ratio of 45.8% moved closer to our longer-term expectations. Total net investment income on the managed portfolio increased more than 6% year-over-year, primarily driven by strong limited partnership returns and improved commercial mortgage loan fund results. Core fixed income performance remained strong with a full year new money yields of 5.51%. Sales performance was strong across the business with record results in both individual supplemental and group benefits. Individual supplemental sales increased 39% to $24 million and Group Benefits delivered record sales of more than $12 million, up 33% year-over-year. As Marita mentioned, 2025 was a year in which we deliberately reinvested to position Horace Mann for sustained profitable growth. At the same time, we took several targeted actions to optimize our cost structure and improve long-term efficiency. These included the termination of a legacy pension plan, the continued rollout of straight-through processing and automation initiatives and early productivity gains from technology investments. While some of these actions resulted in onetime costs in 2025, they are expected to generate meaningful ongoing run rate savings as we move forward. In addition, late in 2025, we introduced an early retirement offering as part of a broader proactive workforce planning effort. As we continue to invest in new technologies, automation and advanced capabilities, this program allows us to thoughtfully align our workforce with the skills and roles needed to support our long-term business strategy. The early retirement offering provides flexibility for eligible employees who may already be considering retirement or another life transition while allowing the company to manage workforce planning in a proactive and respectful way. Expenses associated with the early retirement offering will be treated as noncore and excluded from core earnings. This program is expected to generate run rate expense savings that will more meaningfully impact 2027. Stepping back, the combination of all of these expense optimization initiatives have resulted in more than $10 million of annualized savings, which we can both reinvest in the business and use to improve our expense ratio over time. Consistent with our Investor Day commentary, we expect the majority of our targeted 100 to 150 basis point expense ratio improvement to be realized in the later years of our 3-year plan as scale builds and these actions fully earn in. Roughly, that means a 25 basis point improvement in 2026. An additional 25 to 50 basis point improvement in 2027 and another 50 to 75 basis point improvement in 2028. Our balance sheet remains strong. and capital generation continues to support both strategic growth initiatives and consistent shareholder returns. In 2025, we repurchased nearly 0.5 million shares at a total cost of $21 million at an average price of $41.83. In 2026, we continue to buy back shares. And through January 30, we have repurchased approximately 140,000 shares at a total cost of $6 million at an average price of $43.36. We have about $49 million remaining on our current share repurchase authorization. Tangible book value per share increased more than 9% year-over-year, reflecting strong underlying earnings, disciplined capital management and the value of our diversified business model. In closing, our record 2025 results reflect the strength and stability of Horace Mann's earnings profile. We are entering 2026 from a position of strength with a clear growth strategy and strong momentum. We are confident in our ability to achieve our long-term financial targets, a 10% average compound annual growth rate in core earnings per share and a sustainable 12% to 13% core return on equity all while delivering sustained market-leading growth and accelerating shareholder value creation. Thank you. Operator, we are ready for questions. Operator: [Operator Instructions] First question comes from Jack Matten with BMO Capital Markets. Francis Matten: Question just on the distribution initiatives and the shift to more of a specialist model that you discussed in detail in the Investor Day last year. Just any perspective that you can share on how those initiatives are going so far, including the implementation? And then regarding the outlook for policy count growth, especially in the P&C business. I'm wondering if you think that trend line will start to improve more meaningfully as we head into 2026. Marita Zuraitis: Yes. Thanks for the question. From a distribution perspective, I think 2025 will probably go down as our strongest year. We have strong sales momentum across all the businesses, and that is really coming from the distribution efforts that I think we laid out pretty clearly at Investor Day. From a distribution perspective, our brand awareness up over 35%. Our website traffic up significantly with the increase in digital experience that we provided to our customers. Our quoting from that website traffic is more than double what it was last year. Significant partnership with companies like Crayola and other similar-minded companies in the educator space. Just a real concentrated effort, we are at record numbers in our agency force, up over 15% where we were last year across the board. Our traditional EAs selling our traditional products and then benefit specialists in the supplemental and group benefits space up record numbers as well. So more people selling the product, better support from a marketing and distribution perspective. And on all 3 of those growth levers that we outlined at Investor Day, we are really, I'd say, probably ahead of where we expected to be at this point, and you're seeing it come through in strong production momentum that we have across the board. Francis Matten: That's helpful. And maybe one just on the moving pieces regarding the EPS outlook for '26, which I know it implies double-digit growth on a normalized basis. And it sounds like you might expect that to then maybe accelerate into 2027 and beyond if you see CML returns closer to your long-term trend. And then you also mentioned some of the expense actions that you're taking to have more of an impact on 2027. I guess given those is it fair to expect kind of an accelerating growth trend over time, or are there other offsets that we should be thinking about? . Ryan Greenier: Jack, this is Ryan. Thank you for the question. Directionally, you're thinking about it the right way. When we laid out our financial targets at Investor Day, we said we would achieve a 10% annual earnings per share growth rate. And on a normalized basis, we're on track to do that this year. With that, we also said that we would expect accelerating top line growth as the investments we're making to generate increased sales and revenue growth come to fruition. And that revenue growth, we would expect to pick up over that 3-year period. And finally, we were -- I was pretty specific because we get a fair amount of questions around the timing of the expense initiatives earning in. And right now, we are using a lot of that savings to invest back in the business. We were very intentional about accelerating certain initiatives in 2025 to drive growth in all of our channels, and you're seeing signs of success there. And those savings I outlined for you kind of how to think about that in '27. Francis Matten: Great. If I could squeeze one more in, just on the catastrophe loss assumption in your guide, I think it implies to get a lower ratio as a percent of premiums than your prior expectation. Is that mostly reflecting the improvements to the reinsurance program that you've talked about? Or is there a meaningful kind of benefit from the kind of the terms and conditions changes that you've implemented in the property business as well? . Marita Zuraitis: Yes. I think it's before I turn it over to Ryan for a little more of the detailed color there. I think it's important for us to just reflect a little bit on the 2026 guidance that I think we were pretty clear in our scripted comments, but it was very important for us to normalize 2025 earnings, especially as you pointed out, the unusual level of low cap as well as prior year development, which management does not include in its guidance and why we wanted to add a new exhibit to our investor presentation to make that very clear. And on a normalized basis, it is a 10% increase over a pretty strong number that we had even last year. So I'll turn it over to Ryan to see if there's anything more specific to your question . Ryan Greenier: Sure. Let me dive into both of those, Jack. On the cat, our approach to setting a cat target, it's kind of like predicting the weather literally. You're probably going to be wrong. But you -- we take a consistent year-over-year approach. We look at industry modeling. We look at our current footprint from a property perspective. We look at our historical loss experience. But we don't assume or under or outperformance based on 1 year's individual results. So said another way, we are expecting kind of a consistent approach with the $90 million of cat guide for next year. . On prior year development, I just wanted to comment and be crystal clear, we do not include any prior year development favorable or adverse in our planning assumptions. We have a prudent quarterly approach. We call it like we see it. And while we understand that from a reserve perspective, the industry and us coming out of COVID had very unusual loss patterns to react to. And you saw the industry as a whole, increased reserves and over the last couple of years, you've seen us and the broader industry release. These large swings in reserves will normalize as we go back to a more normal loss trend, which is what we're seeing, we're confident that the reserve this outsized prior year reserve releases will begin to temper. I will say, when I look at the macro backdrop, there's a fair amount of uncertainty in terms of inflation trends, impact potentially from tariff and like other auto insurers, we do see the impact of social inflation in our numbers. We're insulated but not immune. Think about our policyholders, not super high limits compared to commercial auto or high net worth type of books. But we do see that impact. So we're being very prudent, particularly on the liability coverages. And I'll highlight that the majority of our release in '25 was related to shorter tail or physical damage type of coverages. So I hope that helps. The last thing I would say is if you look at where the Street is sitting from a consensus estimate for prior year development, if you back that out, you are right within the midpoint of our guidance range for this year. Operator: The next question comes from Matt Carletti with Citizens. Matthew Carletti: Marita, a question for you. I'm looking at your slides, Slide 13. It's where you kind of dice up the 8 million or so K-12 households into kind of where you are today, those you can currently access for those who don't have access to. And if I'm looking at kind of last quarter, right, there was a pretty big shift, almost 1 million households that kind of went from, you don't access to you currently access, kind of change that bucket. Can you talk a little bit about kind of what drove that? . Marita Zuraitis: Yes. Thanks for the question, Matt. It's really been multidimensional and across the board. We started last year, as you pointed out and the slide pointed out at about 1 million or so predominantly educator households and ended the year close to 1.1 million households. That's 100,000 household increase, if you will. And that's kind of how we think of the world. We're not a monoline auto provider. We're a niche marketer to a homogeneous set of customers. We understand the market dynamics of the auto line, and we posted our best P&C combined ratio at a very long time. For us, a lot of folks ask the auto-specific question. We do expect our risks in force to turn positive in the second half of this year. A little bit longer due to the competitive dynamics. Many of those auto customers we keep, we just placed them through the Horace Mann General Agency if we're not willing to go to the auto price that may be another competitor would set. So in 2025, we had strong sales momentum across the board in all businesses. We increased individual supplemental by 40%, Group by 33%. Life was, what, 8% and 21% in the fourth quarter. P&C was up 6% with auto being 5.5% of that. And that auto growth didn't come from customers where we reduced the auto rate to buy the business, if you will. Retirement deposits were up 7%. These are all new customers that have at least one product with Horace Mann that we can eventually cross-sell. So for us, it's really about the investments that we're making in marketing and distribution, which I've already talked about that have driven some of the numbers that I just answered and are included in the script. So we feel really, really good about the momentum. The strategic partnerships that we're pushing, the amount of brand awareness that we've gotten by joining forces with companies like Crayola. The foundation donation that we've put out there to help with professional development for educators, classroom supplies and other things have really helped that reputational brand awareness and the fact that 1 in 3 educators on an unaided basis know who we are and are beginning to engage with us is pretty powerful. The 3 levers that we outlined at Investor Day that are on that slide are the levers that our strategic priorities and the initiatives that support them are aligned to. We're getting better in the game that we're playing today, and you see that in the amount of agents that we have selling the product, the productivity of those agents, how quickly they get up to speed in that first layer in that second layer, entering new school districts where we've never been before by warming up that territory and using the things I talked about, so that when we put an agent in place, they know who Horace Mann is as opposed to that agent spending the first year building that brand awareness independently. It's really quite powerful. There may be sets of educators that are already engaging with Horace Mann electronically that now that agent can begin to wrap their coverages and build that relationship with Horace Mann around. And then that third lever, we haven't really talked a lot about but the work that we're doing with homeschoolers and seeing home school employees, not big numbers yet, but really like the early signs there. The work that we're doing with alumni and these are universities that are spitting out educators and have large colleges of education. Those numbers, they're not in the tens of thousands yet. But they're in the thousands and really good start of momentum in that area. All that is driving that increase in educator household count that's driving this kind of momentum across the board. And I appreciate the question because I think that's what it's all about. And I feel really good about the strong momentum that we're seeing. Matthew Carletti: Maybe a question for Ryan just a numbers question. I could be wrong here, but I kind of recall when thinking about retirement, kind of a long-term target of like net interest spread of kind of 220 to 230 basis points. Is that still the case? Or I guess, said another way, what is the long-term target for kind of net interest spread in retirement? . Ryan Greenier: Matt, yes, that's a good question. The target you're referring to is one that we've historically put out there, and it's for our fixed annuity block. So the fixed annuity block is the preponderance of our retirement assets. And we do target a 200 basis point spread on that block. What I will say is we are -- we were running behind that in 2025. A lot of that was driven by the commercial mortgage loan underperformance. The majority of our commercial mortgage loan investments are in the retirement block. In addition to that, when I think about limited partnerships, we had a very strong year, we had over 9% return on our LP strategies. The strategies that outperformed were private equity, in particular, and that is skewed more towards the P&C business. So P&C benefited from a very strong LP type of return. Longer term, we continue to target that 200 basis point for fixed. The overall profitability of the retirement business, we do have variable annuity as well as some fee-based retirement advantage products as well. And so those -- when I look totality of the product mix, we're comfortable in our at target profitability overall for that mix of business. And when I say target profitability, that's implying that we have returns in line or above our ROE targets. Operator: The next question comes from John Barnidge with Piper Sandler. John Barnidge: My question is focused on the first one on the early retirement offering to align the workforce how many -- as a percent of the employee base, how many employees took that opportunity. Marita Zuraitis: Yes. John, I think it's important first to mention the fact that it was only about 8% of our employees that would have been eligible for early retirement in the first place. We used a combination of tenure and age. So these were employees that would have naturally been considering retirement in the foreseeable future. So I think it's important to start with the purpose. The purpose of this was really to allow us to accelerate some workforce planning. As you know, when you think about the future, where we're going, what we've built. I think what we've laid out very strategically as far as our potential and you're seeing that in the momentum, the skills required the future ability of the place is going to require us to hire some of those more future skills, if you will, as we look forward. And this offering allowed us to accelerate some of the retirement plans of our more tenured individuals. We got a pretty nice participation rate. We're very pleased with the numbers that we're seeing from this, and we feel like the right people chose to opt in to that ERO program. I don't know if you have anything to add to that, Ryan. Ryan Greenier: No, I think Marita summed it up well, John. And as a reminder, any costs associated with it because it was onetime nonrecurring will be in non-core so below the line. Marita Zuraitis: And we're also excited by the fact that when we look at this, the result was twofold. We will be able to reinvest some of that spend in skills necessary for the next leg of the journey, if you will, but we'll also be able to use some of the savings to drop to the bottom line. We made a very clear commitment to improve that expense ratio. I think Ryan laid it out very specifically and clearly in the script and this, along with other, I think, very thoughtful strategic plans like the retirement of our legacy pension program and other larger things that we have underway help us meet the commitment that we laid out at Investor Day. And obviously, we knew about these plans when we laid that out, and some of the savings will drop right to the bottom line. John Barnidge: My second question seems like share repurchase, is there another lever to be opportunistic, not embedded in guidance. How should we be thinking about a run rate level of free cash flow conversion of operating earnings targeted in your Investor Day goals . Ryan Greenier: John, that's a great question. Thank you for that. For 2025, we achieved -- we exceeded our free cash flow targets. We came in about 80% on a free cash flow conversion perspective for 2025, we're targeting north of 75% for that. And if you think about the mix of businesses that we have and with the acceleration in sales for our more capital-efficient businesses, individual supplemental and group. That bodes very well for continued strong free cash flow conversion. And then if I sit back and think about uses of capital, you saw we've been quite active in the share buyback front. We've put $6 million of work in the month of January alone. And we do believe that is an attractive lever for us to continue to pull as we move through 2026, especially at current multiples given our confidence in our growth outlook. . Operator: Our next question comes from Wilma Burdis with Raymond James. Wilma Jackson Burdis: Could you talk about the investment in sub and Group segment and how Horace Mann see sales and margins playing out, especially after the favorable benefits year with respect to the 39% blended benefit ratio guidance. Does the benefit ratio continue to rise -- sorry, after a favorable year. I was asking if the benefit ratio has continued to rise. Yes, you got it. Marita Zuraitis: Thanks for that. I can start on the investment and growth side, and then I'll turn it over to Ryan to talk about the benefit ratio. I mean I got to tell you, we are very pleased with the progress that we're making in both individual supplemental and group benefits and the momentum is excellent. It is a smaller business for us, as you know. But excellent earnings diversification just as we had planned and a really good source of new educator households for eventual cross-sell like I said when I was addressing Matt's question. With individual supplemental sales up 40%, a record number of agents selling group momentum up 33%. On the group side, it is smaller for us. It is newer. It is lumpy. That's the nature of the longer sales cycle. And it is an even smaller business than the individual supplemental side for us, but it's building. And I think that the way to think about it is the way we thought about Horace Mann all along, go back to that PDI strategy. It's about building the product, making sure the products are relevant, including what we've done by adding the paid family medical leave portion to the product in states like Minnesota, it's -- we have all the products we need, both on the individual side and the group side and we evolve those products to make sure it's relevant to our market niche. And I feel good about the product development work we did and the fact that we built products that fit our niche, which are part of the -- why we feel strongly about these segments. From a distribution side, the amount of benefit specialists that are facing off with these products in the schools, the amount of districts that we're touching, those numbers are all going in the right direction, and we feel really good about our distribution efforts. I'd also say that the corporate branding, marketing, distribution work that we're doing also benefits this space as well. educators know who we are when we enter these schools, and that's very helpful in this space as well. And then lastly, on the infrastructure side, we are modernizing this space and improving the infrastructure and how we face off with these schools. Very early thought. We have now the ability to do straight-through processing on individual supplemental. We haven't done a lot yet. It's, like I said, in very small numbers. but we are starting to significantly modernize this space as well. So I think we took a very strategic approach to building the products that are relevant in our space, improving and expanding our distribution and improving our infrastructure. And I think that's why you see the early signs of success in this business. And as I said, the earnings diversification that we planned with these acquisitions. I don't know if you want to add anything to the benefits ratio . Ryan Greenier: Sure. I'll take the nuts and bolts, the numbers, Wilma. So on a blended basis, we target a benefit ratio for both businesses at about 39%. And individual supplemental runs lower than that and group runs higher than that. Both segments, if you look at the full year benefit ratio for 2025, the benefit ratio on the individual supplemental was in the high 20s. That's better than what we would expect on a long-term average that reflected favorable morbidity experience throughout the year. On the group side, we were in the mid-40s. Again, a little bit of favorability, but closer to what we would expect there. One thing I will comment on as I think about the longer-term target, on the individual supplemental product, in particular, utilization in early policy years typically is higher. And so if you think about that, during a period of high sales, which we're clearly seeing, you're going to see a little bit of an uptick, and we've factored that into the pullback towards the historic experience. We did see a decline in utilization post COVID that is beginning to normalize. So that kind of combo of more typical utilization combined with a return or an acceleration, I should say, of sales is going to move the individual supplemental product closer to those longer-term averages? I hope that's helpful. Wilma Jackson Burdis: That was very helpful. Second question, does softening of reinsurance pricing factor into the '26 margin outlook? And if so, give us some color there. Ryan Greenier: Sure. So Wilma, this is Ryan again. So in my script, I talked about some of the decisions that we made from a risk management perspective around the reinsurance tower. We did use the favorable reinsurance rate environment to add additional coverage at the top of our tower. There were some modeling updates from one of the P&C model tools. And as a result of that, we looked at that. We looked at the mix of all tools and decided it was prudent to increase the top of the tower. So our total spend was flat. So from a guidance perspective, we're spending dollar for dollar the same amount as last year. So it's incorporated, obviously, in our outlook. But we used some of that savings to buy a fair amount of cover at the top end. . Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Rachael Luber for any closing remarks. Please go ahead. Rachael Luber: Thanks for joining us on the call today. If you have any follow-up questions or would like to schedule a meeting, please reach out. We will be at AIFA in March, and we'll be happy to look at schedules to find time. So thanks again. Have a great day. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Philip Ludwig: Welcome, everyone, joining us today for the Melexis Fourth Quarter and Full Year 2025 Earnings Call. I'm Philip Ludwig, Investor Relations Director at Melexis, and I'm joined today by our CEO, Marc Biron; and CFO, Karen Van Griensven. Earlier today, we published our press release and presentation, which can be found on our website. We will start with some brief remarks on the business and financials before taking your questions, starting with Marc Biron. Marc, the floor is yours. Marc Biron: Thank you, Philip. Hello, everyone, and welcome to this earnings call. Let me start by sharing some perspective on the full year of 2025 and how we see 2026 as of today. Then we will discuss the last quarter of 2025. Looking back at 2025, at the beginning of the year, we had entered a phase of customer inventory correction later than our peers. We are now in a period with more geopolitical uncertainties and more short-term volatility in demand. The period of customer inventory correction was largely completed by the summer. As a result, our sales were stable or grew sequentially as the year has progressed. High in-quarter ordering has started in Q2, which we could serve from our strategic inventory. Still in 2025, sales in our largest region, APAC, has increased as a percentage of group sales. China has followed an alternating pattern of very strong sales in one quarter, lower the next quarter and strong again in the following quarter as it was in Q4 when we recorded our highest ever sales in China. Now looking ahead to 2026, we remain in the recovery phase of the automotive demand cycle. We expect that these sales will not be linear given all the uncertainties and the late ordering behavior of our customers. Following the very strong Q4, sales in China continued their alternating pattern in Q1, also influenced by Chinese New Year mid-February. We are also facing the expected volatility in our nonautomotive business such as digital health application. Finally, we have to factor in the impact of the annual pricing agreement that we have closed at the end of 2025. Those effects translate to a similar level of sales in the first half of '26 in comparison to '25. We expect growth in the second half of '26 with a similar dynamic as in '25. Now turning to the last quarter of '25. Sales of EUR 214.5 million means that we returned to a year-on-year growth of 9%. China posted its highest ever sales and the rest of Asia was also strong. Total APAC sales were up double digit year-on-year and sequentially, while Europe and the Americas were lower sequentially. On the innovation front, we leverage our technology leadership with strong design wins and an expanded pipeline of opportunities across China, Europe and South Korea. This trend is also valid in robotics with the pipe of opportunities up by a factor of 5 in Q4 versus the previous year. We have launched 19 new products targeting structural growth trends in automotive and robotics. In the last quarter, this included a game-changing inductive sensor for steer-by-wire application that simplifies design and reduces cost, paving the way for the next generation of electrified and autonomous vehicle. We have launched also a code-free driver for automotive ambient lighting, which streamlines the development cycle and reduce the cost of our customer. We also see the high potential in power electronics, and we are extremely proud to offer a world premier protective device called snubber. This unique solution protects and enhance power density of silicon carbide power module. All major power electronic manufacturers have shown interest in our product. A great example is Leapers Semiconductor, a Chinese manufacturer of advanced power module incorporating our snubber in their next generation of module. Our new protective device family will continue to expand to meet the evolving needs of power modules and emerging power applications. We have been growing faster than many peers in China over the past 5 years with our broad offering on high-performance and high-quality product and our strong local team to support customers. From my side, I came back from China 2 weeks ago. I'm really impressed how hybrid is gaining traction and how content reach -- are reaching mid-range car much more heavily than in Europe. To continue our trajectory in China, we are accelerating the implementation of our China strategy, including localization of our supply chain. A key step is to have local wafer supply, and we are fully on track to start shipping product this summer based on the 12-inch wafers from our local partner. We also established a dedicated robotics team in China to respond to the stronger interest with more than 60 projects currently underway. As part of our strategy to win in faster-growing markets, we are increasing our effort in India, where we enjoy strong double-digit growth. India presents great opportunities in automotive as well as in alternative mobility, playing to our strengths. We are finalizing the setup of a Melexis entity in India to show our commitment to serve customers locally and further develop in this attractive and growing market. I will now hand it over to our CFO, Karen Van Griensven, to provide more detail on our financial results and outlook. Karen Van Griensven: Thank you, Marc. So sales for the full year 2025 were EUR 839.6 million, a decrease of 10% compared to the previous year. The euro-U.S. dollar exchange rate evolution had a negative impact of 2% on sales compared to 2024. The gross result was EUR 324 million or 38.6% of sales, a decrease of 19% compared to the last year. R&D expenses were 13.8% of sales, Q&A (sic) [ G&A ] was at 6.5% of sales and selling was at 2.4% of sales. The operating result was EUR 134 million or 16% of sales, a decrease of 39% compared to EUR 219.9 million in '24. The net result was EUR 112.5 million or EUR 2.78 per share, a decrease of 34% compared to EUR 171.4 million or EUR 4.24 per share in 2024. Sales for the fourth quarter of 2024 were EUR 214.5 million, an increase of 9% compared to the same quarter of the previous year and stable compared to the previous quarter. The euro-U.S. dollar exchange rate evolution had a negative impact of 3% on sales compared to the same quarter of last year and no impact on sales compared to the previous quarter. The gross result was EUR 82.3 million or 38.4% of sales, an increase of 6% compared to the same quarter of last year and a decrease of 1% compared to the previous quarter. R&D expenses were 14.5% of sales. G&A was at 6.7% of sales and selling was at 2.5% of sales. The operating result was EUR 31.5 million or 14.7% of sales, an increase of 14% compared to the same quarter of last year and a decrease of 17% compared to the previous quarter. The net result was EUR 22.6 million or EUR 0.56 per share, an increase of 24% compared to EUR 18.3 million or EUR 0.45 per share in the fourth quarter of '24 and a decrease of 18% compared to the previous quarter. Now turning to the dividend. The Melexis Board of Directors approved on February 2 '26 to propose to the Annual Shareholders' Meeting to pay out over the result of '25, a final dividend of EUR 2.4 per share, which will be payable after approval of the Annual Shareholders' Meeting. This brings the total dividend to EUR 3.7 per share, including the interim dividend of EUR 1.3 per share, which was paid in October 2025. Now for our outlook. here, Melexis expects sales in the first quarter and first half of 2026 to be around the same levels as the previous year. Sales in the second half of 2026 are expected to grow compared to the first half of 2023. For the first half of 2026, Melexis expects a gross profit margin around 40% and an operating margin around 17%, all taking into account a euro-U.S. dollar exchange rate of EUR 1.17. And for the full year 2026, Melexis expects CapEx to be around EUR 40 million. Our outlook includes the first benefits of our cost actions taken in 2025, such as improvement in the cost of yield. We remain disciplined in executing our cost improvement road map, for example, a shift in some operations to be closer to customers in Asia, and this to keep moving towards our long-term margin objectives. This concludes our remarks. We can now take your questions. Philip Ludwig: Thank you, Marc and Karen. [Operator Instructions] Operator, can you now give instructions and open up for Q&A? Operator: [Operator Instructions] The first question is coming from Aleksander Peterc from Bernstein. Aleksander Peterc: I think the first one was pertaining to your guidance. So as in last year, this year, you also refrained from a full year guidance, could you give us a bit more color. So just help me understand if I got this right. So H1 flat. And then I think, Marc, you said in your introductory remarks that second half should be higher than the first half in a similar manner to what we've seen in '25. So is it then right to assume we're looking at a ballpark something about flattish for the full year? I'm not trying to extract the full year guidance for you. I'm just asking if the math is correct here. And then I have a quick follow-up. Marc Biron: Yes, I confirm your understanding. In my introduction speech, I have indeed mentioned that H2 will grow in a similar manner than H2 last year. Karen Van Griensven: But we can indeed -- yes, that volatility remains -- it's very low. So the -- if you look purely at Q1, we see that mostly Asia is staying behind. So Asia was very strong at the end of last year. We see it -- the order intake there is much lower than, for instance, for Europe. Europe is actually increasing. So it's all attributable to Asia and particularly also China. And we know that in China, there is a lot of volatility in order behavior and also very late ordering. So I want to put that also in that perspective. Aleksander Peterc: Very useful. And then secondly, on China versus Europe, we have a lot of debate going on about Chinese vendors, automotive brands gaining share in Western markets. What does this imply for your market share? Do you have your market share with local Chinese players that is similar to what you have in Europe? Or is there a discrepancy there? Marc Biron: Looking at the past 5 years, the CAGR of Melexis grew by 10% -- a bit more than 10% over the last 5 years. And in China, the CAGR grew 14%, which is higher than the majority of the peers in China. And I do believe we are gaining market share in China if we compare to the CAGR of Melexis with the competition. And there is nothing structural that would tell me that this will change in short term. And I would say, in the longer term, when we consider our design win, our pipe of opportunities, we see also that those design wins and the opportunity pipe is increasing faster in China or in Asia than in Europe. Operator: The next question is coming from Amelia Banks from Bank of America. Amelia Banks: Yes. My first question is just on gross margin. You sort of said last quarter that you saw around cumulative sort of 4 percentage points of temporary headwind stemming from yield issues and wafer inventory revaluation. I'm just wondering if you could maybe break down what you were seeing in Q4 and then also in terms of bridging sort of how you're seeing that guide to get to 40% in H1? Karen Van Griensven: Yes, we still had that same headwind in Q4 indeed because of inventory revaluation. We also still had high cost of yield. But this we -- this cost of yield, both effects -- well, particularly cost of yield is what will drive margin improvement in 2026. It will be a major contributor, and that is the reason why we expect around 40% gross margin in the first half of the year. Amelia Banks: Okay. And is that largely just reliant on sort of revenues picking up and demand picking up to get sort of through the sort of yield issues, the wafers that you're seeing in your inventory. Is that the main sort of driver of that? Karen Van Griensven: No, it's that we get more material out of one wafer. So it's not volume related. Amelia Banks: Okay. I just remember last quarter, you were saying about how you have sort of yield issues in one of your fabs, and that's led to sort of impacted wafers in your inventory that you're still having to work through. Is that still relevant? Karen Van Griensven: Most of that material has now been -- is now out of the inventory. So we now have in inventory wafers with higher yields, and that is helping us to improve the margin. Amelia Banks: Okay. Perfect. And then just my quick follow-up. Just on the sort of annual price resets. So just wondering if you could maybe guide on what sort of ASP change you've been seeing in '26 sort of versus 2025. Karen Van Griensven: I believe the average selling price in '26 will be close to the '25 average selling price. That is the expectation today. Operator: The next question is coming from Janardan Menon from Jefferies. Janardan Menon: I'm just looking for your second half guidance. I'm just wondering what is giving you the confidence that you will see the kind of increase in the second half like you saw last year, especially given your commentary on quite a lot of volatility in the China market. Are you expecting that market to stabilize over the next couple of quarters and therefore, give you some upside there? And just associated with that question is we just came off the Infineon call, and they said that perhaps because some of the customers, including in automotive and other areas is concerned about strong AI demand getting to -- giving rise to supply tightness even in areas outside of customers are willing to put more longer-term lead time orders now just to avoid any future capacity tightness. So is that something that you're seeing, which is also giving you some confidence on the second half of the year? Marc Biron: I think there is indeed multiple reasons for this statement on the second half of the year. First, we know that the inventory at our [indiscernible] in Asia, in particular in China is very low. And we know that they will reorder later in Q1 or in Q2 because the inventory is really low, especially in China and especially for the magnetic products, I would say. The second reason is we are -- in many big customers, we are changing the version of the products. And this change of version will happen in Q2, Q3. And it's why our customers are now busy to reduce their inventory of the previous version before they order the new version, let's say, the more modern version. This is clearly visible for drivers product, but also for some ASIC. Yes, in our price negotiation that has been finished in December, we have also received the forecast from our customers. And clearly, the forecasts are stronger in H2 versus H1. Those are the different reasons, let's say, that bring this comment. To follow up on your question about the, let's say, the supply problem, we have some sign, let's say, for example, of assembly house, where indeed those assembly house are moving, let's say, their capacity to different kind of package, more complex package in order to incorporate those complex AI chips. Yes, we have this view, let's say, from the assembly house, no really yet consequence on Melexis, no real consequence on any allocation, but there is indeed this trend, which is a bit more than the noise, I would say. Operator: The next question is coming from Craig McDowell from JPMorgan. Craig Mcdowell: The first one, I'll just go back to the gross margin. And just can you help us understand the step-up from Q4 into Q1? On the face of it, the sequential improvement, I think, around 150 basis points. It looks quite difficult given volumes, annual price inflation kicking in, currency likely worse. Just trying to understand what's going to get us to that sort of 150 basis point step-up in the face of those headwinds. I've got a follow-up as well. Karen Van Griensven: Yes. I can only repeat the biggest reason why that will happen is indeed that we have gone in inventory through most of the products with high cost of yield loss. So we will -- and as you remember, that was a high contribution of reduction in gross margin in '26, close to 2%. So -- but as we are now leaving that mostly behind, we will see improvement as of Q1 already. Price erosion that we also see in Q1, of course. We still expect a step-up because of this big improvement in cost of yield. Craig Mcdowell: And then just a follow-up. I realize it's early, but I appreciate your thoughts on the acquisition announced with MSO around sensor portfolio by Infineon. Just wondering your reaction of how that might change competitive dynamics in that segment of the market where obviously you're strong. Marc Biron: Yes. In our, let's say, product scope or application scope, yes, OSRAM is not a real competitor of Melexis, meaning that I think this acquisition will not change a lot for us. Operator: The next question is coming from Francois Bouvignies from UBS. Francois-Xavier Bouvignies: I have actually really one question. I mean when I look at your revenues, so you mentioned flat year-on-year in Q1 and Q2. Now when I look at your competitors like Allegro, for example, which I think is the closest, I mean, they are growing their auto revenues by more than 20% year-on-year in December quarter and March, by the look of it, is still 19%, 20% year-on-year. So they are really growing significantly. You mentioned China growing 14% in the last 5 years, but I would imagine that the growth in China was actually higher than 14%. I mean, given all the EV growth that you have seen, the car sales as well in there. So the content and the growth in China was clearly higher than that. So what I'm trying to understand is, is there anything structural here? I mean, a bit more because it feels a bit more than an inventory correction, especially when you compare the growth with some other peers. Even NXP is growing 11% in autos. TI is growing low teens. STM is growing mid-teens in March quarter. So you seem to be well below the others. So I'm just wondering why is that? Marc Biron: I think there is for sure, nothing structural. I repeat that I was in China last -- 2 weeks ago. Yes, my conclusion from the trip, which was the same when I was in China in November, I think that the Chinese customers, they like the Melexis product. They have a lot of trust on our quality. Yes, they like our support, technical support is very important in China. I confirm there is no structural -- there are no structural problem in China, also not in Europe. Yes, we are facing this volatility. The order in China was very high in Q4. In Q1, it is lower because of this Chinese New Year, also because the incentive scheme for EV in China have changed from '25 to '26. But from my perspective, we still have the same traction. And we -- when we refer to the design win or when we refer to all the pipe of opportunity, the discussion with customers, I don't feel any problem there. Karen Van Griensven: Yes. And I also want to add that Melexis went -- started the cycle much later than all the other players in the market. Usually, we started later, but we also come out later. In general... Francois-Xavier Bouvignies: I understand that. Yes. But versus Allegro, I mean, I would say why they would see differently than you. I mean they do similar things, not only the same. But what is your revenue in China? I mean, in Q1, was it -- how much down it is China, you would expect to be? Karen Van Griensven: China, it will be down quite a bit compared to -- well, based on the order intake we have now because January was still strong. February, March is still obviously still order intake. February looks quite weak, but that's probably a lot to do with China New Year. And March, yes, orders are still coming in. So it's also -- even in Q1, it is difficult to predict where exactly we will be landing because of, yes, the very late order intake, certainly also in China. But it's particularly low compared to Q4. But as I mentioned, we don't -- yes, there is no reason to believe why that wouldn't throughout the year pick up again. Q1 tends to be always a lower quarter -- well, not always, but usually a lower quarter in China anyway. Francois-Xavier Bouvignies: So on the year-on-year China, what do you expect your guidance? Karen Van Griensven: On a year-on-year, yes, it will be probably close to what we had a year ago. It might be slowly lower. But like we said, order intake is coming in quite late. Philip Ludwig: Francois, maybe just to come back to some of your comparisons, it's Philip here. Allegro, I think the 5-year CAGR is 2% to '24, okay? We can update for '25 as well, whereas ours is 14%. In China, we outgrow Allegro as well over a 5 years period. So I know we look ahead. Of course, we also look ahead. But I think if we look over time, as Karen mentioned, the quarters are not always in sync. I think the long-term growth track record of Melexis stacks up well versus many, if not the majority of our peers. Operator: The next question is coming from Robert Sanders from Deutsche Bank. Robert Sanders: Yes. Sorry, the line just went bad. I didn't hear the answer to the last question. Did you say the year-on-year decline in U.S. dollars or euros for Q1 China alone? Did you answer that? Karen Van Griensven: Well, like I said, order intake is very late. There could be a decline in the first quarter, although in January, we haven't seen it yet. And this is what -- that's the reality. February and March is still in orders. So very difficult to predict even in 1 quarter where we will land, particularly for China. Robert Sanders: Got it. My question was more around in the medium term. So you've seen a lot of the BEVs being canceled by Western OEMs, more than 30% of launches have been canceled. It looks like EV demand is just not flying without big fingers on the scale. And now that they're taking away subsidies in the U.S. and China, it just doesn't seem to be as strong. So you're going to see a lot of people moving back to plug-in hybrids and zonal architectures as a kind of bigger source of differentiation. So does that affect your TAM growth? Because if I remember rightly, you brought it down at the CMD, your long-term growth. Does it affect how you think about that? Or are you kind of agnostic still to that trend? Marc Biron: I share your view indeed that hybrid, let's say, seems to be the preferred option for many of the customers and many of the manufacturers. And I would say hybrid is great for Melexis because there is -- and an electric engine and a combustion engine. Then we -- let's say, we win 2x because we contribute to the electric engine and we contribute to the ICE. Then for us, it's the best of both worlds, the hybrid motorization. And what I said during the introduction speech, in China, I was really impressed how much those hybrids were taking over because initially, let's say, the hybrid had a battery with, let's say, 50 kilometer range, but now it's 100, 150 and 100 to 150 kilometers. In Shanghai, for example, it's more than enough to move in the city during 1 day. And it's the reason why this hybrid is gaining traction. Robert Sanders: And what you see at the Western OEMs, obviously, they're restarting their development. I mean, a lot of their combustion engine R&D was shut down. Now they're restarting those teams. Is that a good thing for you because they will get more involved in the engine management side? Or is it there's a short-term issue because of cancellations and then a long-term gain because of plug-in hybrid ramps? Marc Biron: Yes, discussing with our customer, the Tier 1, the Tier 1 have faced indeed in '25, a lot of or some cancellation of platform. I think it's also one of the reasons of the current situation. They all told me that '27 will be different. And in '27, they forecast a lot of new platform, which is one aspect. And to answer your question, for Melexis, what is important is that either the electric engine or the combustion engine come with a new platform because the new platform is usually much more electronic rich with much more comfort, much more safety features, then those new platforms are always a benefit for Melexis. But it could be combustion engine or electric engine, it doesn't make a lot of difference for us because we are -- we have the same kind of contribution in both type of motorization. I repeat my previous answer, but hybrid is the best of both worlds for us. Operator: The next question is coming from Guy Sips from KBC Securities. Guy Sips: My question is on the inventory level of EUR 300 million plus. We see it increasing quarter-over-quarter. How comfortable are you with this inventory level? And do you expect that we are now on the peak? Karen Van Griensven: Yes, it is our -- it's indeed a peak level. As we progress in '26, we will probably keep it around that level, maybe a bit lower. But we don't have the intention to further increase it. Marc Biron: And I think this inventory is a strategic asset for Melexis because we have a lot of in-quarter order, and we can respond positively to those in-quarter order because we have the inventory with the right product. And when the business will pick up anytime soon, we'll be ready to ship to our customers, thanks to these inventories, and we really see this as an asset. And I think it's much more expensive to lose business in the future than to keep this inventory as it is today. Guy Sips: And a follow-up question on your sales in Europe, which is just above EUR 50 million in the fourth quarter of '25. And I think you have to go back to COVID times to see this kind of level. What is actually -- what could be a point for your European sales? Is it -- yes, can you elaborate a little bit on that? Marc Biron: Yes, the center of gravity of the business is indeed for the time being, at least moving from Europe to China or to Asia. That being said, yes, Europe remains very important. Also U.S. remains important. But this move from Europe to China is indeed the trigger for us to focus our organization on China. We have -- at the end of '25, we have updated our organization in China in order to give to this organization in China more autonomy, more autonomy in the business aspect to give them the opportunity to answer very quickly to our customers because we do realize that in China, speed is really a essence, and we should avoid the communication flow between China and Europe, then the autonomy has been given to the China team to be on top of the business discussion. And I think this is a very important asset for the future to strengthen our China team because indeed, for the time being, and I repeat for the time being, the business is moving to China. But we also see that in the expectation of the OEM, the European OEM in '26, but even more on '27, they will launch more and more new car with new platform, EV, cheaper, and it's not impossible that a kind of rebalance will happen later this year or later next year. Karen Van Griensven: And I just want to repeat that Europe had a strong start. Q1 is higher than Q4. Marc Biron: Yes. Operator: The next question is coming from Marc Hesselink from ING. Marc Hesselink: Yes. First, I would like to come back a little bit on the volatility that you call out on the revenue because I think the fourth quarter was a bit below what you initially expected, then another step down in the first quarter and a quite significant step-up in the second quarter sequentially. Just trying to understand that a bit better. What changed there? Because I think earlier, we talked more about small sequential improvements quarter-over-quarter. And now you certainly see this volatility. I think you discussed it, but just to really square what is really happening causing this volatility? Karen Van Griensven: Yes. So like we mentioned, what we -- the drop is fully for Asia and then also particularly for China. And China from one quarter to the other also last year can really move up EUR 10 million in one -- easily move up close to even EUR 10 million from one quarter to the other. So we don't have really snubber reason than there is huge volatility in China in general and that it is obviously also impacted seasonally by China New Year. Marc Biron: Yes. And it has been also amplified, sorry. It has been amplified by the change of incentive scheme in China at the end of '25. Marc Hesselink: Okay. Okay. And then the second one is a clarification on what you said on the pricing because I think you said that the ASP will be very close to '26 level to the '25. But you do call it out as one of the reasons for maybe a bit slower revenue in the beginning of the year or less -- no growth in the first half of the year. So just wanted to understand if you -- like product for product, are the ASPs stable? I think that would be probably a bit better than what you initially guided, which was the normal decline of 3%, 4%, I guess. Karen Van Griensven: No, we need to make that -- we need to clarify that. Stable ASP doesn't mean that we don't have price erosion. The price erosion is mid-single-digit expectation for '26, but the product mix has a positive effect in '26. This can vary from 1 year to the other, the product mix effect. Operator: The next question is coming from Michael Roeg from Degroof Petercam. Michael Roeg: I have a question about the China business, which was very strong in Q4. Do you have a sort of a crude estimate how much of your products end up with the top 5 Chinese carmakers and how much ends up with all the other names? Marc Biron: On the top 5 carmaker, I cannot answer. What we know is that, let's say, half of the Chinese business is for Chinese OEM and the other half is for the European OEM. Michael Roeg: And within those Chinese OEMs, you do not really have a good view on how much ends up with sort of the big companies, the familiar names and how much ends up with that very long tail? Marc Biron: No. Michael Roeg: Okay. Do you see a risk that if there eventually will be a shakeout of all those smaller players that eventually their car volumes will move to the big players, the big domestic players, which have much better pricing power than those smaller players? Have you done scenario analysis for that? How much that could impact your business? Marc Biron: Yes, the consolidation will indeed happen. There are a lot of OEM in China then for sure, consolidation will happen. But we don't have an accurate answer to your question. I think indeed, innovation will also help at the end, it's all about new products that we bring on the market to compensate this price erosion. Yes, we have -- in the product that we have launched recently, we have products with much more ASP, much more margin. I don't see any reason why this consolidation will be negative because on the other hand, having a lot of small customers, it's also -- it requires a lot of effort to support all those customers, especially in China, we have a lot of application engineers working with all those small customers, then there is also a very negative effect to have so many small customers. And I could also add that it's the case in Europe. In Europe, we have a lot of big customer and a very limited number of small customers, then it will probably indeed move in this direction in China, but we are able to manage it in Europe, then we will manage it in the same way in China. Michael Roeg: Okay. Well, my impression was that the bigger OEMs in China have much more favorable purchasing conditions so that if the volumes were to move to them, that it could affect your overall ASP in China. But you will be -- you think there will be some compensation in being able to lower your OpEx. Marc Biron: I think it's the same in Europe. The big customers in Europe. Our big customers in Europe have also a better pricing than the small customer. And it's why also we like this long tail for the reason you mentioned. But yes, it will be the same in China, and we will manage the situation in the same way. I think it's -- the price metric is always high volume, lower price. Karen Van Griensven: But overall, we expect high price erosion in China than in the rest of the world. That is calculated in our model. Operator: We go on now to the last question, and it's from Nigel van Putten from Morgan Stanley. Nigel van Putten: I just wanted to talk about the growth or the guidance for the full year, which is flat, maybe not comparing it to others, which have indeed sort of implied some growth you guys aren't able to. So how do I sort of get from -- I think in the past, you would say on sort of 0 SAAR growth still penetration would add, what, high single digits. Let's say that's mid-single digits today. You said pricing in the mix is kind of flat. There's no real inventory digestion going on. So how do I get from, let's say, mid- to high single-digit volume growth to 0 on the euro side? Is that the dollar? Is that sort of headwinds from the nonautomotive business? Is there a mix? Could you just give us some more color on the pieces -- the building blocks how to get down from a volume number to revenue number in euro? That's my first question. Marc Biron: It's a mix, as you mentioned, we did not discuss in the Q&A about the nonautomotive business. I mentioned it in the introduction speech. But yes, one of our big nonautomotive customer has decided to alternate their supplier. And I think it's quite normal. We had the chance to be during 3 years in a row in the application. In '26, they have decided to make the alternate, which affects our revenue. Yes, again, it's not abnormal. We are -- we have good hope that we will come back in the next years. We have good technical features. But this is indeed in the midst of answer. This is one of the reasons that we did not mention in the past. Nigel van Putten: It's great to receive one of the reasons. Can you quantify the impact and also give us just a bridge from -- because it's -- yes, I mean, I've covered companies for quite a while. It's always been volume growth. It used to be teens and high single digit. I think it's now mid-single digit, but still this is a material step down. And I don't have any ways to calculate that, then it would be super helpful, very helpful for you to guys to give a little bit more disclosure and color on how to model the business into '26 and what are the moving parts? Marc Biron: And our customer and probably also OEM are navigating to cautious recovery in auto, and it's why this volatility in sales order is coming. I think it's difficult to give more color and really to give the building block for your answer because of this high volatility. Nigel van Putten: But the whole volatility in the near term, and then I'll move on after this one. But I do want to try again. It's for the full year. So it shouldn't be -- it's not exactly normalized, but it's not the month-to-month volatility that you point out. I fully comprehend that. But it's just compared to peers and also compared to your -- the financial model, the growth model that I'm used to, this is very different. I mean I could have understand it. It used to be the bullwhip inventory effects, that is a big impact, but that doesn't seem to be driving it. So I'm just -- I need to update my understanding about how I model your top line, I think, and it would just be helpful if we can get a little bit more color on that. Marc Biron: In the longer term, we confirm our high single-digit growth. What we have mentioned to the CMD is still fully valid. We have the design win, we have the opportunity pipe. We have in our development, the relevant product to reach this growth. And in long term, I think the model did not reach. In short term, we have this volatility that we mentioned. We have the price erosion that we have mentioned, mid-single digit, low to mid-single digit. This is the reason of the change. But I repeat in long term, we are fully confident that what we have said to the CMD is still valid. We need now to face the short-term headwind. Nigel van Putten: Okay. More math now on the gross margin. I think, Karen, you've talked about the potential of sort of 4 percentage points worth of idiosyncratic or self-help or specific items. I think 2 percentage points related to the yield improvement. I think that's probably what we're seeing in the first half, if I'm not mistaken. And then on top of that, there was potential further improvement or the dollar, I think some normalization would have helped. You've mentioned the restructuring impact of about 1 percentage point before. So I'm just trying to get to the full year gross margin. It seems like given there's no growth either, we probably should assume like 40% for the full year. Yes, can you maybe elaborate a little bit if that's the correct way of thinking? Or is there an element missing? Karen Van Griensven: That is correct. Indeed. We need more operating leverage to push it beyond that 40%. Nigel van Putten: Okay. And maybe then just a quick follow-up. You've guided first half gross margin, not first quarter. I think it's just how you usually talk to the market. But should we assume that improvement towards 40% in the first quarter? Or is it more towards the second? So we step up from I don't know, 39.5% and then... Karen Van Griensven: From Q1, we expect. Operator: This was the last question in the queue. There are no more questions at this time. So I hand the conference back to the speakers for any closing remarks. Marc Biron: Thank you, operator. To summarize, 2025 was a year of navigating through cautious and choppy demand while maintaining our cost discipline. In parallel, we have introduced many innovations for automotive applications, grew business opportunities, accelerated our China strategy and took action to improve margins. These efforts will start to deliver in '26, and we will continue to build on them to further strengthen our business and to move towards our long-term objective. Thank you for joining the call, and goodbye. Operator: Thank you for joining today's call. You may now disconnect.
Operator: Ladies and gentlemen, thank you for standing by, and welcome to Prudential's Quarterly Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to Tina Madon. Please go ahead. Tina Madon: Thank you. Good morning, everyone, and thank you for joining us. Representing Prudential on today's call are Andy Sullivan, Chief Executive Officer; and Yanela Frias, Chief Financial Officer. We'll start with prepared remarks by Andy and Yanela, and then we'll address your questions. Before we begin, I want to remind you that today's discussion may include forward-looking statements. It is possible that our actual results may differ materially from those statements. In addition, remarks made on today's call and in our quarterly earnings press release, earnings presentation and quarterly financial supplement, which can be found on our website at investor.prudential.com. include references to non-GAAP measures. For a reconciliation of such measures to the most comparable GAAP measures, and a discussion of the factors that could cause actual results to differ materially from those in these forward-looking statements. Please see the slide titled Forward-looking Statements and non-GAAP measures in the appendices to our earnings presentation and quarterly financial supplement. With that, I'll now turn the call over to Andy. Andrew Sullivan: Good morning, everyone, and welcome to our earnings call. Before turning to our full year results, let me take a moment to address the employee misconduct in our Japan business described in our press release yesterday afternoon. I want to emphasize that doing right by our customers is a core value of our company, and a cornerstone of what we stand for, and we are taking this issue extremely seriously. For nearly 40 years, Prudential has been a symbol of exceptional customer care in Japan and we are committed to restoring the standing that has long set us apart in that market. In January of this year, Prudential of Japan announced findings of an internal investigation in the instances of misconduct by certain of its employees. This misconduct very clearly does not meet our standards or what our customers expect of us. In consultation with the regulators in Japan, we have made the decision to voluntarily halt new sales at POJ for a 90-day period. To fully address the root causes of the misconduct, we are implementing a series of actions across the business which includes strengthening oversight of sales practices, governance and risk management. We will also be restructuring employee compensation and enhancing education compliance training and recruiting standards for all POJ employees. While we have set a 90-day suspension of sales, we will not resume distribution through the Life Planner channel, until we are comfortable that our internal compliance and oversight environment supports doing so. This could result in an extension of the 90-day period. These actions are essential to restoring trust in this important market. While there are financial implications to the sales suspension, we believe that this is the prudent path forward in addressing the misconduct and positioning our business in Japan to rebuild customer trust. We are working with local regulators and other key stakeholders to address these issues thoroughly. Implement the necessary remediation measures and uphold the highest standards of governance and customer care going forward. We expect an impact on 2026 pretax adjusted operating income of $300 million to $350 million, equivalent to approximately 5% of 2025 PFI earnings. Yanela will cover more details on the financial implications in her remarks. We're also establishing a customer reimbursement program that will be developed and administered by an independent oversight committee. We intend to make this right for these customers, and we remain deeply committed to responding in a manner that places customer trust as our highest priority. That is who we are, and we are confident we will come out of this as a stronger company. Now moving to our financial results. Last year, I set out 3 priorities that are essential to delivering stronger performance, more consistent results and sustained long-term value for our shareholders. These were evolving and delivering on our strategy, improving on our execution and fostering a high-performance culture. Our issues in Japan only reinforce that these are the right priorities and we must continue on the path my team has set. While we have more work to do across the company, I am encouraged by the tangible progress we have made. Over the last year, we sharpened the focus on our businesses in large and growing addressable markets where we have differentiated capabilities and believe we can earn superior returns. We executed with greater accountability and discipline as we streamline the organization and strengthened our core franchises. This progress makes clear that our brand, customer value proposition and scale our unique competitive advantages that position us for durable long-term growth as we reposition our company globally. In 2025, we delivered solid progress in results. For the full year, our pretax adjusted operating income was $6.6 billion or $14.43 per share, and our adjusted operating return on equity was approximately 15%, up nearly 200 basis points from the prior year. We also delivered nearly $3 billion to shareholders in the year through dividends and buybacks. Our full year performance displayed improved and more disciplined execution and demonstrated the momentum we believe we are building across our businesses as we continue to meet growing demand for our products fulfilled through our diversified distribution platforms, resulting in higher sales growth. Let me now recap the highlights across each of our businesses. In PGIM, we delivered strong investment performance last year with solid traction across our core capabilities, including public fixed income, securitized products and asset-backed finance as well as indirect lending. We also saw continued progress in newer vehicles, such as ETFs and are beginning to see tangible benefits from our new centralized distribution model. 2025 was a transformative year for PGIM. We moved quickly to integrate our asset management capabilities into one unified platform, enabling deeper client cross-sell engagement and reducing costs over time. Additionally, bringing together our public and private fixed income capabilities into a single $1 trillion global credit platform positions us as one of the largest and most differentiated credit managers in the industry. Clients value the ability to access the full spectrum of credit from liquid public markets to bespoke private solutions through one integrated platform with consistent underwriting, deeper origination and the scale to source opportunities others cannot. And as I've said many times before, I am a deep believer in being proactive in the marketplace which means we're continuing to be vigilant for the best opportunities to enhance our capabilities, scale our business and better serve our customers around the world. Alongside this momentum, it is important to acknowledge areas where we see pressure. As I noted on our last call, our fundamental active equity platform, Jennison, is not immune to broader industry trends and is experiencing systemic outflows with the continued shift from active to passive management. These outflows have weighed on PGIM's organic growth and earnings momentum. In addition, this quarter's net flows were impacted by a single low fee fixed income client withdrawal at the end of 2025, which was unrelated to performance. We continue to manage through these headwinds and expect offsetting growth over time as PGIM's diversified offerings across public fixed income, private credit and real estate continue to grow. The bottom line is we generated over $30 billion of total net inflows last year from these 3 asset classes. Additionally, our momentum is building in key growth areas, such as asset-backed finance, direct lending and ETFs. This success will be enhanced going forward as we start to realize the benefits of our newly integrated distribution model. The results of our U.S. businesses reflect the actions taken over the last year to sharpen our focus and leverage our competitive strengths. In retirement strategies, we delivered $40 billion of sales across our institutional and individual channels for the year. Reflecting solid demand, diversified distribution and our ongoing leadership in meeting the evolving needs of retirement customers. We continue to strengthen our solutions, improve the mix of products we sell and refine the capital and asset strategies that underpin our business. In Institutional Retirement, we remain well positioned to lead the large pension and longevity risk transfer markets in both the United States and Europe. In 2025, we delivered nearly $26 billion of sales, including our second longevity risk transfer transaction in the Netherlands. In Individual Retirement, we generated sales of $14 billion in 2025, capping an eighth consecutive quarter of more than $3 billion in sales, reflecting strength in RILA as well as growth in fixed annuities supported by strategic reinsurance partners, including Prismic. Our diverse product set and distribution strength are driving strong top line growth, a clear proof point of our focus on consistent execution. Group Insurance generated full year sales of over $600 million, up 11% year-over-year, underscoring the benefits of further product diversification and increasing our market presence in our premier segment. These are key areas of strategic focus as we continue to grow and expand the profitability of this business. In Individual Life, full year sales of $955 million increased 5% over the prior year as we continue to pivot our focus towards less capital-intensive accumulation products, including FlexGuard Life. We continue to deliver this new business growth at solid returns on capital. Now turning to our international businesses. In Japan, we are highly focused on the issue in POJ. That said, we are capturing growing customer demand for retirement and savings products, which now account for a majority of our sales in the country. Over the past 3 years, we have launched 10 new products in this category which have steadily gained traction and accounted for nearly 1/4 of 2025 sales. Now turning to emerging markets. This business reported record full year sales of $386 million on a constant currency basis, up 6% from the prior year. This growth is primarily driven by broader distribution in Brazil. As we turn to 2026, we will continue to evaluate our global footprint to ensure that we are prioritizing markets and geographies that are large and growing and where we believe we are competitively positioned to win and can deliver industry-leading returns on capital. The decision to exit our PGIM Taiwan business last quarter and our insurance business in Kenya last month are prime examples of us executing on this priority and driving stronger discipline across the company. As part of our focus on talent and high-performance culture, we continue to refine our management structure to make the organization more results-driven and accountable and to improve the speed of decision-making. The changes we made last year bring me closer to our businesses and their leaders as well as our customers as we execute our growth strategy in 2026. To conclude, we believe we've established the foundation for the broader reimagining of Prudential, one that positions us to lead and win in the markets we choose to compete in. While we are still early in this transformation the momentum we're building gives us great confidence in the road ahead. With that, I'll hand the call over to Yanela. Yanela del Frias: Thank you, Andy, and good morning, everyone. I will begin with covering our fourth quarter financial results before turning to the financial implications related to POJ. Our fourth quarter results reflected continued progress against the 3 priorities we outlined in early 2025, capping a solid year of financial performance. We reported fourth quarter after-tax adjusted operating income of approximately $1.2 billion or $3.30 per common share. These results include an after-tax onetime charge of $107 million or $0.30 per commenter, primarily related to severance, which I will discuss in more detail later on. Excluding the impact of this charge, after-tax adjusted operating income per share was $3.60, reflecting an increase of 22% over the prior year quarter. Let's now turn to Slide 4, which provides a high-level summary of our quarterly operating results by business. PGIM reported pretax adjusted operating income of $249 million. down slightly from the prior year quarter. Higher asset management fees driven by market appreciation were more than offset by higher expenses related to ongoing business investments including the continued expansion of our asset-backed finance platform and our technology and data strategy. Other related revenues were also weaker due to lower seed and co-investment income. Our U.S. businesses delivered pretax adjusted operating income of approximately $1.1 billion, a 22% increase compared to the prior year quarter. This result was driven by higher spread income and retirement strategies, coupled with more favorable underwriting results in Individual Life and Group Insurance and lower expenses in Individual Life due to onetime transaction costs that occurred in the prior year quarter. Partially offsetting these positives was lower fee income resulting from the ongoing runoff of our legacy variable annuity block. Our International Businesses generated pretax adjusted operating income of $757 million, modestly higher than the prior year quarter as higher spread income and more favorable underwriting results were partially offset by higher expenses primarily related to timing as we noted last quarter. Now turning to the key highlights on Slide 5. PGIM's assets under management of approximately $1.5 trillion increased 7% from the prior year quarter, driven primarily by market appreciation and strong investment performance. PGIM experienced net outflows of approximately $10 billion in the quarter across third-party and affiliated channels, reflecting the industry trend away from active equities as well as a single low fee fixed income withdrawal. Additionally, our VA runoff and the inherently lumpy nature of PRT new business impacted our affiliated net flows. As we noted last quarter, we expect PGIM to deliver over 200 basis points of margin expansion in 2026, accelerating the path towards our 25% to 30% margin target. Now turning to the key highlights on Slide 6. Our U.S. businesses again produced strong quarterly results, reinforcing the benefit of our diversified sources of earnings from fees, spread and underwriting income. Institutional Retirement reported sales of approximately $4 billion, including $1 billion of pension risk transfers across 4 middle market deals. While fourth quarter activity was relatively muted, our strong brand and our proven track record in executing large complex transactions position us well to lead in the sizable pension and longevity risk transfer opportunity across our core markets in the U.S., U.K. and the Netherlands. Individual Retirement delivered more than $3 billion in sales, driven by fixed and registered index-linked annuities. Our broad product portfolio provides flexibility to deploy capital where returns are most compelling. Additionally, we continue to innovate to address evolving customer and adviser needs. However, the runoff in our legacy variable annuity block remains a headwind. For 2026, we continue to expect $3 billion to $4 billion of quarterly account value runoff which translates into approximately $10 million to $15 million of pretax adjusted operating income runoff per quarter, compounding to $100 million to $150 million annually prior to market impacts on account values. Now turning to Group Insurance. Sales totaled $56 million in the quarter, reflecting continued momentum in our Premier segment in both Group Life and Disability as we execute our product and market segment diversification strategy. The benefit ratio of 82.5% in the quarter came in below our target range reflecting favorable life underwriting results and less favorable disability experience driven by higher new claims, coupled with lower resolution. In Individual Life, quarterly sales totaled $269 million, down from the prior year record quarter as we continue to pivot towards more capital-efficient products. On a full year basis, we increased sales traction and accumulation-focused variable life products, fueled by our strong brand and distribution footprint. Now turning to the key highlights on Slide 7. Sales in our International businesses of $525 million were up 4% on a constant currency basis compared to the prior year quarter, driven by growing demand for retirement and savings products in Japan and record sales in Brazil. While surrender activity in Japan moderated in 2025, it remains a headwind that will partially offset new business growth. We continue to closely assess macro indicators, including the value of the yen, which has been extremely volatile. We estimate that the impact to 2026 earnings from the excess surrenders that we experienced in 2025 will be roughly $50 million. Now turning to the key highlights on Slide 8. Our capital position and strong regulatory capital ratios support our AA financial strength and our ability to grow our market-leading businesses. Our cash and liquid assets were $3.8 billion, which is above our minimum liquidity target of $3 billion, and we have substantial off-balance sheet resources. The Board has authorized share repurchases of up to $1 billion in 2026 and increased the common stock dividend for the 18th consecutive year. Consistent with our approach across the enterprise, we remain well capitalized and manage our Japanese entities to levels aligned with our AA objective. ESR results remain well above our 150% operating target outlined last quarter, even with a sharp increase in long-term Japanese interest rates last month. Now let me take a moment to outline a few key financial highlights heading into 2026. First, as I mentioned earlier, we recorded a pretax charge of $135 million in our corporate and other operations related to our ongoing efforts to improve our organizational efficiency. These changes are expected to deliver approximately $150 million in pretax run rate benefits in 2027. I want to emphasize that the benefits from these actions were already embedded in our intermediate financial targets, including the target for our operating expense ratio. Second, on Slide 17, we have provided additional earnings considerations specific to 2026. And third, as Andy noted in his remarks, we have made the decision to voluntarily hold new sales in POJ for a 90-day period. I want to share our preliminary view of the financial implications for both the new sales suspension and the remedial actions we are taking. We currently believe that the impact to our 2026 pretax adjusted operating earnings will be in the range of $300 million to $350 million. There are 3 components to this estimate. The first is the impact of the 90-day new sales suspension, which we expect will be in the range of $150 million to $180 million. This range reflects the anticipated costs associated with sustaining the business and compensating the distribution force during the suspension period. The impact of suspending new sales activity, and anticipated higher surrenders. The second component is $70 million of estimated onetime costs, of which roughly 70% relates to customer reimbursement. The third is roughly $80 million in estimated lower earnings attributable to the gradual ramp-up of new sales through the remainder of the year once we resume sales. The lower sales and higher surrenders we expect this year will also have an impact on 2027 results. However, based on what we know today and assuming the 90-day new sales suspension, we expect the overall impact will be considerably lower in 2027. Now let me tell you what this means for our intermediate EPS growth target of 5% to 8%. Recall that our intermediate targets are for the 2024 through 2027 period. In 2025, we met our internal expectations for earnings growth, and we are on track with the actions and expense efficiencies that underpin this intermediate term guidance. That said, the financial impact associated with the POJ issue could bring us to the low end of this range by the end of 2027. In addition, to the extent that the magnitude and/or duration of the POJ issue is different than we currently anticipate we may not hit the low end of the EPS range by the end of 2027. We are providing these estimates to help frame the range of potential financial implications. But as Andy noted, we will not resume new sales until we are satisfied that our internal compliance and oversight environment supports doing so. We are closely monitoring each element of the financial waterfall that I just laid out, and we'll update you as we gain better visibility into the trajectory of POJ sales, surrenders and earnings. Despite these headwinds, it is important to remember that we are a large, diversified company with multiple sources of earnings and cash flows, and we are confident in the path ahead as we reposition Prudential to deliver strong value to shareholders. And with that, we're happy to take your questions. Operator: [Operator Instructions] Our first question today is coming from Suneet Kamath from Jefferies. Suneet Kamath: I wanted to start with Japan and the 90-day sales suspension. How did you arrive at the 90-day period? And was this done in conjunction with the FSA and other regulators in Japan? Andrew Sullivan: As you can imagine, voluntarily suspending sales in such an important channel for us was a very carefully considered decision and something that we didn't take lightly. We have the leadership in POJ right now focused on 4 major initial actions. Customer reimbursement, which Yanela spoke to. Life Planner training, which obviously will be a major focus during the shutdown period, enhancing our sales supervision and then Life -- redesigning our Life Planner compensation. As we looked at those 4 actions and the time frame it would take to make major progress, we thought that 90 days was a reasonable time frame to make meaningful progress. But I would reiterate what we -- what I said in my opening comments and what Yanela said in hers as well that we're not going to resume distribution in the channel until we're comfortable that the internal compliance and oversight environment really supports us reopening it. As far as your question on the FSA, I would reiterate that this was a voluntary decision. But as you would expect, we work closely with our regulators in every market, every single week. So we consulted with the JFSA before announcing this decision. Suneet Kamath: Okay. Got it. And then have you done a similar review for Gibraltar Life in terms of sales practice issues? And does the suspension have any impact on Gibraltar or any of the channels that you're talking about in Japan? Andrew Sullivan: Yes. So Suneet, yes, the answer is yes. We are conducting a similar review of Gibraltar. This is underway and in process and will conclude a few months from now. You should expect this, right, from a leadership team perspective here at PRU, we take the responsibility for making sure that every one of our operations in every market and every channel is conducted in the right way and that we keep our customers upfront as job #1. As far as any effects that we've seen so far, the only effect we've seen in Gibraltar is some modest pressure is the way I would frame it on recruiting of life consultants. But we intend to be very assertive in restoring the trust and confidence that people have of us half of us in Japan, and we intend to come out of this stronger. Operator: Next question is coming from Tom Gallagher from Evercore ISI. Thomas Gallagher: Andy, a few follow-ups on Japan. I guess, will you also suspend hiring new Life Planners while you shut down sales? Or are you going to continue normal course with hiring plans? And is the plan here to pay out special bonuses that vest over a number of years from a retention standpoint? Just want to see what you're doing to make -- to kind of ensure that you keep your -- one of your best assets, which is the Life Planner system intact while you go through this? Andrew Sullivan: Yes, Tom. So let me start by just saying thank you for your last comment because we really do believe that this is a special company and an incredible asset. To take your first question, we are not stopping recruiting of new Life Planners in the channel that will continue. But we are taking decisive steps that is every bit intended to preserve the distribution force. Two things I would specifically mention. The first is investing in our Life Planners in their training and development. So we always do that, but over the next 90 days, it will be at a much enhanced level. And the second is providing financial support to them to retain them over the longer term. I'm not going to get into the exact specifics of what that looks like. We do have confidence that these actions are going to help us retain this special asset. But I would mention one other thing, Tom, that I think is really, really critical. Taking these actions also ensures that we have a company that our employees could be incredibly proud of and that they want to work for. And in particular, in Japan, that is one of the most important elements that goes into retention. So that combination of actions will help us retain the life planners, but we know will also help us with the broader employee population. Thomas Gallagher: And for my follow-up, I had read a news report that indicated the FSA was going to conduct an on-site investigation for POJ as well and it said it was going to start in February. Just want to see if you can confirm whether that's begun? Is that going to be going on side by side while PRU does its own due diligence? Andrew Sullivan: So Tom, what I would say is we don't comment on specific ongoing interactions with the regulators. Obviously, this is something that, as I said earlier, we were in -- discussed with the FSA before we voluntarily see sales. We have regular ongoing interactions with the FSA every single week. But as far as the specifics of ongoing regulatory actions and the actions they take, I'm not going to comment. Operator: Your next question today is coming from Wes Carmichael from Wells Fargo. Wesley Carmichael: My first one, also on Japan, but maybe a little bit of a different topic. In terms of surrender activity that you're seeing, I mean, I think there's a couple of components. Maybe one is FX with the yen at [ 156, 157 ] versus your guidance for strengthening to [ 135 ]. And I just wanted to ask on loan rates being much higher, are you seeing an impact to surrenders there? And then just maybe on POJ with any kind of fallout from this conduct. Is there any way you can dimensionalize those 3 impacts, please? Yanela del Frias: Yes, it's Yanela. So let me start on the surrenders. So in terms of the impact of the yen, the depreciation of the yen since 2022, has driven an elevated level of U.S. dollar product surrenders. We've been talking about this for several quarters. The surrender rates declined to mid-single digits through third quarter 2025, in line with the stabilization that we saw at that time. But we did see it pick up this quarter, fourth quarter '25 with the renewed yen weakening. So we have seen the volatility as well. So to give you a sense, fourth quarter '25 surrender rate increased to 6.3% from 5.6%, so a slight uptick. But we're still below the rates that we've seen earlier in the cycle. And the fact here is that the customers with heightened sensitivity to FX rates have already surrendered. And frankly, this kind of leaves us with a block that is less sensitive to FX movement. So that's how I would position that. You did hear in my opening remarks that for the full year 2026, we expect the impact of 2025 surrenders to be in the range of $50 million. With regards to rates, frankly, we view the impact of rates in terms of earnings and sales as a positive. It allows us to offer more attractive yen-denominated products and invest in new money rates that are higher. Andrew Sullivan: Wes, I would just add because I think you also mentioned, given our misconduct issues. We expect sales and surrenders obviously, to be impacted in the short term that's included in the financial estimates that you heard from Yanela at the opening of the call. We're going to continue to do the right things and put our customers first. What I would say is, remember, we have an exceptional all-weather product portfolio that really protects our customers and helps them in both protection and retirement so while we expect near-term impacts, we gave very thought -- a lot of thought and care to the numbers that we provided to you. Obviously, it's early days, but we'll continue to monitor this, but we know that over the longer period of time, will be stronger. Wesley Carmichael: That's very helpful. And just my follow-up on ESR, I know that's coming up for publication shortly. But just wondering if you could touch on what -- how that moved in the quarter, higher yen rates. I think Yanela, maybe a couple of quarters ago, you gave a little bit of sensitivity on ESR. But did that pressure the ratio in the quarter, perhaps there's some positive equity market performance. But if there's anything you can help us with, that would be great. Yanela del Frias: Yes. No, absolutely. So first of all, I would start with ESR remained well above our 150% operating target that we outlined last quarter. As you know, that's the target that we believe is consistent with AA standards. And this is the case even after the sharp increase in rates that we saw in January so we still remain above that target. And frankly, as we discussed last quarter, we are managing ESR to a level at normal times that is well in excess of what we believe to be the AA standard and that provides ample cushion following market stresses, and that cushion has absorbed some of the increase in rates that we saw. And so the sensitivity I shared a few quarters ago still holds if Japanese rates rise 50 basis points and equity markets decreased by 10%. We do not expect ESR to be binding in terms of Japanese cash flows. I do recognize that there's been a sharp rise in rates. So I would also add that from where we are today, around above 3.5%, right above 3.5% for the 30-year rates, even if rates were to increase by approximately another 100 basis points, 90 to 100 basis points, we would still be within the operating target range. Operator: Our next question today is coming from Bob Huang from Morgan Stanley. Jian Huang: I just have one question circling back on the 90-days sales suspension. If we look at prior other companies miss behaviors when they get caught, it generally felt like the penalty is a lot longer than 90-days. Do you feel that the 90-days is enough to kind of regain the public trust, so to speak, is 90-days enough for you to normalize back to a normal sales environment, I guess, is what I'm trying to get at? Or do you think the public will naturally give you a much longer penalty time frame in this particular situation? Andrew Sullivan: Yes. So Bob, thank you for the question. So first, let me start just by reiterating what I've said earlier, which we sized the 90 days based on the set of actions that we felt was necessary to begin that restoration of customer trust. So there's 4 items I went through earlier. And we believe that 90 days is that right time frame. That said, as you referenced, we won't talk about any specific situation. every situation is unique. There certainly have been a variety over the last decade or so of other companies that have had cessation periods, some of those not being voluntary. But what you should understand as part of this is this is a collective set of actions that we're taking. The cessation of sales is one of them in order to begin this beginning of the restoration of trust and confidence and we're obviously going to work very closely with the regulators. But this is much more, as you heard me emphasize, this is about when we feel as a leadership team and as a company, that we can resume sales and feel fully confident in the customers being placed first. We think 90 days is the right estimate for that, but we will share information if that changes in the future. Operator: Your next question today is coming from Joel Hurwitz from Dowling & Partners. Joel Hurwitz: Just given the macro with the yen and JGB movements and the lost earnings from the POJ sales issues and remediation, what's the impact to your cash flow from international? And does that drive any impact to your overall capital deployment outlook? Yanela del Frias: Yes. Joel, so we do not expect a significant impact to cash flows out of our Japan businesses. I would remind you, we generate these cash flows from multiple sources and legal entities. This includes the 3 legal entities in Japan, POJ, Gibraltar, PGFL. It also includes Prudential Insurance, our U.S. statutory entity, which has historically reinsured a good amount of Japan's U.S. dollar business; and thirdly, Gibraltar Re, our Bermuda entity, which also reinsurance business from Japan. So the fact is that we're not overly reliant on any single vehicle to deliver cash flows to PFI either in Japan or across our businesses. Of course, we continue to monitor the Japan situation carefully, but we do not expect an impact to our capital deployment plans or our shareholder distribution. Joel Hurwitz: Got you. That's helpful. And then just a follow up on Wes' question on surrenders in Japan. Any impact from the higher JGB yields on the yen business that you write? Yanela del Frias: Yes. No, there's some modest impact but the reality is that 90% of our earnings come from U.S. dollar products. So it's really the yen impact that will drive our earnings sensitivities. Andrew Sullivan: And Joel, the only thing I would add to that, and we've talked about this in previous quarters. I think there's 2 things to keep top of mind. One is that we have this all-weather portfolio, where we now have a much better blend of yen and U.S. dollar-denominated products. And we, over the last couple of years due to the surrender headwinds had actually enhanced our staffing across our distribution teams and across our service teams because even if there is pressure from some of these, I'll call them, economic type things. At the end of the day, the customers still have needs and generally move from one type of product to another and we make sure that we have the right staffing and the right engagement with the customer to catch those flows. Operator: Your next question today is coming from John Barnidge from Piper Sandler. John Barnidge: I wanted to -- my question, the first one is on kind of the exiting the businesses in Taiwan and Kenya over the recent several quarters, are you able to dimension the size of the businesses that are kind of like up for a review in international markets where you don't view yourself as a leader? Andrew Sullivan: So John, maybe what I would do there is just talk more about strategically how we think about the strategy. As you've heard me say before, we are evaluating our global footprint to prioritize markets that are large and growing that are -- where we're well positioned to win, given our differentiated capabilities and are spots that we think we can deliver industry-leading returns. The other part of this is we are focusing our capital and our investment dollars because we think that is very, very important in order to be a winner in our chosen spots. For emerging markets, our main focus is twofold. It's Brazil, and Brazil is running very, very well. We had another record sales quarter there. And second is our Habitat business where we have a very successful pension business. As far as when you say dimensionalizing, obviously, our -- I'll use the words by far, predominant or Japan and in our international operations and as far as the percentage of earnings. So that's the lion's share. John Barnidge: My follow-up question on Japan. If we get an extension of that 90-day suspension, does the impact from less sales volume actually compound and grow similar to how the runoff of the VA block compounds? Yanela del Frias: So John, so let me maybe walk through the components of the $150 million to $180 million, which is the impact -- the direct impact from the suspension. So we have a couple of components there. The direct impact of the lost sales is roughly 20% of that number. We also anticipate higher surrenders. That's also about roughly 20% of that number. And now with regards to surrenders, it is uncertain whether they'll continue at the level that we're expecting and anticipating but that's the number that we built into the 3-month number. And then the remainder is related to anticipated costs associated with providing financial support to our distribution force. That is not something that carries over. That is a discretionary decision that we've made during that 3-month period. And so therefore, that is really tied to the period where we have suspended sales. Operator: Next question today is coming from Mike Ward from UBS. Michael Ward: I was just wondering if you guys had any update on in Japan on policyholder behavior in January or year-to-date thus far? And I think the comments sort of largely pertain to '25 activity. Andrew Sullivan: Mike. So yes, it pertains to '25, but I would tell you, there's nothing new or different as far as '26 other than, I would break this into a couple -- into the 2 components, right? There's the impacts on policyholder behavior that are more driven by, I called it earlier, the economic effects, the FX rate, the interest rates. And obviously, those -- all of a sudden wouldn't change '25 to '26, they're directionally similar. The thing that is different is the effects of the misconduct and the perception issues and public reaction. The press release was done in January. The press conference was held and was quite prevalent in the media. So 2 different effects. But maybe one thing I would tag on is the change in the interest rate environment in Japan is, I think, something to really take note of and is for historical terms, quite dramatic. But the things we're observing, and this is over a longer period of time, not just the beginning of '26. One is demand for yen products is gradually increasing because of that. We think that's a good thing, right? The fact that there is an interest rate there, we could deliver products of greater value. And the other thing is we've talked about in the past is the government is incentivizing their citizens to take more investment risk and seek higher yield. And we are seeing customers that have a higher risk profile or a higher risk tolerance and are seeking improved returns. So as those shifts are occurring we feel very good about our all-weather product portfolio, the strength of our distribution to capture the changing nature of this marketplace. Yanela del Frias: And Mike, what I would say is that the assumption or the estimate that we have embedded in the $100 million to $180 million of impact of the sales suspension for surrenders, is informed by what we have seen since the press release and since the results of the internal investigation have been published publicly. Michael Ward: Okay. That's helpful. And then one of the things I'm wondering -- I don't think we've really touched on this, but just the inflows and outflows. I'm curious if you can quantify at all like the level of outflows that you can absorb thinking about capital and liquidity and the fact that you're basically cutting off new business. I'm just trying to get some comfort in this dynamic. Yanela del Frias: Yes. So Mike, I'll start -- I mean from a capital liquidity perspective, as I mentioned in the answer to the other question, we do not expect this to impact our cash flows out of our Japan operations. Part of it is because we have multiple sources of cash flows, as I mentioned. From a liquidity perspective, we -- the majority of the Japan portfolio is in JGBs. We do not expect an impact of this on liquidity. And again, we've sized the impact of surrenders during this 3-year period -- 3-month period, and it is roughly 20% of the $150 million to $180 million or $30 million. Andrew Sullivan: Yes. So Mike, all I would add is, obviously, we've been in the market for 40 years. These are very, very large of in-force blocks of business. So the impact of new sales, I don't want to underplay it because, obviously, this was a difficult decision and very important, and we frame the financial impacts for you compared to the in-force this cessation is -- compared to the in force, it's not large. So that's why Yanela just went through the numbers, and we're comfortable with those numbers. Operator: Next question today is coming from Jimmy Bhullar from JPMorgan. Jamminder Bhullar: So first, Yanela just on your comments on cash flow not being impacted based on this. I realize in the short term, there's not exact correlation between income in the businesses and cash flow. But eventually, there should be an impact to the extent that earnings in the business are depressed either because of fines or just other actions or just spending to remediate what's been going on. Wouldn't there be an eventual impact on cash flows beyond this year or next year if the earnings, in fact, are depressed in the business? Yanela del Frias: Yes. No. So what I've given you is what we expect for 2026, and that is correlated to the $300 million to $350 million impact we expect this year. As I said, if you assume the 90-day sales suspension, the impact to '27 would be less lower than that. If the impact continued, we would see an impact on continue to expand on cash flows but what we're giving you is based on what we know today. Jamminder Bhullar: And then just, Andy, on -- the business has fairly high persistency. So obviously, sales don't -- or the lack of sales doesn't really affect earnings in the short term that much. To mean the bigger impact of the lack of sales would be just your ability to retain agents because if people are not able to earn income for much more beyond 3 months than the sort of distribution channel begins to melt away. But I don't know if you view that as a credible risk and sort of what are your view -- what are the sort of things that you could do to ensure that you can retain the agents if, in fact, the suspension period is running longer. Andrew Sullivan: Yes. Jimmy. So yes, first of all, that is of paramount importance because this is -- we consider this to be an incredibly valuable franchise and one of the best operations in Japan. I'll just go back to my earlier comments. We are taking decisive steps to make sure that we preserve the Life Planners, but also the other employees in POJ. And the 2 predominant actions is investing in our Life Planners, training and development. And second is providing them ongoing financial support so that we do retain them over the longer term. But I would also reiterate what I said, people work here at Prudential because they're proud of the company. We're a purpose-oriented company and us taking assertive action and my words leading from the front on this issue. We'll make sure that people are proud to work here and that's as important to retain people as the compensation and the training. Operator: Our next question today is coming from Jack Matten from BMO Capital Markets. Francis Matten: Just one follow-up on Japan. Regarding Japan FSA, it sounds like you're in contact with them regarding the actions that you're taking voluntarily. But just wondering if there's a possibility that they could impose either a fine or some other financial or operational impact beyond those voluntary actions? Or are you comfortable that they're satisfied with the proactive steps that you're taking? Andrew Sullivan: So Jack, I'll go back to what I said, which is we won't comment or speculate on what the regulators actions are or may be. But we are working in collaboration with them on a weekly basis. They were aware of our voluntary decision to cease selling and the most important thing that we could do to make sure that we come out of this as expeditiously as possible and as strong as possible is stay focused on the set of actions that I've already shared. Francis Matten: Got it. Okay. And then can you just follow up on free cash flow generation more broadly. I know you have the target of 65% of net income over time. From a payout standpoint, you're on track to do, I think, around $3 billion again in '26, including dividends and buybacks. That $3 billion would apply a pretty high conversion rate relative to where your net income has been running in recent years. Just want to make sure you feel that the level of return sustainable given that net income trend and the potential impacts in Japan that you've talked about? Yanela del Frias: Yes, Jack. So we have not changed our capital deployment priorities. So we are continuing to focus on balancing the preservation of financial strength and flexibility, investing in our businesses and shareholder distributions. The fact is that cash flows and dividends from our operating entities are not linear and throughout the years and across the year so that's why the 65% is an overtime measure. And the 65% correlates to the distributions that we have put out there, the $3 billion. So we are confident in our cash flow generation, again, recognizing that the timing of cash flows can be volatile in that linear, but also that is based on our capital allocation decisions as well. So we actively manage capital deployment decisions through out the year. This is a dynamic process for us. And again, I would just say, I would also highlight that we have strong cash balances at the holding company and strong financial ratios at our operating entities. Operator: Our next question today is coming from Yaron Kinar from Mizuho. Yaron Kinar: Just going back to Japan for a second. The $350 million expected impact to operating income, does that include reimbursements to customers on the civil side? I'm not talking about the regulatory potential fines and whatnot? Yanela del Frias: Hi Yaron, yes. So the $300 million to $350 million, if you think about that, the second component I mentioned, the $70 million onetime cost does include and it's about 70% of the total customer reimbursement. Yaron Kinar: Got it. Okay. And then moving away from Japan, I'm sure you'd like to. On the -- sorry, RILA sales slowed down in 2025, fixed annuity sales picked up. Can you talk a little bit about spreads and expected returns in each? Andrew Sullivan: Yes. So let me take that and let me just more broadly address what's going on in the space. So obviously, we've talked about the RILA market becoming more competitive, and that remains to be true. We've gone from 5 competitors to '25. And we always look for ways to differentiate ourselves that beyond price. We have a great all-weather product portfolio. We have very strong service and our brand matters. So while our RILA sales were down somewhat, our fixed annuity sales were up. In essence, we've done a lot of work to innovate and broaden our product portfolio that enables us to lean into the customer demand across a whole range of market environments. As far as the pricing environment, we're always going to be disciplined and ensure that we have profitable sales. And we're not focused on just driving a sales number. So it's more -- it's about returns and profitability. But this is an area given the longevity needs, the income needs of the U.S. society that is a sizable market that's going to grow for a very long time. and we're really well positioned to take advantage of that secular tailwind. So we don't get overly exercised quarter-to-quarter or specific product to specific product. It's more about long term, we know we're going to be a winner. Yaron Kinar: And specifically on the returns there, can you compare the returns in the RILA book versus the FA book as they are today? Andrew Sullivan: Yes, Yaron. I'm not going to provide product-specific spreads or returns. Operator: Our next question is coming from Tracy Benguigui from Wolfe Research. Tracy Benguigui: Staying with Japan, since the value of new business takes a while to materialize, how should we think about the longer-term impact to earnings from pausing new business? Should we look at that $80 million third component of that $300 million to $350 million for '26 and carry that over to '27 and beyond? Yanela del Frias: Tracy, no. I wouldn't -- no, we wouldn't do that. So the way to think about it is of the $150 million to $180 million component of stopping sales, 20% of that is due to not selling, right? So that's about $30 million. Then the $80 million is really what we think about when we ramp up because we don't assume that we immediately go back up to full sales. And frankly, so we're ramping up throughout the year, getting up to about 90% sales levels through 2027. So the $300 million to $350 million includes no sales for 90 days and then a slow ramp-up throughout the year that gets to 90% by the end of 2026. So in total, what this results in is that POJ sales will be 50% lower in 2026 from normal levels. Tracy Benguigui: Okay. I just to give you a breather on Japan. I like seeing your private credit disclosure. I'm just curious, in your definition of traditional, are you including private letter ratings and on that? If you could just give a breakout between the large 3 versus the smaller agencies? Yanela del Frias: Yes. So we primarily rely on the 3 large agencies. And what I would say in terms of sort of the smaller ones and Egan-Jones specifically, we virtually have no exposure to Egan-Jones Tracy Benguigui: Okay. And just if I could throw another quick one in. I saw an announcement that PGIM is expanding $1 billion into private credit secondaries. Will the general account be part of that ? Yanela del Frias: Yes. I mean, look, the general account is -- we're always looking at asset diversification, how that matches up with our liabilities. We are very comfortable with private credit as a long-term asset supporting our liabilities. The reality is we've been investing in underwriting private credit for a long time. We see value in private credit for the general account, and we see opportunities in terms of where we can pick up additional investment yield portfolio diversification and get better downside protection at the end of the day. So we continue to see this as a good asset class. 85% of our private credit exposure is investment grade. These are largely private placements with strong covenants and downside protections. And historically, we've consistently performed better in these private credit investments than equally rated public during economic downturn. So this is a good asset class for us. Andrew Sullivan: Yes. And Tracy, maybe just let me add in from the PGIM business perspective. We're really excited about the secondary space in general across asset classes. I think you probably recall, we bought Montana Capital Partners, a private equity secondary business back in 2021. That's now fully assimilated into PGIM. And we believe that we could combine our world-class credit prowess with this deep secondary's expertise. And we're already seeing -- so we just talked about the general account. We're already seeing strong third-party client interest in this capability, and we see this as a really good growth extender PGIM. Operator: Our next question is coming from Alex Scott from Barclays. Taylor Scott: Thanks for squeezing here in the end. First, I do have one on Japan. I just wanted to see if you could opine at all about what this does just at a more high level to the trajectory of revenue. And I'm just sensitive to it because I think you guys been talking about maybe some of the Life Planners beginning to sell more financial products and we'll be interested in does this set that back and by how much? Or is it more permanent? Because I think we may have had something for that is an offset in our revenue growth. And I just want to make sure that I get that consistent with what you're expecting? Andrew Sullivan: Alex, it's Andy. I'll take that. So I guess the first thing I would say is, this is really early days in navigating the situation. But I would always turn to long-term trends and secular tailwinds. And in reality, what we're seeing in Japan is, it's one of the wealthiest markets in the world where we have incredible distribution despite this near-term challenge. If 10,000 captive agents, we have incredible bank access, great independent agent access. We are looking to rotate more towards retirement and savings and investment. If anything, we are seeing very clear evidence that the consumers in Japan want to seek higher yield and want to seek investment type products. So while I would expect that we're going to see pressure on the protection side, I think we have everything we need to rotate as the market rotates. And while it's early days to talk about specifically this issue, there's a longer-term secular tailwind that we would expect to be able to grow over the longer term. Taylor Scott: Got it. Okay. That's helpful. And then maybe my last one on PGIM flows. They generally been doing pretty well over the last year but a little bit of a setback. I think there's some lumpiness to it this quarter. Is there any element of that that's sort of some of the yen-based investors that have been investing in USD and maybe higher rates in Japan is causing some lumpiness in terms of accounts being pulled back to just invest in yen? I mean, is that something you're seeing there? Or is there not that kind of dynamic, and we should see this kind of revert back to positive flows? Andrew Sullivan: Yes, Alex, let me start directly and then talk more broadly about flows. So directly, I do not believe that, that is in any way kind of the factor that you're seeing show up in our flows that may be more of a minor factor or more specific to certain individuals, but it's not really the story when it comes to our flows. And as you know, when we talk about flows, we talk about total flows. What we're seeing on the third-party side is consistent with things we've talked about in the past and just be very upfront, we're not pleased with our flows this quarter. In retail, we're seeing this very heavy headwind from active to passive management. Jennison is a great platform. and customers expect public equity as part of their portfolio. So it certainly is an important part of our system, but that is quite a headwind to overcome on the retail side. On the third-party institutional, we have some of the largest clients in the world. And that can inherently make things lumpy on a quarter-to-quarter basis. And what we saw, as I said in my upfront was a fairly sizable low fee redemption that was one of these lumpy quarter-to-quarter. We've seen that go the other direction in the past as well to our benefit. So I don't think the yen is a driver here. It's more of those other factors I spoke to. Operator: Thank you. We reached the end of our question-and-answer session. I'd like to turn the floor back over for any further closing comments. Andrew Sullivan: So thank you again for joining us this morning. As we outlined, we are moving fast. We're moving with discipline to address the issues in POJ. Our commitment to the highest standards of customer care is absolute. At the same time, we remain focused on executing on our 3 priorities and driving momentum across our businesses as we lay the foundation for a stronger, more durable growth pattern. We're moving with speed to deliver the value that our customers and our shareholders expect and deserve from Prudential. I just want to close, as I always do, by recognizing our employees around the world for the dedication and commitment that they show every single day. Thank you for everything that you're doing for our customers and for each other. And with that, we'll conclude our call. Operator: Thank you. That does conclude today's teleconference and webcast. You may disconnect your lines at this time, and have a wonderful day. We thank you for your participation today.
Michael Pici: Large. Authorization. And as we have had every quarter since becoming a public company over fifty years ago, we paid a dividend to our shareholders. We remain committed to returning cash to shareholders while executing our strategy to drive growth and margin improvement. We continue to maintain a healthy balance sheet and debt maturity profile with no near-term refunding requirements. During the quarter, we amended and extended our revolving credit agreement, which has a capacity of $650 million and matures in November 2030. At quarter end, we had combined cash and revolver availability of approximately $779 million, and we are well within our financial covenants. The full balance sheet can be found on slide 17 in the appendix. Now on slide 11, regarding the full year outlook. We now expect FY 2026 sales to be between $2.19 billion and $2.25 billion, with volume ranging from flat to positive 3%, net price and tariff surcharge combined of approximately 11%, and we anticipate an approximate 2% tailwind from foreign exchange. The increased outlook reflects additional pricing actions related to the increase in the cost of tungsten since we provided our prior outlook. Despite the record level of tungsten, we remain confident in our ability to achieve the price. From a cost perspective, as Sanjay noted earlier, some of our EMEA restructuring actions will take a bit longer to execute. And as a result, our updated range includes $30 million of savings. Depreciation and amortization, foreign exchange, and pension assumptions are unchanged and noted on the slide. We now expect adjusted EPS in the range of $2.50 to $2.45. This outlook includes approximately a $0.95 year-over-year benefit related to the timing of price and raw material costs. On the cash side, the full year outlook for capital expenditures is unchanged, and free operating cash flow is expected to be approximately 60% of adjusted net income. This revision reflects the additional working capital required by the rising cost of tungsten as discussed earlier. Turning to Slide 12 regarding our third quarter outlook. We expect third quarter sales to be between $545 million and $565 million, which reflects the effects of the buy-ahead that occurred in the second quarter. We expect volumes to range from negative 4% to flat. If you were to adjust for the buy-ahead that occurred in the second quarter, volume at the midpoint would be positive 1% and would be the third consecutive quarter of improving volume trends. The outlook also includes price and tariff surcharge realization of approximately 13% and a 5% positive impact from foreign exchange. We expect adjusted EPS in the range of $0.50 to $0.60. This includes approximately $0.30 year-over-year benefit related to PriceRock timing. It is worth noting that the prior year's third quarter results included a $0.13 benefit from the advanced manufacturing tax credit. The other key assumptions for the quarter are noted on the slide. And with that, I will turn it back over to Sanjay. Thank you, Pat. Sanjay Chowbey: Turning to Slide 13. Let me take a few minutes to summarize. We delivered a solid 2026. Driven by price, modest improvements in a couple of end markets, project wins on the commercial side, and cost improvement actions. We continue to make steady progress on our strategic growth initiatives, lean transformation, and structural cost improvement while also exploring ways to strengthen our portfolio over time. We remain confident in our plan for long-term value creation for our shareholders. And with that, operator, please open the line for questions. Our first question comes from Steven Volkmann: Good morning, Steve. Sanjay Chowbey: Great. Steven Volkmann: Good morning, guys. Thank you for taking the question. Stephen Edward Volkmann: I guess, no surprise, maybe I will talk about Tung's a little bit here. So a couple of things that you talked about some pull forward here into the last quarter. Is there some big price increase that is about to hit that people wanted to get in front of? Yes, Steve. We had a modest price increase, you know, Sanjay Chowbey: January 1, relative to what we have done in the past, think it is in mid-single digits. Michael Pici: I would add to that I think even in places where we are not Stephen Edward Volkmann: you know, on a list price business and we have got a lot more material content, we have got customers who are informed about the direction of what the tungsten price is. Okay. And since the price of tungsten is up, I think since you started this conference call, that is only a slight joke. It is up 33% year to date. Right? So how do you like, how fast can you kinda keep up with this? Sanjay Chowbey: Yeah. So Steve, there are parts of our business where, you know, Michael Pici: the prices get affected very quickly. Those are like the spot by And also we have parts of business which are indexed to the prices. And of course, know, in metal cutting, pretty much everything is on the list price basis. So that takes a little bit more time. But based on the order pattern and the lead time, that also works out just fine for us. As you asked the first question, I made the comment modest because prices of tungsten have gone up a lot. More than almost, you know, two to three times. But by the time you look at how it affects overall, you know, price of our products, and I mentioned, yes, mid-single digit is relatively higher price. But, you know, our customers also see this dynamic. And they have been also kinda monitoring it very closely. And there were some buy ahead as Pat mentioned in his prepared remarks. If you even adjust for that, we still that overall market improved sequentially and then we are still expecting slight improvement in market from that point. Oh. Perspective. Stephen Edward Volkmann: Okay. Alright. Great. And then just the final piece here. How should we think about the supply side? I am curious. Like, are you worried about access to tungsten? Is there any chance that, you know, the market gets tight and you kinda cannot get what you need? And maybe as you answer that, Sanjay, just remind us about sort of your tungsten? And I will pass it on. Thanks. kind of internal versus external sourcing of Sanjay Chowbey: Yeah. Sure. I will also, you know, have Pat chime in here, but let me start by saying that we have multiple Michael Pici: different sources and we have things in pipeline in terms of how we work with our vendors and suppliers. We have in many cases, we have long-term agreements So we feel confident in our ability to get what we need for the outlook that we are giving you at this point. Pat? Michael Pici: Yeah. I would say, you know, obviously, in terms of sources, we use a diversified mix of Stephen Edward Volkmann: recycled materials. We have got our facility in Bolivia that pulls out material from that market. Michael Pici: And, you know, in terms of what we are using, I will say outside of China, we do not have a dependence on Chinese material to satisfy those operations. Obviously, with the ramp-up of tungsten and as we have commented before, this is really a supply-driven price increase at the moment across the industry. We are seeing additional activity. I would say, in terms of what is happening at mines and projects also in terms of government involvement in some of those things to facilitate that. And so I think if we took a longer-term view of this as well, there is ample supply that is out there that will you know, should come online. Sanjay Chowbey: Yes. Steve, I will add one more thing. Along with the supply side of the equation, we as a company based on material science and technology, we also look for ways that how we use tungsten in the most efficient way in our product. There are places where over the years, we have taken parts of our product, you know, mixed with the steel and then having the parts of the tool made by tungsten. We are also looking for as there are some pricing concerns, also the supply side concerns, how do we make our product more efficient in that regard? Julian Mitchell: Okay. Steven Volkmann: Our next question comes from Julie Mitchell with Barclays. Please go ahead. Julian C.H. Mitchell: Hi, good morning. Hi, Julian. I just want Sanjay Chowbey: I just wanted to start off with clarifying your Julian C.H. Mitchell: the volume trends just kind of through the year. I guess you have the third quarter guidance of slight volumes down year on year at the midpoint. The full year is slight growth. So maybe help us understand or remind us kind of Q on Q2 how are volumes moving then? And to understand kind of that interplay of maybe some pull forward of volume versus what you are seeing in the end market final demand? Volume wise? Sanjay Chowbey: Sure, Julian. First, let me back up a little bit from your question of the full year, and then I will come to Q2 and Q3 in a second. If you go back to the August outlook, at midpoint, we had said volume was going to be minus 2.5%. Last quarter, we said at midpoint, volume was going to be for the full year again, at plus 1%. This time we are saying, you know, volume is one and half Steven Volkmann: percent. So it gives you at least confidence Sanjay Chowbey: that volume is moving in the right direction as the year has progressed. Of course, we have, that is the 400 basis point change in six months in our volume projection for the full year. In parallel, of course, we have 700 basis point change in the price, which is a bigger driver of top line. But coming back to Q2 and Q3 dynamics, In Q2, we had a buy ahead, as Pat alluded to that earlier. About $13 million by the time you add both segments. Now if you adjust for that, Q2 will be flat. And then if you adjust for that also, Q3, rather than showing as negative, will be plus one. So we are showing you also Q1 was minus one. Q2 was plus and a flat and then Q3 getting plus one. So volume overall is moving forward in the direction for us. Julian C.H. Mitchell: That is really helpful. Thanks Andrew. And maybe just my follow-up. If we focus on, I suppose, two markets in particular that are very relevant for you, general engineering and then transportation. So transportation, I suppose, has been pretty soggy updates on auto production ex China, general engineering, I think, understandably, people getting excited because of the manufacturing PMI move a couple of days ago. Just give us sort of your perspectives on those two markets and again the volume demand picture, please. I know you have guided the sales assumptions on Slide 11. Sanjay Chowbey: Yes, sure. So let me start with transportation first, then I will come to general engineering. In transportation, as we had in our prepared remarks that EMEA improved slightly. Still in negative territory, in low single-digit territory. Asia Pacific improved. This is again data coming out of the IHS. That has had quite a bit of improvement in almost 200 basis points. America is essentially flat, slightly negative, but essentially flat in terms of transportation. So overall, we said was that transportation was minus one last time. Now it is about flat. For us, again, is just the market. For us, of course, is we are winning projects and we have also seen some comp issues with projects that we had, you know, in EV couple of years ago. In last twenty-four months, you know, where we got good stocking orders and all that. That has, you know, some other dynamics going on. As you know, some of the programs have not taken off as much. So overall, we expect transportation to help us, you know, with this slight improvement in the trend. Sanjay Chowbey: Now, Sanjay Chowbey: coming to general engineering. As said in the prepared remarks, Americas is where we have seen tangible Sanjay Chowbey: difference. Sanjay Chowbey: Other areas, like EMEA and also in APAC, essentially flattish. Or similar outlook that we had before. In the recent outlook, I think the PMI, you know, ISM PMI report that came out earlier this week. We saw that was, you know, above 50 for the first time in twelve months. but So that is a good sign know, that is just one month. We got to see that translate into the sentiment, translate into real orders. And hopefully that happens. So that can give us a little bit upside. But in our view right now, we have assumed slight improvement in Americas and essentially flattish, you know, for other two regions. Julian C.H. Mitchell: That is very helpful. Thanks so much. Steven Volkmann: Our next question comes from Steven Fisher with UBS. Please go ahead. Steven Fisher: So just to talk about the cadence a little bit more. Thanks for giving that adjusted progression on the volumes adjusted for the pull forward. Michael Pici: I guess just looking at what is implied in Q4, it seems like a lot of the year's upside is really falling into Q4. Can you just talk a little bit about what is driving such a big uplift in Q4 And then I guess related to that, how should we think about carryover into the second half of this calendar year, both from a kind of a price and volume and price cost perspective? Michael Pici: Yeah. A couple of things, just to kinda walk you through there, Steve. The way I look at the progression here in terms of the second half and if I, you know, if I strip away a couple elements Here, and that is, you know, we obviously had some trends between Q2 and Q3. On some buy ahead. And then if we think about the incremental price that is going into the business here in the back half, you pull that out at the midpoint, look pretty normal from a sequential volume perspective. As you think about that change then, which is pretty significant Q3 to Q4, what is driving that pretty significant step up in terms of where pricing is, you know, and that is just a dynamic that is associated with the timing of when we have seen tungsten prices rise here. The month of January alone, tungsten was up nearly $340. Right? And so much of that will hit us then in fourth quarter. And then as you think about in your question in terms of what is the first half of our fiscal twenty twenty-seven kind of look like, yeah, where we are kinda sitting now, you would anticipate right, some bleed over into early part of FY 2027 in terms of favorability of price raw. Obviously, as we talked about in the scripted remarks, there is a headwind out there as well at some point in time, once tungsten stabilizes. This will have the absence of some of this benefit. But, you know, when that happens, obviously, uncertain at the moment. The other two things I would think about in terms of that early part of 2027 and beyond that price raw dynamic coming into play, just keep in mind that there is additional restructuring that will be coming in place that ultimately will get us to a run rate about $125 million at the end of next fiscal year. That is a 35 excuse me, 30 million lift. And then additionally, here as we think about FY, '26, there is a little bit more than your average performance-based compensation in play. In that, and we think about '27 that is probably a 10 to 15¢ tailwind then at this point in time going into $0.02 7 Steven Fisher: That is really helpful. And then I guess nice to see that we continue to have some of these wins from your customers. Can you just talk about the competitive dynamics on that? How actively or, you know, how broad is the competitor set on these or is the pie just getting bigger in these areas that you are not facing a lot of competition? Sanjay Chowbey: Yes. Of course, we are facing competition in all areas, but I will just tell you that, no, we are using our core competencies as we have spoken before with material science, our products and solutions And also adding that with application engineering support, which is again in a lot of talent we have on the field in the frontline and our engineering team. And then our global footprint that helps us meeting customer demands anywhere in the world. I think we are using our core competencies and very approach on our growth initiatives to drive very close intimacy with customers and solving their problems and winning this project. I can tell you in a few things that we have spoken in past, but you look through the different end markets we play. In aerospace and defense, we have been definitely winning bigger share of wallet. With our, you know, major customers and also we have expanded our new customer list in that in last few years. Similarly in Earthworks, we talked about mining project wins and all that. We definitely have had, you know, some new products coming out there and also supporting our customers with good operational performance and quality and delivery. Now, I have to say that Earthworks, some of the wins we have, has been price as we have noted in past. So we know that pressure will be there on us even going forward. With respect to energy, we have talked about oil and gas customers definitely valuing our product. As they are going more, not necessarily increasing rig counts, but going more distance in horizontal ways. We have very good products there. Along with that, in energy we have had very good success with supporting our customers on the power generation for AI data centers. We highlighted that last, you know, quarter or so. Today, you know, we talked about the broader, you know, electricity and energy play and how we are well positioned to capture that, at least outperform the market. Transportation, we are very well prepared regardless of whichever way our end customers go with respect to drivetrain. We had very proven products in combustion engines Then we launched a lot of really good products on battery and hybrid Of course, there is quite a bit dynamics in the mix right now, but we are well positioned to support our customers in that. And finally, coming to general engineering, we have very strong channel partners. We work very closely with them. Along with that, in parallel, know, we have launched many initiatives in general engineering to help our smaller customers. Small to medium-sized customers. In parallel, we have also launched new initiatives on digital machining solutions. We have put in public domain our partnerships with key technology players out there. So we are taking a very comprehensive approach as it applies to our overall market. Steven Fisher: Thank you very much. Steven Volkmann: Our next question comes from Steve Barger with KeyBanc. Please go ahead. Steve Barger: Hi, Steve. Sanjay Chowbey: Good morning, Sanjay Pett. It is actually Christian Zyla on for Steve Barger. Good morning. Good morning. Steve Barger: Hi. Christian Zyla: First question, if you guys get both volume and price for several quarters, how should we think about incremental margins relative to history? Is there a range that you guys are targeting? Sanjay Chowbey: Yeah. On the volume, as we have said before, know, metal cutting is gonna have a little bit higher level, you know, incremental leverage than infrastructure. But net net, we have said mid-forties as the average. Pat, you want to add something to that? Michael Pici: No, just do not want to say that is a through the cycle type number as well. And so individual quarters, depending on where a variety of factors sit, that could move around a little bit. Sanjay Chowbey: Yes. With respect to price, obviously, have said it our first intent there is to make sure that we are offsetting the cost. So the mid-forties number is on volume. Christian Zyla: Got it. Understood. Christian Zyla: And then I guess second question, just your full year guide assumes tungsten prices remain stable from the current level. How fast do your list prices adjust in metal cutting Michael Pici: if tungsten keeps rising? And then I guess conversely, if tungsten prices fall at some point, would you have to give back the surcharges and reduce your list price? And how fast does that happen? Sanjay Chowbey: Yes. So we generally have about three months or so lag in metal cutting in terms of list price change. With respect to if the prices come down, our goal is to stay competitive in the market. So we will, you know, see when that happens and, you know, what the extent of that is. Angel Castillo: Our next question comes from Angel Castillo with Morgan Stanley. Please go ahead. Angel Castillo: Just maybe a near-term one first. Angel Castillo: I wanted to clarify, do not know if apologies if I missed this, but did you say, I guess, how much orders are kind of rising in January, just what you are seeing kind of thus far in the last month and whether that kind of aligns with what you are talking about in terms of organic growth or maybe even that or just kind of compares to that? Sanjay Chowbey: Sorry, we have not talked about January specifically. In the prepared remarks, Angel. But I can just tell you that we have good start and we are confident about the outlook we gave you. Angel Castillo: Understood. And then Sanjay, just a little bit of a bigger picture question. Back in, I think, fiscal 4Q, you had talked about some additional self-help initiatives, plant closures and other kind of changes you were making given how challenging the backdrop was and just overall demand picture. But ever since that, I feel like things have been steadily improving, you know, more tailwinds with power generation, just general kind of market share wins. Can you talk at a higher level? Is this do these changes impact how you are thinking about repositioning the business, the plant closures? What you need to target or what the business needs to focus on versus perhaps even areas of investing, so you can kind of take more advantage of those kind of higher, faster growth power gen type of markets? Just bigger picture is how it impacts your strategy. Sanjay Chowbey: Yeah. Absolutely. Angel, first of all, let me recap what Sanjay Chowbey: we have done and then, you know, I will talk about where, you know, we are going next. So in last twelve months, we have closed two manufacturing plants successfully. We divested one business. And now looking forward, we are working on projects as we have spoken, you know, after the Q4 of last year. We are going to, of course, keep an eye on where the market is and the specific to, you know, different product line, the demands. And if we have to adjust our plan, we will. Our overall goal here is to do what is best for our shareholders, our customers. And our team. But at this point, the plans that we have put together still makes sense and we are making good progress on that. Angel Castillo: Understood. Thank you. Tami Zakaria: Our next question comes from Tami Zakaria with JPMorgan. Please go ahead. Hey, good morning. Very nice results. Question on India. Could you remind us Tami Zakaria: whether you have sourcing exposure from there and how that might benefit? Should tariff rates on India come down in the coming months? Sanjay Chowbey: Yeah. Tammy, about six months ago or so when this question came up, when the tariff had gone up, we had said that we do not really bring a lot of products from India to US. You know, so for all practical purposes, the impact was minimum. And then whatever we had, you know, over the last, you know, few quarters, you know, globally, you know, not just the India impact, but as overall we have taken appropriate actions including relocating several thousand stock SKUs, you know, to different places of the world to offset that. So for all practical purposes, this change tariff coming down will not have that impact. But I do believe that it should help India where we are a good big player also. In our so domestically, it should help us. But from a tariff perspective, it is not material for us. Tami Zakaria: Understood. Very helpful. And along the same lines, should some more trade deals come through how should we think about pricing? Would tariff surcharges get automatically rolled back? Or you took permanent price increases, which might stick even if tariffs go down in the coming months? How should we think about that? Sanjay Chowbey: We have kept the tariffs as is right now. We have not converted that to a permanent price change, but we are keeping that option open. If there are some parts of the trade agreements that feel like more permanent, We will do that. That is good for everybody including our customers. But as of right now, we are keeping tariffs as tariff. And if the tariffs do come down, we will immediately adjust it down. Tami Zakaria: Understood. Thank you. Operator: This concludes our question and answer session. I would like to turn the conference back to Sanjay Chawbe for closing remarks. Sanjay Chowbey: Thank you, operator, and thank you, everyone. For joining the call today. As always, we appreciate your interest and support. Please do not hesitate to reach out to Mike if you have any questions. Have a great day. Thank you. Operator: A replay of this event will be available approximately one hour after its conclusion. To access the replay, you may dial toll-free within The United States (877) 344-7529. Outside of The United States, you may dial (412) 317-0088. You will be prompted to enter the conference ID 9456990 then the pound or hash symbol. You will be asked to record your name and company. The conference is now concluded. Thank you for attending today's presentation. You may now disconnect your lines.
Operator: Ladies and gentlemen, welcome to Avery Dennison's Earnings Conference call for the fourth quarter, ended on December 31, 2025. During the presentation, all participants will be in a listen-only mode. Afterward, we will conduct a Q&A session. At that time, if you would like to ask a question, please press star one on your telephone keypad to raise your hand and enter the queue. As a reminder, this webcast is being recorded and will be available for replay on the Avery Dennison Relations website. I'd now like to turn the call over to William Gilchrist, Avery Dennison's Vice President of Investor Relations. Please go ahead, sir. William Gilchrist: Thank you, Miriam, and welcome to Avery Dennison's fourth quarter and full year 2025 Earnings Conference Call. Please note that throughout today's discussion, we will be making references to non-GAAP financial measures. The non-GAAP measures that we use are defined, qualified, and reconciled from GAAP on schedules A4 to A8 of the financial statements accompanying today's earnings release. We remind you that we will make certain predictive statements that reflect our current views and estimates about our future performance and financial results. These forward-looking statements are made subject to the safe harbor statement included in today's earnings release. On the call today are Dion Stander, President and Chief Executive Officer, and Greg Lovins, Senior Vice President and Chief Financial Officer. I'll now turn the call over to Dion. Dion Stander: Thanks, Gillian. Hello, everyone. We delivered solid full-year 2025 results with adjusted EPS of $9.53 and $700 million of adjusted free cash flow, a performance that once again underscores the durability of our franchise and our ability to activate multiple levers across a range of macro scenarios. While ongoing trade policy changes and softer consumer sentiment have been headwinds for our business, we successfully leveraged our productivity playbook to maintain an adjusted EBITDA margin of 16.4%. Our results demonstrate the resilience of our model as we remain focused on driving outsized growth in high-value categories, accelerating innovation to advance our differentiation, delivering productivity to protect base margins, and allocating capital effectively. Turning to the fourth quarter segment results. In Materials Group, reported sales increased 5%. While sales were down slightly on an organic basis, we saw low single-digit volume and mix growth that was more than offset by deflation-related price reductions. We are continuing to advance our strategic shift towards high-value categories, which now represents 38% of the segment's portfolio, a figure we expect to expand with a full year of Taylor adhesives. Within this segment, Intelligent Label delivered high single-digit growth, underscoring its role as an important growth engine, while Performance Materials grew mid-single digits, and Graphics and Reflectives grew low single digits. High-value categories helped balance our base categories, which were down low single digits in the quarter, lower than expected on softer customer volumes. From a margin perspective, adjusted EBITDA margin was 16.6%, down 40 basis points compared to the prior year. This reflects the impact of higher employee-related costs and some one-time benefits in the prior year fourth quarter, which our team worked diligently to partially offset through the benefits of our ongoing productivity actions. In Solutions Group, sales increased roughly 1.5%. This segment continues to lead our portfolio shift, with high-value categories now representing 60% of the Solutions Group portfolio. This proved critical this quarter as our high-value categories provided a necessary offset to our base solutions, which continue to be impacted by tariff-related uncertainty. Specifically, our base apparel business was below our expectations, down roughly 7% as customers balance inventory positions with the impact of post-tariff pricing decisions. Within our Solutions Group high-value platforms, Vesprom grew more than 10%, Embellix delivered high single-digit growth, and Intelligent Labels, tempered by the consumption trends in apparel and general retail, IL grew low single digits. From a profitability perspective, our focus on our productivity playbook and a favorable high-value mix allowed us to deliver an adjusted EBITDA margin of 17.8%, which is up nearly a point sequentially and comparable to prior year, successfully offsetting high employee-related costs and our continued investments in future growth. Turning to our enterprise-wide intelligent label platform. Sales grew mid-single digits compared to prior year, in line with our expectations for a sequential improvement in the rate of growth. This is driven by our key growth market segments and a partial recovery in apparel, which grew low single digits this quarter. While apparel and general retail sales have been impacted by tariff policy changes resulting in flat full-year sales, our food, logistics, and other categories delivered outsized performance with high teens growth in Q4 and approximately 10% growth for the full year 2025. Looking ahead to 2026, we continue to anticipate growth in this platform above the pace we achieved in 2025. We expect the pace of growth to be stronger in the second half than the first half as we lap a stronger first quarter 2025, which was largely unaffected by tariffs, and as new programs roll out. In apparel and general retail, we expect to return to growth as we continue to navigate the impacts of tariff policy uncertainty. In food, adoption is set to accelerate through our major fresh grocery rollout with Walmart, with revenues ramping in 2026. Finally, in logistics, we are focused on expanding pilots with new customers, following a year of outsized growth with our largest customer. Pivoting back to the enterprise level, while I'm pleased with our ability to protect margins and earnings in this environment, I am not satisfied with our organic revenue growth. While much of this is due to cyclical challenges, we are taking decisive action to inflect this growth trajectory. As you can see on slide 10, our high-value categories have secular tailwinds and remain a key enabler of enterprise growth and portfolio strength, growing at a mid-single-digit CAGR over the past six years and expanding to roughly 45% of our sales in 2025, a 12% increase since 2019. Expanding these solutions to new customers and end markets will add to our growth trajectory. Accelerating innovation outcomes in both high-value categories and the base categories is also key to changing our growth trajectory. This allows us to expand our opportunity with existing customers and to grow into new markets. Within our Solutions Group, we're advancing this through examples such as our intelligent labels fresh solutions for food traceability, the expansion of VESCOM's stalling software platform for centralized retail execution, and the growth of Embellix's custom studio fan zones to drive in-venue fan engagement. Similarly, in Materials Group, new innovations such as the expansion of our Clean Flake portfolio to more packaging substrates to advance circularity, and the introduction of smart materials to accelerate intelligent label adoption throughout the channel. Additionally, to further enhance our differentiation, we're also expanding our digital capabilities, use of automation, and leveraging AI to enable additional operational productivity and fixed cost innovation, strengthen our service and quality, shorten our innovation cycles, and provide more data-driven solutions that our customers require to address their fundamental challenges. Stepping back, you can see on slide nine, executing on all our key strategies with proven business resilience enables us to deliver GDP plus growth and top quartile returns across cycles. In addition to investing in innovation to drive growth in our high-value categories and base businesses and positioning ourselves to lead at the intersection of the physical and digital, we will continue to relentlessly focus on productivity to strengthen our market-leading positions in both our businesses. We will also continue to be disciplined in capital allocation to deliver returns and improve our portfolio. Finally, I'm pleased to report that we achieved our 2025 sustainability goals, which we laid out in 2015. These include reducing our energy intensity and enabling more sustainable products and solutions for our customers. Similarly, we're making good progress towards our 2030 sustainability objectives we set in 2020. Moving to the outlook for 2026. In line with our recent practice of providing a quarterly outlook, we will be continuing this approach for the foreseeable future. As such, for 2026, we expect adjusted earnings per share to grow approximately 6% at the midpoint on organic sales growth of zero to 2%. Given key economic indicators remain largely consistent with 2025 levels, we are not planning for any macroeconomic tailwinds in the near term. Our performance will instead be driven by the levers within our control, scaling our differentiated solutions in high-value categories, returning our base business into profitable growth, maintaining a relentless focus on productivity, and effectively deploying capital to drive earnings. In summary, we have exited the dynamic and challenging year, not just more resilient, but structurally stronger to deliver longer-term value creation. Advancing our strategic priorities underpins our confidence in returning to stronger growth and delivering top quartile returns. We are entering 2026 with the right playbook, the right team, and the path to return to growth in line with our long-term targets. I want to extend my sincere gratitude to our global team for their dedication to excellence and their unwavering focus on executing our strategies. And with that, over to you, Greg. William Gilchrist: Thanks, Dion, and hello, everybody. The fourth quarter delivered solid adjusted earnings per share of $2.45, up 3% compared to the prior year. Earnings growth was driven by higher volume and productivity, partially offset by higher employee-related costs and targeted growth investments. From an overall sales perspective, our business continued to be impacted by a softer consumer environment and customer uncertainty due to the impact of trade policy changes. Fourth quarter reported sales were up 3.9%, with organic sales comparable to the prior year as positive volume was offset by deflation-related price reductions. As expected, we benefited from an estimated point and a half impact from our shift to the Gregorian calendar at the end of the year and one point of growth from the Taylor Adhesives acquisition. Adjusted EBITDA margin remained resilient at 16.2% in the quarter, down slightly compared to the prior year. And we again generated strong adjusted free cash flow of $300 million in the quarter, bringing our full-year 2025 free cash flow to $700 million with a free cash flow conversion rate of greater than 100%. Our balance sheet remains strong with our quarter-end net debt to adjusted EBITDA ratio at 2.4. We continue to execute our disciplined capital allocation strategy. For the full year, we returned approximately $860 million to shareholders, including $572 million in buybacks and $288 million in dividends, reinforcing our commitment to delivering shareholder value while maintaining a strong balance sheet. Now turning to segment results for the quarter. Materials Group organic sales were down approximately 1%. As low single-digit volume mix growth was more than offset by low single-digit deflation-related price reductions. Organically, high-value categories grew low single digits, while our base categories were down low single digits. Turning to regional label materials organic volume mix trends versus the prior year. In developed markets, volume mix was down low single digits in North America. As consumer product demand continued to impact volumes. Europe delivered mid-single-digit growth. In emerging markets, Asia Pacific and Latin America were both up low single digits. Our high-value categories in Materials Group delivered low single-digit organic growth. This growth was driven by intelligent labels, which delivered a high single-digit increase, performance materials, which includes our performance tapes and adhesive businesses, was up mid-single digits while graphics and reflectives were up low single digits and specialty and durable labels were comparable to the prior year. 16.6% in the quarter. While this was down slightly compared to the prior year, it reflects our ability to largely defend profitability through productivity efforts, which nearly offset the headwinds from higher employee-related costs and a lower volume growth environment. Regarding raw material costs, including the cost of tariffs, we continue to experience modest sequential raw material deflation in the fourth quarter. Capping a year where total raw material costs declined low single digits. Our teams remained agile in navigating dynamic markets, mitigating tariff costs through strategic sourcing adjustments, and the implementation of select pricing surcharges. Overall, including tariffs, our outlook is for relatively stable sequential material costs as we enter 2026. Shifting to Solutions Group, sales were up 1.3% organically. High-value categories performed well, up high single digits, with base solutions down mid-single digits. Driven by softer base apparel sales. Within high-value categories, VESCOM was up more than 10%, driven by the continued benefit from new program rollouts. Embellix was up high single digits driven partially by World Cup sales, intelligent label sales grew low single digits on lower apparel and general retail volumes. Now turning to enterprise-wide intelligent labels, sales expanded mid-single digits compared to the prior year. Growth was once again driven by food, logistics, and industrial categories, which were up high teens for the quarter and now represent approximately 30% of our total IL portfolio. Offsetting this strong momentum was the performance in apparel and general retail, which combined were down low single digits for the quarter. And these markets represent 70% of our intelligent label sales and continue to be impacted by tariff-related pressures. Solutions Group adjusted EBITDA margin was 17.8%, which was comparable to the prior year. As benefits from our continued productivity efforts and higher volume were offset by higher employee-related costs and ongoing growth investments. Now stepping back to look at our long-term financial performance, we remain focused on delivering strong results across cycles. Reflecting on our 2022 to 2025 targets, we delivered solid results despite multiple cyclical challenges by leveraging the strength of our portfolio. We successfully exceeded our top-line goals and performed well on our profitability targets. EBITDA margin ahead of our long-term objective. However, we did fall short of our adjusted EPS target, which came in at 7% ex-currency, trailing our 10% target, partially due to the impact of acquisition intangibles amortization. Additionally, ROTC, while in the top decile of our peers, finished at 15%, largely driven by the impacts of our acquisitions, including Taylor Adhesives, which closed in 2025. Turning to our 2023 to 2028 targets, we are currently in line or ahead on most of our targets. And as Dion mentioned, our focus is to shift our organic sales growth trajectory to achieve our targets for this cycle. Turning to our outlook. For 2026, we anticipate reported sales growth of 5% to 7%. Our guidance does not presume an improvement in external market conditions. This sales growth includes organic growth of zero to 2%, approximately 4% from currency translation, and approximately 1% from the Tiller Adhesives acquisition. We expect adjusted earnings per share to be in the range of $2.4 to $2.46, representing approximately 6% growth year over year at the midpoint. This earnings growth is driven by benefits of organic volume mix growth and productivity actions, which more than offset headwinds from wage inflation and growth investments. And the normalization of 2025 temporary savings, including incentive compensation, and a net benefit from combined currency share count interest, and tax. We've also outlined key contributing factors to our full-year 2026 on slide 14 of our supplemental materials. We expect an approximate $0.25 EPS benefit from the combination of favorable currency and a lower share count partially offset by higher adjusted tax rate and interest expense. We expect restructuring savings of approximately $50 million as we continue to execute our productivity playbook. And we expect the normalization of a majority of the 2025 temporary savings was largely related to lower incentive compensation costs. We remain committed to strong free cash flow, again targeting roughly 100% conversion, with fixed and IT capital spending of approximately $260 million. And we anticipate a sequential increase in earnings throughout the year, in line with our recent historical seasonal patterns. In summary, we delivered a solid fourth quarter achieving adjusted EPS of $2.45, which was up 3% compared to the prior year. And this capped off a year where we leveraged our proven playbook to protect bottom-line results. We generated over $700 million in full-year adjusted free cash flow, returned approximately $860 million to shareholders while maintaining a strong balance sheet. For the first quarter, we expect at the midpoint an improvement in organic sales and earnings, as we continue to deliver actions to increase the pace of our earnings growth, and we remain well prepared for a variety of macro scenarios. We're positioned to execute our profitable growth and disciplined capital allocation strategies to deliver superior, long-term value for our stakeholders. Now we'll open up the call for your questions. Operator: Ladies and gentlemen, we will now begin the question and answer session. If you would like to ask a question, please raise your hand now using star one on your telephone keypad. If your question has been answered, and you would like to withdraw your registration, please press the pound key. To accommodate all participants, we ask that you please limit yourself to one question and then return to the queue if you have additional questions. Please stand by as we compile the Q&A roster. Our first question comes from George Staphos, Bank of America Securities Incorporated. George Staphos: Good morning. Thanks for the details. Ian, Greg, Gilly. Good to talk with you. My question will be on materials. You called out a few things that made comparisons difficult this fourth quarter versus last fourth quarter. So we appreciate that. But I was wondering if you could parse a bit further the puts and takes, the pluses and minuses behind the 40 basis point drop in margin. It was a little bit worse than we were expecting. In that regard, the higher employee-related costs were, you know, we can guess at what that is, but if you could provide a bit more color. And last thing, was there any impact from higher raws in that number? I know you said there was deflation, particularly though around paper pricing and the like. Thank you. Gregory Lovins: Thanks, George. This is Greg. So I think there is, of course, a number of factors. We talked about our base volumes were a bit soft in the quarter. And when we look at every year, we have wage inflation year over year, and we need a bit of volume growth to offset that wage inflation. When our base volumes are down, a lot of our productivity actions are going in to offset wage inflation and some of those headwinds. At the same time, we did have a little bit of small one-time items last year. Nothing major, but a couple of items that added up to a few cents were a headwind then year over year for us as we look at prior year Q4 2024 to Q4 2025. And then in addition to that, we did have the extra calendar days this year. And those were four extra calendar days that come with fixed costs for those days, but pretty soft shipping days because they're the days right before New Year. So the flow through on those is typically well below our average as well. So it's a number of impacts there. Now when I look at our sequential margins from Q3 to Q4, I think it's largely in line with our historical seasonality. Historically, we do see a 60 basis point or so drop in Q3 to Q4 margins in materials. Largely due to the holiday impacts as well as the mix of our VI labels in the fourth quarter versus the third quarter. And in addition to that, as I said, we have the calendar shift impacts in the quarter. So overall, pretty much in line with historical seasonality from a margin perspective. And year over year had some one-time items in the prior year that impacted the year-over-year comparison. Operator: Your next question comes from Ghansham Panjabi, Robert W. Baird. Please proceed with your question. Ghansham Panjabi: Yeah. Thanks, operator. Good morning, guys. Guess on intelligent labels, and the low single-digit growth during 2025, how are you at this point thinking about growth for 2026? And related to that, can you share your view on growth expectations for some of the other higher value categories, you know, VESCOM and Embellix, etcetera? And then, Dion, you know, on your decision to only give quarterly guidance for now, where do you lack specific visibility in the context of a portfolio that's relatively diverse both by business and geographically? What would need to change for you to kind of go back to that annual guidance construct? Dion Stander: Gus, let me start with the first question on IL. We had low single digits in 2020 growth in 2025, and we're anticipating our growth rate in 2026 to be above what we delivered in 2025. In 2025, I'd say largely the biggest impact was on apparel and general merchandise. That really tightened tariff activity that was happening. And I still fundamentally continue to believe in the significant growth opportunities this platform has. Just to restate, and this is a 300 billion unit plus opportunity, $8 billion plus opportunity. And we're really at the nascent stage. And what gives me that level of confidence we're gonna continue to see that growth during 2026 and beyond is the fact that we are already seeing, as you've seen, more adoption in these individual segments. More apparel customers continue to adopt the technology as well as extend the use of the technology, for example, in loss prevention. We now have we're working through the planning and the execution as we go to the second half of the year. On the second grocery customer, which I think itself will be a significant inflection point for that segment. And then in logistics, we're gonna continue to really lean into more pilots, expanded pilots with a number of our other customers and with our large customer where we drove outsized growth in 2025 largely on our execution as some of the other competitors struggled and began some share. Anticipating that large customer has also provided, you know, lower output volume guidance in this year, and we're gonna factor it in. We'll see how that goes in logistics overall. As it relates to the other high-value categories, let me just reinforce again. For us, high-value categories are critical because they provide both a growth catalyst and acceleration for growth. Most of our high-value categories are typically high growth in our base business and have a typically high margin profile. So as we accelerate that portfolio mix, we're gonna get natural mix accretion both on our growth and on our margin profile as well. Typically, we expect Ghansham the majority of these high-value categories to be at kind of mid-single-digit plus. They vary by individual ones across materials and solutions. In VESCOM and Embellix, as you ask specifically, we're anticipating mid-single-digit growth, all things being equal, assuming no fundamental change in the environment, for those two categories as we continue to see new customers for VESCOM, the rollout of their Stallink software that really will enable, you know, install productivity, for the existing customer base. And then on Embellix, while we are up against the headwind related to World Cup last year, we also believe that depending on how the in-arena goes during World Cup, we could benefit from some of that as well. So we'll wait and see how that plays out overall. To your final question around, you know, quarterly guidance. I think Q4 demonstrated we continue to a very dynamic environment, which limits our visibility really on the market side of the growth piece. I just want to remind everybody over the last five years, we've seen a number of largely one-off cyclical events negatively, pandemic, inflation, supply chain destocking, tariff consequences. And as a short-term cycle business, it makes it having a long-term perspective during these types of events very challenging. I remain really confident, very high confidence in our strategies, the actions we're taking to drive growth and differentiation to deliver value creation. But I'm not planning for any macro tailwinds in 2026. And so for the foreseeable future, we're gonna continue to provide updates and outlooks on a quarterly basis. Operator: Our next question comes from John McNulty, BMO Capital Markets. Please proceed with your question. John McNulty: Yeah. Thanks very much for taking my question. And appreciate some of the color and the historical perspective around the high-value categories. Maybe digging into that a little bit more deeply, I guess, you help us to think about the margin differential for the high-value categories versus kind of the core. And also, has that shifted or changed much as we've progressed from, say, 2019 to 2025, either gotten higher, or has it contracted at all? How should we be thinking about that? Gregory Lovins: Yeah. Thanks, John, for the question. I think, you know, we haven't talked specifically about margins by specific category. But in general, of course, as we talked about for a product category to be a high-value category, it's gotta have higher variable margins than the rest of the portfolio. And that's a big part of our focus there is as we grow faster in these high-value spaces, it allows us to continue expanding margins as well. So, typically, they are a number of points above our average, certainly above significantly above the base categories as well. When you go back and look over the last few years, you can see our gross profit margins over the last few years have gone up a couple of points. And a big part of that is this shift towards high-value categories that you can see on the slide that we laid out. In addition to the productivity actions and other things that we've been driving as well. But this shift towards more and more high-value category growth is definitely showing up in our gross profit margins as we've expanded those over the last few years. Dion Stander: And, John, I'll just add that our high-value categories right across the business I think, really enable us to have a resilient portfolio. Allows us to pull multiple levers should things happen. I'll also say from a high-value category perspective, which you saw grow more than 6%, since 2019 on an organic basis, really resonates with customers because we're providing differentiation at the point that a solution or problem is being solved. These examples include, you know, what we do with adhesive tapes in the automotive industry, not just to bind things together, but for example, to provide additional noise and sound vibration dampening. So they provide utility beyond the simple application. That extends also then to some of the examples we coded in our intelligent labels platform where we brought new innovation, for example, in food to enable protein but extends also to other areas, for example, our materials group where we've really launched new innovation on our CleanFlake portfolio, which enables recyclability, not just historically on, for example, PPE for PE, but HDPE, now glass, other packaging as well. And so for us, a final constituent component of our high-value categories is the need for constant innovation outcome acceleration. Because that continues to bolster margins. Typically, when you bring a new product that's highly differentiated, we're able to extract more value from that because we create more value. And that's been a very big part of the focus over the last couple of years, and it will be so moving forward as well. Operator: Our next question comes from Jeff Zekauskas, JPMorgan. Please proceed with your question. Jeff Zekauskas: Thanks very much. Two-part question. Since you signed your agreement with Walmart, have you had more inquiries from other sellers of grocery items? And secondly, on slide 14, you talk about the majority of 2025 temp savings, including incentive comp, being a headwind. How large is that headwind? Dion Stander: Yes, Jeff. I think the Walmart announcement with our partnership, I think, is added an additional catalyst to interest and inquiry within our pipeline. We've always known that bringing a digital identity to physical objects, particularly, for example, in the grocery space, will be able to allow you to reduce waste because you're able to manage your best before expiry date in a much better way. Reduce labor efficiency, reduce labor and increase efficiency that goes with it. And finally, also provide a better consumer experience. At the end of the day, freshness is one of the biggest drivers in net promoter score in the grocery environment. And the fresher items are, the more they're available, that typically grows as too bad in the ground. That's the basis of what Walmart's expansion with us on that. Since we've seen that announcement, our pipeline has actually grown with a number of other grocers or and or both on the bakery and protein side, continuing to approach us. This is both domestic in the United States as well as in Europe. And so I'm confident that as we go through this year, we're going to see more pilots and trials through that. I'm not anticipating another rollout during the start of this year, but certainly setting the framework and the groundwork for us to be able to do so as we move forward. Gregory Lovins: Yeah. And on your second question, Jeff, those temporary savings, again, which is largely an incentive compensation, impact year over year, obviously, incentive comp in 2025 as we perform below our original expectations was a tailwind in '25 and will be a headwind in 2026. On an order of magnitude basis, probably pretty similar to the size of the restructuring actions. That $50 million that I highlighted there. Now on top of that restructuring, that isn't the only productivity we're driving. We continue to drive ongoing productivity all the time in terms of ELS savings, looking at reducing scrap, being more efficient in our operations. Dion touched on digital investments to continue to get more efficient in our G and A type of functions as well. And then in the prior year, we talked about in 2025 having some network-related to some of the tariff shifts of production in parts of our portfolio as well. So we would expect other productivity actions on top of that restructuring to help give us a benefit in 2026 versus '25. Operator: Our next question comes from Josh Spector from UBS. Please proceed with your question. Josh Spector: Yeah. Hi. Good morning. I wanted to ask on just the apparel market in general. I think the declines that you saw in the fourth quarter were more than we expected. And as you show in your appendix, the sell-out from apparel has been semi-resilient. Your volumes have been down. I guess, how are you thinking about the trajectory from here? I guess, our view is there's probably a tough comp in 1Q, then easier comps in 2Q. But you have a better ear to the ground on how, you know, apparel producers are gonna be producing and if that's gonna be a tailwind or not at this point. Dion Stander: Yeah, Josh. Let me just spend a bit of time digging into that. You know, at the high level, I'd still say there's a high degree of tariff uncertainty. So while largely tariff rates seem to be in place, as you've seen, I think everybody has seen that can pretty dramatic change depending on what the administration decides to do with the broader tariff policy. And that can have an impact at any one point in time until these tariffs are actually formally ratified. That said, as we went into the fourth quarter, we anticipated to see the low single-digit apparel-based volumes. We actually saw greater than that, around about a 7% decline. I think a couple of factors played into that. I remember saying last time on this call that what we've seen is a change in the way apparel retailers have been managing their supply chains given this volatility and uncertainty. Historically, apparel retailers would typically place a season's orders 60% in advance and then typically chase 40 as this concern around how much tariff policy would impact end retail prices and the likely impact on consumer demand, they were starting to have less forward placing and chasing more. Our anticipation as we ended the third quarter, given what we saw during that sequentially during the quarter, was that that volume would slightly continue to do that. As we know now, it was a case of, I think, some of that volume in Q3 was in the anticipation of the holiday season, a slight stock up, but then they didn't chase as much volume as they went into the fourth quarter. I think focusing on what we've heard from our customers, focusing much more on protecting margins on overall lower volumes and not as much price discounting. The growth that you saw in retail is largely price-related. It's not necessarily unit-related. And that's also underpinned if you look at one of the attaching schedules we have. If you look at the images sales ratios, for example, in the United States, they're one of the lowest points ever since the pandemic as well. As we look forward, given that performance, I would anticipate seeing growth during this year, certainly not in the first quarter will be challenging because we lap against that non-tariff impacted first quarter 2024 '25. But as we move forward, all things being equal, we should see some growth. I caveat that only with I think there's going to be continued uncertainty and continued caution on our apparel retailers' part. They're gonna continue to watch how post-holiday consumer spending and the consumer sentiment relates to discretionary items like apparel. I think it's gonna be a watch and see the price impacts that they've had to put up on those garments overall. And so if that plays out with more volume, then we'll certainly be benefited by that. But I'm not yet certain that's gonna be the case, and we'll give an update when we get to the end of the first quarter and what we're seeing from apparel customers generally. Operator: Our next question comes from Matt Roberts from Raymond James. Please proceed with your question. Matt Roberts: Hey. Good morning, Dion, Greg, and Gilly. Could try to dig just a bit deeper into some of the non-apparel intelligent labels category. First, on general retail in 2025, I believe there were some positives in compliance rollouts at a major customer. Is that compliance enforcement coming back in 2026? Or are you expecting any incremental volumes from that customer with further category rollouts? And then on logistics, again, I know you talked to the major customer and their revenue outlooks and puts and takes there, but any benefit from them rolling out automation to further facilities, are you fully deployed there? And the pilots you mentioned in logistics, is that new pilots or expanding pilots that have already been in place? For taking the questions. Dion Stander: Sure, Matt. Let me go through those sequentially. So in general retail, what we saw general retail impacted last year as we called out quite significantly by really the tariff environment. Most general merchandise was orientated out of China and the surrounding areas, and so there was quite a drop-off in demand, at least from retailers for that product as they were thinking through the supply chains. The second piece in this is because there was such difficulty in that, you know, you do sense that some of the compliance that was in those categories is probably held back a bit to make sure that could work through the supply chain issues. All things being equal, that should return and that should be partly a tailwind for us in that regard as we look forward. Again, that's with the caveat that we don't see any of the other changes on tariffs as we move forward. I think in terms of logistics, you know, we've seen the benefit that has come from automating effectively their last mile performance centers. And, Matt, we're actually fully automated across those over here. Now what we're in discussion with that particular customer around is how do they extend that to some of their international operations that's as we work through that during this year, and then the secondary piece is is there other opportunities they think about moving to what we call the first mile, the shipper side of it as well. In terms of the other pilots and trials, we're engaged in discussions. They have been piloting and trialing with almost every other major logistics company both in the United States and in Europe. And what we see this year is an expansion of some of those pilots being, you know, again, from a certain limited number of fulfillment centers, inbound fulfillment centers to a broader range also looking at different use cases they think through, for example, dangerous goods, managing, you know, highly valuable goods as well. So we'll keep you all updated on our anticipation of those pilots will expand as we go through the year. Operator: Our next question comes from Anthony Pettinari from Citigroup. Please proceed with your question. Anthony Pettinari: Good morning. Understanding you're not giving full-year guidance, is there a way to think about the quarterly cadence of the timing of the $50 million restructuring benefits throughout the year? And then I guess, well, the roll-off of the temporary benefit headwind that Jeff asked about, and then just guess, while I'm at it, you know, you talked about Walmart sales benefiting really in the second half of the year. Should we think of that as like a step up from 3Q to 4Q with kind of a strong exit rate into '27? Or is there anything you can say about, you know, the cadence of that rollout? Gregory Lovins: Yes. Thanks, Anthony. So I think restructuring a good chunk of that, about two-thirds of that would be carryover of projects we executed at some point during 2025 or at least kicked off near the end of the year in 2025. So I would expect from that perspective, to be somewhat balanced across the year on that restructuring benefit. As we have carryover savings in the first part or first few quarters of the year, and then new programs kicking in as we move through the remainder of the year. So overall, largely balanced across the quarters. From a headwind perspective, I think when you look at incentive comp, you know, we're really starting to see bigger impacts on that, I would say, in the second quarter and beyond. There's a bit of a headwind in the first quarter, but I think that picks up a little bit as we go into the middle quarters of the year. Dion Stander: Yeah, Anthony. On the Walmart question specifically, recall we said that the rollout if it took place over the next couple of years, '26 and '27, would be worth, you know, for us somewhere between low double digits to sorry. High single digits to low double digits in value for us based on our 2025 sale. Our working assumption has always been that we would start this roughly in the third quarter, ramp up in the fourth quarter and then continue accelerating during 2027 as you go through both the departments, this is, you know, bakery protein and deli, as well as geographically rolling out through the stores, and that's still our current working assumption. Operator: Our next question comes from Mike Roxland of Truist Securities. Please proceed with your question. Mike Roxland: Thank you, Dion, Greg, Gilly for taking my questions. Dion, can I Hey, guys? Yeah. In your comments, you mentioned not being happy with the organic growth and that you intend to drive better growth, especially in the high-value categories. Can you share what you started to do or what you're looking to do early this year? To drive that growth? And what type of incremental growth you're expecting in 2026 from higher growth in the high-value categories? And then just following up quickly on the apparel and general comments that you made about your confidence in getting in that accelerating. Are your customers telling you about their plans for 2026? And is it a matter of new adoption continuing to increase, or is it more related to existing customers extending their use? Dion Stander: Thank you. Okay. Let me see if I can cover all those in Mike. Yeah. From a, you know, I'm not happy with the way our organic growth trajectory has been over the last couple of years. I know that we can and we've demonstrated this repeatedly, managed through any environment, and we demonstrated our ability to manage and deliver margin and earnings in that regard. But we fundamentally need to make sure that we're gonna continue to significantly outperform the market. And that's our focus as we've gone through the back end of last year into this year. And I touched on really four elements, I think that sorry, three elements that will really deliver on that. The first is clearly our high-value categories when they are able to solve customer issues, have an ability to accelerate growth. They typically deliver higher growth rates. And as Greg said, at higher margins. We're focused on making sure that a broader range of new customers understand the value they can bring, whether it's not tapes business, getting new tapes distributors and end customers, whether it's in apparel getting new loss prevention customers, whether it's in our materials business benefiting from our Cleanplate portfolio. Our focus there is generating new customers and also identifying new segments that we can move the technology. And food is just one example of that that we've done during the back end of last year and moving forward. So there's a focus on new customer acquisition for high-value categories. The second area for me is actually a more important one. It'd be less visible as we, you know, over the next of this near term, certainly more visible as we go longer term, which is accelerating our innovation outcome. So this is not just having more new products and solutions, but actually commercializing them quicker. And in that regard, I listed a whole number of those whether they are around our IL solutions, our digital the materials group, our ability to leverage our material science capability and our digital identification capability with the insights that we have through the supply chain, whether it's at retailer, at manufacturer, at converter, allows us to ultimately be able to really design more innovation at a quicker rate that solves problems for customers. And then the third element which I touched on was in addition, is can we leverage the progress we made in our own digital journey and the more automation we're putting into the business as well as our learnings that we've had over the last year or so and artificial intelligence and the use of that technology. And I see those actually being able to provide even more differentiation that we could then ultimately express in driving new customers and getting into new segments. I think the application of those three combined in different ways will allow us to, for example, drive more automation in some of our manual finishing that we currently have across our businesses. You know, automate finishing, automate packaging. A small example of that. Another example would be using AI and IoT sensors we apply them, to some of our large, for example, coating assets, we're able to make real-time in-line coat weight adjustments across the web, which allows for less downtime and then it would save us more money in that regard and that we're able to use to seek new customers as well. And then the third one really is we've actually started to use a lot more AI to shorten some of the innovation cycle. I'll give you a real example of that. It historically has taken us anywhere from eight to ten weeks to design a new inlay in intelligent labels. We built with a partner, a proprietary AI model that takes all of our learnings around the physics of designing inlays and what it takes now we're able to reduce that cycle down to roughly two weeks. That allows us to produce new products and new solutions much quicker than our previous capacity had the ability to do. And then finally, I think Greg touched on this as well. We're certainly taking all the learnings we're seeing both on automation and increasing on AI how do we actually leverage and automate some of the more manual tasks across our SG and A that our business. We've multiple examples. Now I will say we're at the start of the journey. In that regard from a particularly from the AI perspective. I think we've learned a lot over the last year or so I think has really allowed us to see the value that we can create. In addition, we've also recruited and added to our leadership, the chief digital officer, because I fundamentally believe that capability will also be an accelerant to the way we move forward. And to your second question around apparel and general retail, you know, the way I think about that overall is that we continue to see new apparel customers adopt IL. We went through this late stages of a rollout last the fourth quarter with a large power retailer. We continue to see significant interest in leveraging the technology just not just for inventory accuracy, but also for loss prevention. The work that we did were the proprietary work with, for example, the Inditex Group. And in addition, I continue to see a pipeline where we get new apparel customers continuing wanting to use. So overall, those rollouts, as I mentioned earlier, will part as we go through the year and ramp through the year well. Operator: Our next question comes from the line of John Dunigan from Jefferies. Please proceed with your question. John Dunigan: Thanks for all the information thus far. I wanted to start off with just looking at your inventory levels. I mean, you touched on some of your customers in response to Josh's question and how they're managing their inventories. But I noticed that inventories to sales ratios are elevated compared to where they were at pre-pandemic levels. So with the modest demand, at least starting off here in 2026, is there an ability to drive inventories lower to better match the current demand environment? And then just kind of building on that, you know, I noticed that you had stepped up your CapEx to about $260 million here in 2026. Wondering if that's more tied to growth projects, maybe some delayed maintenance since you pulled it down a little bit in '25 or cost savings initiatives. Just, you know, how that money is being spent would be helpful. Thanks. Gregory Lovins: Sure. Thanks for the question. So if I look at our inventory turns over a few years, they've been fairly steady at least at the end of the year, with where we've been. I think part of what's happening across the businesses, we do have a little bit of a mix impact as we grow faster in the high-value categories. Typically, those categories are a bit more working capital intensive. And similar in emerging markets where we have a little bit higher working capital percents as well than we do in the US businesses, for instance. So, typically, we're seeing a little bit of upward pressure on working capital driven by the growth in those areas. Now we're driving a lot of productivity elsewhere to help offset that as we've gone across the years, and that's been a focus and we saw that even from the middle of this year think we talked about our working capital being a bit high and driving that down by the end of the year. And I think we did a good job delivering that. So we've got some kind of mixed pressure that we're offsetting through a number of initiatives there. Think when we look at CapEx, as you said, in 2025, it was $200 million. I will say there's another about $30 million of cloud technology-related investments that show up in the section of the cash flow statement. So it's about $230 million when you add to the rest of the CapEx for 2025. We pulled that down from our original guidance for 2025 as we saw the softer volumes. So we're increasing that a bit in 2026. Still, I think, below where it was a couple of years prior to that. But continuing to drive productivity initiatives as well as continue to prepare for capacity for the future as well. Operator: Our next question comes from George Staphos from Bank of America Securities Inc. Please proceed with your question. George Staphos: Dion, you mentioned, I think in answering Mike's question, in trying to accelerate innovation that you're trying to spend more if you will, capital at acquiring customers and getting them to try the products. Obviously, there's a mixed benefit from HVC, but do you see the customer acquisition cost being at such a rate over the next couple of years where it sort of dilutes the impact of HVC on your margin mix on a going forward basis, how should we think about that as a way to parse that at all? Separate question, just in general, paper supply any concerns on that for this year relative to the materials business? As capacity has been coming out of the market or you feel relatively with your supply position for 2026? Thanks, and good luck in the year. Dion Stander: Thanks, George. Yes. Just on the sort of the customer acquisition costs, I don't anticipate and not expecting any increase in customer acquisition costs as we move forward. We already have go-to-market teams prepared and ready, and I argue that they've been somewhat underutilized as we went through the last year relative to volume. So as we step up in some of the learnings that we've taken, they've helped sharpen our mechanisms for customer acquisition, shorten the cycles for both proving our benefits, shorten the cycle for how we position and print. And then on the back of that, continue to leverage a little bit of automation to help improve that as well, George. So I'm not anticipating an increase in customer acquisition cost moving forward. Should have no real impact on margins. Second piece is to paper supply. We've continued to make progress in making sure following that significant supply chain disruption that we had a couple of years ago, that we are as appropriately balanced from a risk perspective in terms of paper supply overall. And so we have made sure that our supply, particularly as it relates to paper glassine and price stock, we have multiple sources that we can use largely geographically centered, but not exclusively. And we continue to make sure that what we've done in that regard with our procurement team, which is being we put a lot of focus over the last couple of years is making sure we've driven from some what transactional approach of the smaller supplies to much more strategic where we now have much more certainty about the capacity we have available to us. That we can call on as we need as well, George. Operator: Our final question today comes from the line of John McNulty from BMO Capital Markets. Please proceed with your question. John McNulty: Yeah. Thanks for taking my follow-up. In the past, it seems historically that pricing was pretty much used to offset raw material-related inflation. It seems like right now, your employee costs are kind of a new level of inflation that we really haven't seen before. And I know in the past, you've largely tried to offset that with efficiency. Do we get to a point if the inflation around employee cost continues the way that it has where you start trying to work that through as part of your pricing asks as well? And how should we think about that in 2026? Gregory Lovins: Yeah. Thanks, John. So to your point, typically, our pricing is following our raw material input cost. And obviously, as we've talked about, as we've seen some deflation in 2025, we've had price down to go with that largely in sync with the deflation that we've seen there. And, really, we're continuing, or I guess I should say is we've also talked about with our material reengineering a period where we have an inflationary period, we use that to help offset the inflation in addition to price. A deflationary period, we're typically looking at that productivity from material reengineering help offset things like wage inflation as an example. So I think we look at that material reengineering as a bucket that helps over a cycle. In a flatter or more deflationary period to help offset some of those costs like wage inflation that come into the business. Operator: Mister Gilchrist, there are no further questions at this time. I will now turn the call back to you for any closing remarks. William Gilchrist: Thanks, Miriam. To wrap up, we navigated dynamic 2025 to deliver solid results. The fourth quarter and full year. Our focus and execution on our strategic priorities drive our confidence in returning to stronger growth and underscore our ability to deliver superior value across the cycle. Thank you all for joining today. This now concludes the call. Operator: Ladies and gentlemen, that does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your line.
Operator: Good day, and thank you for standing by. Welcome to the Brookfield Asset Management Ltd. fourth quarter 2025 earnings call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question and answer session. You will then hear an automated message advising your hand is raised. To withdraw your question, please press 11 again. Please be advised that today's conference is being recorded. I'd now like to hand the conference over to your speaker today, Jason Fooks, Managing Director of Investor Relations. Please go ahead. Jason Fooks: Thank you for joining us today for Brookfield Asset Management Ltd.'s earnings call for the fourth quarter and full year of 2025. On the call today, we have Bruce Flatt, our Chairman, Connor Teskey, our Chief Executive Officer, and Hadley Peer Marshall, our Chief Financial Officer. Before we begin, I'd like to remind you that in today's comments, including in responding to questions and in discussing new initiatives and our financial and operating performance, we may make forward-looking statements, including forward-looking statements within the meaning of applicable U.S. and Canadian securities law. These statements reflect predictions of future events and trends and do not relate to historic events. They're subject to known and unknown risks, future events, and results may differ materially from such statements. For further information on these risks and their potential impacts on our company, please see our filings with the securities regulators in the U.S. and Canada and the information available on our website. Let me quickly run through the agenda for today's call. Bruce will begin with an overview of the quarter and the market environment. Connor will discuss our activity in 2025 and outline key drivers of our growth for 2026. And finally, Hadley will discuss our financial results, operating results, balance sheet, and dividend increase. After our formal remarks, we'll open the line for questions. To ensure we can hear from as many participants as possible, we're asking for everyone to please limit themselves to just one question. If you have additional questions, please rejoin the queue, and we'll be happy to take more questions if time permits. And with that, I'll turn the call over to Bruce. Bruce Flatt: Thank you, Jason, and welcome, everyone. 2025 was another strong year marked by continued growth across the business and consistent execution against our long-term strategy. Let me start with a few highlights. We raised $112 billion of capital during the year, reflecting strong demand from institutional, insurance, and individuals for our diverse suite of strategies. We also invested a record $66 billion of capital over the past year into high-quality assets and businesses that form the backbone of the global economy. We made these investments in areas where we have deep competitive advantages and strong operating capabilities, positioning us to generate very attractive risk-adjusted returns. At the same time, we monetized $50 billion of equity from investments at very good returns, demonstrating that stabilized high-quality assets and essential service businesses continue to attract strong demand. As a result of all of this activity, fee-bearing capital increased 12% over the year to more than $600 billion. Fee-related earnings reached a record $3 billion, up a very strong 22% year over year, driven by growth in our capital base and continued operating leverage across the business. Distributable earnings were $2.7 billion, an increase of 14% from the prior year. Our distributable earnings are almost entirely fee-based, as you know, and long duration. Our cash flows are further reinforced by the diversification of our platform across asset classes, products, geographies, and client channels. This diversity and lack of reliance on any single segment or product provides our business with many growth options, providing a platform to grow across economic cycles and varying market conditions. Turning to the broader market environment, we entered 2026 with a constructive backdrop. Interest rates have stabilized, economic growth is resilient, and transaction activity has increased due to improved confidence in valuations and market liquidity. In this environment, we are seeing renewed global demand for real assets that generate stable cash flows and provide inflation protection, areas where we have focused for decades. While near-term conditions are supportive, what matters most to our business are the long-term structural forces that shape global capital allocation. We are fortunate to remain at the forefront of the largest global investment trends. These trends remain firmly in place and continue to expand the opportunity set for private capital. An important structural shift is also taking place in how capital is allocated. Individual investors are increasingly gaining access to private assets through retirement and long-duration savings vehicles. This represents a significant expansion of the addressable market for private assets. Retirement and individual portfolios are among the largest and fastest-growing pools of capital globally, and they are naturally aligned with long-duration, income-generating real assets. With our scale, track record, and diversified platform across infrastructure, power, real estate, private equity, and credit, we are well-positioned to meet this growing demand. Our ability to invest through cycles, recycle capital, and partner with long-term investors continues to differentiate our platform. This combination positions us to deliver strong growth over time and supports our long-term objectives, including doubling the business by 2030 and generating a 15% annualized earnings growth. Now before I turn the call over to Connor, I want to touch on our leadership announcement today. As part of our long-term succession process, we announced that Connor Teskey has been appointed CEO of Brookfield Asset Management Ltd. I will continue as chair of the board as well as CEO of Brookfield Corporation. We began this process four years ago when Connor was appointed president of BAM. Over that time, Connor has taken on running virtually everything, so this title change merely matches title to substance. There is, hence, no real transition, and our partners and people have all been involved in this. Connor has played a central role in building Brookfield's investment strategies, scaling our renewable business globally, and developing many of the leaders who now run our businesses. He brings deep investment expertise, strong judgment, and a long-term mindset that is fully aligned with Brookfield's culture. He's actually closer to what the next backbone of the global economy is, and we are excited about that. I've never been more thrilled about the prospects for our business than I am now. I intend to continue supporting Brookfield, focusing my energy where I can be most useful, and will remain fully invested and involved to assist the whole team. Of course, as CEO of Brookfield Corporation, we have a substantial interest in ensuring Connor and BAM are hugely successful. With that, I'll turn the call over to Connor to discuss our performance in more detail and how we are positioned for a strong 2026. Connor Teskey: Thank you, Bruce, and good morning to everyone on the call. I'm honored to be assuming this new role, especially at such an exciting time in BAM's growth story. With Bruce's support, and the incremental approach to transition we have been taking for years, we are already fully operating under our new structure. I look forward to continuing to work closely with our team to deliver strong results for our clients and our shareholders and continue to grow our business around the megatrends shaping the backbone of the global economy. With that, now let's turn to our results. 2025 was not simply about raising capital. It was about putting that capital to work at scale and doing so with discipline. On the deployment side, we were active throughout the year across all of our businesses, investing in high-quality assets at attractive values. In renewable power, we invested in Naoen, a leading global developer with long-term contracted clean power assets, and we acquired National Grid US renewables platform, expanding our footprint in North America. In private equity, we invested in Chemilex, a global industrial technology business with mission-critical products. Our infrastructure business acquired Hotwire Communications, a leading US fiber-to-the-home operator, serving both residential and commercial customers, Colonial Pipeline, the largest refined products pipeline in the United States, and a part of Duke Energy Florida, a vertically integrated electric utility with long-duration regulated cash flows, to name only a few. Our real estate business recently acquired Generator Hostels, a differentiated hospitality platform benefiting from structural growth in experiential travel and urban tourism. And we acquired National Storage REIT, the largest self-storage company in Australia. Collectively, these investments reflect our focus on essential assets and businesses with durable cash flows, strong downside protection, and meaningful opportunities for operational value creation. 2025 was a record year for investment activity, it gives us a strong foundation as we look ahead. Turning to fundraising, 2025 was also an excellent year across the platform. Continuing our momentum to be market-leading in each of our businesses. We completed final closings for two major flagship funds, the fifth vintage of our real estate flagship and the second vintage of our global transition flagship. Both were the largest funds we've raised in their respective series and exceeded our targets, with broad and diversified support from existing investors, as well as new relationships. These fundraisers are particularly important given where we are in the cycle. In real estate, we have significant dry powder at a point in the cycle where we're seeing attractive entry points, particularly in larger, high-quality assets where there are a limited number of players with scaled available capital. In transition, demand for power continues to accelerate globally, driven by electrification, AI growth, and energy security. Together, these dynamics create a growing opportunity set for long-term capital, and we are well-positioned to capture it. While our flagship fundraisers were successful, the overwhelming majority of our fundraising this year, nearly 90%, came from non-flagship strategies, underscoring the growing breadth and durability of our fundraising engine. These complementary strategies included continued momentum across our infrastructure and private equity platforms, through a range of products, as well as further expansion of our private wealth platform. We raised capital across a wide range of funds, asset panels, demonstrating the depth of investor demand for our products and our ability to raise capital consistently across market environments and flagship cycles. A key theme this year has been the continued scaling of our credit platform. Through a combination of organic growth and strategic acquisitions, we have meaningfully expanded our origination capabilities and product breadth. When combined with our long-standing partnership with Oaktree, and the full integration of that business, we are building one of the most comprehensive global credit platforms in the industry. Spanning real asset credit, asset-backed finance, opportunistic credit, and insurance-oriented strategies. We are also preparing for a meaningful expansion of our asset management mandate with Brookfield Wealth Solutions, upon the closing of their acquisition of Just Group, which we expect in the coming months. These three initiatives alone, Oaktree, Just Group, and the credit managers we acquired in the fourth quarter, are expected to generate more than $200 million of incremental annualized fee-related earnings, which positions us well for a very strong earnings growth in 2026. As that is all before any additional fundraising from our flagships and the approximately 60 strategies we will have in the market for deployment. Looking ahead, 2026 is shaping up to be another record year for fundraising, with strong momentum across the business that we expect will drive meaningful growth, especially within both our infrastructure and private equity platforms. Starting with private equity, we recently launched the seventh vintage of our flagship fund at a time where clients value our differentiated approach. Our private equity business focuses on value creation driven by operational improvement rather than leverage or multiple expansion. We have executed this strategy for twenty-five years because it works across market cycles. However, today's environment plays directly to our strengths as a long-term owner and operator of mission-critical essential assets and businesses. Private equity was the first fund we launched more than twenty-five years ago. We've delivered some of the strongest returns in the industry. With market conditions aligned with our approach, and a deep pipeline of opportunities, we expect this vintage to be our largest private equity fund to date. Alongside our flagship fund, we continue to broaden our private equity platform. We recently launched a new strategy tailored for the private wealth market, which is well aligned with client demand. We also saw strong fundraising across our complementary strategies, including our financial infrastructure fund and our Middle East partner strategies, both of which we expect to reach final close this year, as well as our venture technology platform, Pine Grove, which recently held a final close on its inaugural fund at $2.2 billion, exceeding its target. In our infrastructure platform, we also see a meaningful step change emerging in 2026 driven by the breadth of strategies we now have in the market and the scale of the opportunity in front of us. This year, we will have all of our infrastructure strategies fundraising concurrently, including the launch of our next flagship infrastructure fund, which we expect to be our largest to date. Alongside the flagship, our infrastructure debt strategy is in the market, and both our open-ended super core infrastructure fund and our private wealth infrastructure vehicle continued to scale, with each seeing record inflows in the fourth quarter. Further, later this year, we expect to launch the second vintage of our infrastructure structured solutions strategy. Together, these strategies position us to raise and deploy capital across the full spectrum of risk and return within the infrastructure asset class, taking advantage of our leading platform and the strong market conditions and growing investment opportunity set. Building on this foundation, last year, we launched a $100 billion global AI infrastructure program, anchored by our inaugural AI infrastructure fund with a $10 billion target. The fund already has strong momentum, with $5 billion of commitments at launch, reflecting the early conviction in the opportunity. Our objective is to deploy more than $100 billion of capital across the full AI infrastructure value chain, from land and power to data centers and compute capacity. Leveraging Brookfield's existing scale and digital infrastructure and energy to deliver integrated long-duration solutions that support the global build-out of AI. We've already announced several transactions for this strategy, including most recently, a $20 billion strategic AI joint venture with QAI, focusing on developing integrated AI infrastructure in Qatar. These initiatives reflect a growing opportunity for long-term private capital to fund infrastructure that has historically sat on corporate and government balance sheets. And Brookfield is uniquely positioned to lead in this space. Taken together, our execution in 2025 and the initiatives already underway position us extremely well as we enter 2026. With strong fundraising momentum, a scaled deployment platform, and clear drivers across private equity, infrastructure, and credit, we feel very good about the growth outlook for the business and expect 2026 to be at or above our long-term targets. With that, we will turn it over to Hadley to walk through our fourth-quarter financial results and discuss the durability of our earnings in more detail. Hadley? Hadley Peer Marshall: Thank you, Connor. As mentioned, we've had a great quarter as well as year. And I'll provide an overview of these results and how we're positioned for 2026. In the fourth quarter, we delivered strong performance. Fee-related earnings or FRE were up 28% from the prior year period to $867 million or $0.53 per share in the quarter, bringing FRE for the year to $3 billion. That brings our margins to 61% for the quarter, and 58% for the year. Our business has significant operating leverage, so as our growth initiatives scale, our margins improve. That said, after buying the remaining stake of Oaktree, which operates at lower margins, it will bring down our consolidated margin, even though the transaction is highly accretive and strategically strengthens our platform. Plus, Oaktree's margins are near cyclical lows, reflecting the countercyclical nature of its business. In that same quarter, we will also enhance disclosure around our partner managers as these businesses have scaled, becoming more meaningful. Instead of reporting only our share of their FRE, given the smaller historical contribution, we will break out our share of partner manager revenues and expenses, which will not impact FRE or DE, but should provide investors with clear insights as our platform continues to evolve. Distributable earnings or DE were $767 million or $0.47 per share in the quarter, up 18% from the prior year period, bringing distributable earnings over the last twelve months to $2.7 billion. Growth in DE continues to closely track growth in FRE. This reflects the high quality, recurring, and stable nature of our revenue base, and the limited reliance on carry or transaction-driven income. The primary driver of earnings growth in 2025 was our strong fundraising and deployment activity. Over the past year, we raised $75 billion of capital that became fee-bearing, and we deployed $16 billion of previously raised capital that also became fee-bearing. As a result, fee-bearing capital grew by 12% year over year or $64 billion to a total of $603 billion. This growth reflects the strong inflows and disciplined capital deployment across the platform, even as we return capital at an accelerated pace to clients through realizations and distribution. Turning to fundraising, the fourth quarter marked our strongest fundraising quarter ever, with $35 billion of capital raised across more than 50 strategies. This success underscores the breadth, depth, and diversification of our platform that enables us to sustain consistent momentum regardless of individual fund cycles. Within our infrastructure business, we raised $7 billion, including $5 billion for our AI infrastructure fund. We expect the first close for the strategy in the coming months with a target size of $10 billion. We also raised $900 million for our super core infrastructure strategy, bringing the fund to $14 billion, and $900 million for infrastructure private wealth strategy, our largest quarter yet, which puts the strategy at $8 billion. Within our private equity business, we raised $1.6 billion, including $900 million for our private equity special situation strategy. And we had our final close of Pinegrove's opportunistic strategy at $2.2 billion, exceeding our target, a very successful outcome for a first-time fund. Within our credit business, we raised $23 billion of capital, which represented a record quarter. Driving our credit fundraising with real assets and asset-backed finance as well as our insurance channel. This includes nearly $9 billion of capital raised from Brookfield Wealth. We also raised $5.6 billion from our long-term private fund, $1.4 billion of which was for our fourth vintage of our infrastructure mezzanine credit strategy, $4 billion for our perpetual credit fund, and $3.2 billion for our liquid credit strategy. Over the past decade, we've been intentional in evolving our business to become more diversified across not only client types, but asset classes, strategies, products, and geographies, which has reduced our reliance on any single market cycle or source of capital. Along with our long-term disciplined approach, this has allowed us to compound earnings across varying economic environments and strengthen our resiliency. Today, our earnings base is well balanced across each of our businesses, infrastructure, renewable power and transition, private equity, real estate, and credit, with no single business more than one-third of our fee-related revenue. As an example, the introduction of our transition platform five years ago, and the expansion of our credit platform have meaningfully broadened our earnings mix and enhanced durability. In 2026, we will be fundraising across nearly sixty strategies compared to only four in markets just ten years ago, enabling more consistent and diversified fundraising. We now serve more than 2,500 institutional clients globally, alongside a private wealth platform reaching nearly 70,000 clients, an insurance solution business managing over $100 billion of fee-bearing capital on behalf of approximately 800,000 policyholders. Importantly, this breadth allows us to grow through different market environments by shifting capital toward asset classes and regions where opportunity is strongest, while also creating a stable, resilient earning stream that can perform consistently in different market environments and continue to grow across cycles. Looking ahead, a more balanced share of our fundraising will come from individual investors, as private wealth, annuities, and more retirement 401(k)s will be able to allocate to alternative investments. Turning to our balance sheet, we continue to operate with a strong asset-light financial profile that provides flexibility to support growth. In November, we issued $1 billion of new senior unsecured notes, including $600 million of five-year notes at a coupon of 4.65%, and $400 million of ten-year notes at a coupon of 5.3%. We ended the year with $3 billion of corporate liquidity, providing ample flexibility to support ongoing operations, strategic initiatives, and growth across the business. As we look ahead to 2026, we are positioned for another very strong year. I will emphasize again that the best is yet to come. Our performance as a disciplined investor sets us up to capitalize on the strong momentum across the business with continued capital inflows from institutional, insurance, and retail channels, and a pipeline of opportunities to deploy capital at attractive returns. Given the strong financial position and significant growth prospects ahead, I'm pleased to confirm that our board of directors has increased our quarterly dividend by 15% to $0.5025 per share or $2.01 per share on an annualized basis. The dividend will be payable on March 31, 2026, to shareholders of record as of the close of business on February 27, 2026. That wraps up our remarks for this morning. We'd like to thank you for joining the call, and we'll now open up for questions. Operator? Operator: And wait for your name to be announced. To withdraw your question, please press 11 again. In the interest of time, we do ask that you limit yourself to one question. Please standby while we compile the Q&A roster. Our first question comes from Cherilyn Radbourne with TD Cowen. Cherilyn Radbourne: Thanks very much and good morning. So clearly, manager consolidation is continuing. And the recent emphasis seems to have been on private credit and also secondary. With regard to secondaries in particular, is that an area that you consider strategically important and a gap that you might look to fill? Connor Teskey: Good morning, Cherilyn. We've made a few complimentary acquisitions in recent years, focused on areas where we wanted to expand and build out the platform. Looking ahead, we would expect probably to be slightly less active, focused primarily on the further acquisition of our existing partner fund managers. Beyond that, we'll continue to be incredibly selective and opportunistic. In terms of secondaries, it is a space we track very closely. It's growing rapidly. It's a segment of the market where our expertise would be very clearly differentiating, and it would add an additional service that we could offer to our clients. So we do track the space, but we will be very opportunistic, only looking at opportunities that would be highly additive and complementary. But you would be correct that if we were going to do something, secondaries is probably near the top of the list. And we would focus on a platform that we thought would grow significantly as part of the broader Brookfield ecosystem. Operator: Our next question comes from Alexander Blostein with Goldman Sachs. Alexander Blostein: Hi, good morning, everybody. Thank you for the question and kind of congrats. Obviously, I think well-deserved on many fronts. Question for you guys around just the growth for 2026. So like a lot of momentum in the business on multiple fronts as you highlighted. When you refer to at or above long-term targets, I just want to dig into that a little bit more. I believe your long-term targets, you generally talk about FRE, I think at the Investor Day, you talked about that being 17%. So is that what you're referring to when you think about '26? Does that include Oaktree and Just? Obviously, those are going to be additive to that FRE growth. I was hoping to just unpack that a little more and, if possible, get a sense of the sort of organic FRE growth within that statement for the year. Thank you. Connor Teskey: So we expect 2026 is going to be very strong. We had strong momentum that accelerated throughout the past year and positions us very well going into next year. You are absolutely correct. In our five-year plan, we expect growth rates in, call it, the mid to high teens, and we absolutely have an outlook today that exceeds that level. Maybe just to put some substance around that, there are three initiatives, the acquisition of the remainder of Oaktree, the closing of Just Group, and some of the acquisitions we made in Q4 that will add $200 million to FRE growth that have already been funded. Beyond that, the earnings this year and going forward will benefit from what we expect to be a further step change in our fundraising. And we thought we had a strong year this year. Next year is going to be even better. And this is driven by continued growth in credit and then outside this growth in both PE and infrastructure where each of those platforms will have all of our strategies in the market. And then the last thing just in terms of 2026 outlook, in terms of investment and monetization, obviously, will be market dependent. But based on the very constructive environment we're currently experiencing, the major trends that we continue to be on the forefront of, and the large pipeline of deals that we have in the near term, if market conditions hold, we see no reason why 2026 wouldn't also be a market step up from 2025 in terms of deal activity as well. Alexander Blostein: Excellent. Thank you very much. Operator: Our next question comes from Michael Brown with UBS. Michael Brown: Hi, good morning. So a lot of anxiety surfaced in the market yesterday around AI-driven disruption and including within the alternative space. Based on our analysis, your exposure screens below peers, but could you maybe break down Brookfield's software exposure broadly across private credit and private equity funds? And then additionally for the industry, Connor, love to hear your high-level views on how AI-related disruption could flow through the private asset ecosystem. If there are major losses, how do you think LP allocations to private assets could react? Connor Teskey: So there are really two punch lines from our side. First and foremost, this is a strong net positive for our business. It validates our focus on digital infrastructure and servicing increased power demand to support the growth and increased penetration of AI. These are some of the largest and most active platforms we have at Brookfield. And the announcements not yet yesterday, but the increasing tailwinds over the last 1% exposure to software businesses. Within our credit business, our focus has been on areas of expertise such as infrastructure and real estate credit, real asset lending, and asset-backed finance where we get the benefit from the Brookfield ecosystem. And we have no software exposure. And then within our corporate credit portfolio, we've been actively positioning to where we see the best risk-adjusted returns and as such our opportunistic credit strategies have very little software exposure and our performing credit strategies are significantly underweight relative to indices. Taking that all together, our firm-wide focus has been being positioned to benefit from increased AI penetration. And therefore, the headlines yesterday just further reinforce our conviction in that theme. And our disciplined approach to building our credit business has once again put us in a favorable position to manage through this volatility and to continue to be a net beneficiary of the impacts from AI. Operator: Our next question comes from Bart Dziarski with RBC Capital Markets. Bart Dziarski: Thanks, and good morning. Connor, also echoing the congrats on the CEO appointment. Wanted to ask around liquidity, just given you pay out most of your free cash flow. And so with the $2.5 billion of debt outstanding now, would you consider the business in a place where it's fully funded? And related to that, could you give us a high-level sense of the duration over which the $130 billion issue of uncalled commitments could get called? Thanks. Hadley Peer Marshall: Yeah. Sure. So this is Hadley. So I'll take that question. In terms of our balance sheet and liquidity, we're in a really good place. We've got over $3 billion of liquidity. Now part of that is in anticipation of funding our share of the 26% of Oaktree that we currently don't own. And so that's a critical component. So we're well-capitalized from that perspective. But then looking forward, we've been instrumental in supporting our business whether that's through initiatives around our complementary strategies and the growth there, as well as our partner managers and buying additional stakes related to our partner managers. So we're in a really good position, you know, for some time, we've benefited from the cash on hand from the spin-out. But it slowly entered the bond market earlier last year. And anticipate when we look forward in terms of our leverage, obviously, the capacity is quite ample, and we'll continue to build as our business grows. But when we look at 2026, we'll be much less active than we were in 2025, given we were off obviously in a big growth area and wanting to support that growth. When we look at our other area of liquidity, that's the capital at $130 billion. That's a significant amount of capital that can turn into fee-bearing capital. And this is a critical component of our business. We always want to be in a position where we've got liquidity to take advantage of the environment that we're in. So a good example of that is, you know, our best rep, our flagship for real estate, closed its fundraising earlier in '25. And so in a great position to have ample liquidity to be quite active. And in Peakstone, the announcement we made yesterday is a good example of that. And so our flagships obviously have built into some of that uncalled capital. But separately, our credit strategies, are also heavily in market last year and some into this year, have uncalled capital that will get deployed over time and become fee-bearing capital. So that will take a few years to get called, but it puts us in a really good position no matter what environment we have going forward. Bart Dziarski: Very helpful. Thanks, Hadley. Operator: Our next question comes from Craig Siegenthaler with Bank of America. Craig Siegenthaler: Thanks. Good morning, everyone. And, Connor, first, just big congrats on your promotion to CEO of Brookfield. And I think you're probably the youngest CEO in asset management too. Connor Teskey: Thanks, Craig. Craig Siegenthaler: So my question is on artificial intelligence. So Brookfield has really built a leading business servicing the AI industry. So, you know, like your peers, it's a lot of picks and shovels, not actually the AI models, so data center and power. Can you talk about the mix of capital being deployed today between equity and also debt? And on the equity side in data centers, is it mostly investment-grade tenants like the hyperscalers? And I'm sorry, but one more I'm gonna squeeze in if you can address this one too. And on the leases, there I think almost all fifteen-year plus leases. Are there scenarios where they can be broken early or no because there's a financial benefit to the data center provider when it's broken? Sorry about the three, but they're all kinda related. Connor Teskey: So in terms of themes across Brookfield, AI continues AI and AI infrastructure and the value chain that supports the increased penetration of AI remains at the top of the list. And this is not only the digital infrastructure, but also the energy generation that is required to support these data centers. Just as a general comment as to why, the market opportunity is so robust today, you've got three dynamics that are all compounding on themselves. One, more data centers are being built. Two, the data centers that are being built are now larger. And then the third one is historically, the financial investor in a data center typically funded the rack in the shell. Increasingly, there is an opportunity for those that have the scale and the operating capabilities to not just fund the rack and the shell, but to fund the rack, the shells, the chips, the servers, the power supply, the grid redundancy, the substation, the interconnect, the whole system, if you will. And that's creating a very large and attractive investment opportunity on both the credit side and the equity side because while that wallet is getting bigger, it's still backstopped by that same long-term take or pay off take with one of the greatest either hyperscaler or sovereign credits in the world. In terms of our pipeline today, it's as large as it's ever been, and we expect it to only continue going forward. There's two things that perhaps we would highlight that are of interest. There is the largest component of growth for AI demand is the hyperscalers. And we are absolutely leading in supporting and investing the infrastructure to support their AI initiatives. But there's also a growing opportunity to support sovereign AI. This is the AI offtakes from countries to support the national interests of those regions. Again, very high-quality credit offtakes. Large-scale investment opportunities, where our skills can be brought to bear. And this is an area where we do think we're market-leading given our announcements with Sweden, France, Qatar, etcetera. The last point I'd simply make here is this is not just an investment opportunity. We are seeing incredible demand from our clients to get exposure to this investment theme. We announced our AI infrastructure fund with a target of $10 billion. We've already secured $5 billion. We expect we'll hit our targets and expect the broader program to be well north of $20 billion when we include the co-invest given the size of some of these investment opportunities. And sorry. Sorry. You I'm just seeing here the second part of your question. These are very strong long-term off takes. Very similar to what we would expect in other infrastructure asset classes. These are take or pay where if we continue to provide the asset, the off taker is locked in. And similar to what we do on the power side, the real estate side, the infrastructure side, AI infrastructure is no different. We spend a lot of time ensuring it's a great revenue construct backed by a great high-quality credit counterparty. Operator: Our next question comes from Michael Cyprys with Morgan Stanley. Michael Cyprys: Hey. Good morning. For taking the question. Maybe just sticking with AI and data centers. Understand the U.S. Administration wants to see new data centers stand up their own power generation. Curious, how do you see that impacting bottlenecks? And as you invest in data centers, talk about how you're bringing together your greenfield power capabilities, which is a major differentiator for you. And how are you expanding your capacity there given bottlenecks? Connor Teskey: There is no question. The bottleneck to AI growth today is not capital. It is not demand. It is electricity supply. Unlocking that electricity supply and, you know, the slogan bringing your own power is a key differentiator. And, well, electricity grids around the world are doing everything they can to increase their capacity as much as possible. They very simply cannot keep up with the increased level of demand that we've been seeing in recent years, it's only gonna accelerate going forward. And therefore, our ability to bring unique solutions beyond just simply flowing power through the grid is a key differentiator. Our ability to bring quick to deliver power through our investment in Bloom Energy, longer term, our ability to use nuclear solutions through Westinghouse and then behind the meter, energy storage and renewable solutions. That can be hooked up directly to these data center complexes. All of these are different ways that we can look to this significant demand and essentially not be restricted by the growth of the grid that is not going to keep up with the opportunities that we see in front of us. Michael Cyprys: Great. Thank you. Operator: Our next question comes from Dean Wilkinson with CIBC. Dean Wilkinson: Thanks. Good morning and congrats Connor and Bruce. Just wanna circle back on credit overall. I mean, there's been concerns around private credit, I guess, going back to September. Can you comment just on what you're seeing in credit within the portfolio, a general view, and maybe a comment on some of the redemptions that you're seeing in the industry in the private wealth strategies. Thanks. Connor Teskey: So the market demand for credit continues to be very robust, and it's driven by the same drivers we're seeing across our equity business, huge capital requirements to build out assets around key themes of energy and digitalization and deglobalization. And maybe to dive into what we're seeing, we continue to see very strong demand and attractive spreads in real asset and asset-backed lending where quite frankly, demand continues to outweigh supply. And we expect that dynamic to continue going forward. We are seeing incredibly tight spreads in select pockets of more commoditized segments of the market. And while that subset specific, some uncertainty in this space is significantly increasing the pipeline for our opportunistic credit business, which we have seen increase its activity over the last couple of months. In terms of credit flows, you're absolutely right. Across the market, there were modest increases in retail redemptions or wealth redemptions late last year. For us, these were very modest and very manageable. But what they shouldn't overshadow is on the institutional side, we're still seeing very robust inflows into credit, especially those products that are well-positioned to outperform in this market. Dean Wilkinson: Great. Thanks. Operator: Our next question comes from Daniel Fannon with Jefferies. Daniel Fannon: Thanks. Just wanted to follow-up on just the outlook for wealth flows. You obviously had very good momentum exiting 2025. Can you talk about your product roadmap as you into 2026 and beyond as well as just the continued momentum? Connor Teskey: So, 2025, our growth in the wealth channel was a little bit north of 40%. We expect that to continue in 2026, particularly on the back of a number of new products we launched in the space at the end of the last year, notably in the credit and private equity segments. And those are seeing great early receptions. In terms of our outlook for the business, we're going to continue to build incrementally. This is an amazing opportunity in terms of the scale, the potential scale for our business. And we absolutely intend to capture it, but we want to go about doing it the right way. We're focusing first and foremost on getting the right products on the right platforms. Here, we're having an incredible amount of success. Secondly, we're very focused on raising prudent amounts of capital to ensure that through these wealth products we deliver the same strong and consistent returns that have defined our business for years. We feel that is the right way to build this business over time so we can lead in this space the same way we lead in the institutional space. And it's clearly not restricting our growth taking this approach, given our 40% plus CAGRs. And then maybe lastly, the one thing we are doing is taking some incremental steps in 2026 really around brand awareness for Brookfield. And also filling out, product offering most notably on the credit side. Operator: Our next question comes from Crispin Elliot Love with Piper Sandler. Crispin Elliot Love: Thank you. First, congratulations, Connor. And then just on my question, FRE margins have expanded nicely in recent quarters to 60% plus. Can you share your views on the margin trajectory from here? How do you feel about sustainability of current margins? Potential for further expansion just given some of the tailwinds that you've discussed for the business broadly? Just any puts and takes there would be great. Thank you. Hadley Peer Marshall: Sure. So I can describe that. I mean, you're absolutely right about the margins and the operating leverage that we've seen play out. As a reminder, when we close the 26% of Oaktree, that will have a shift in our margins. Just because of where they operate and the cyclicality of their business. But the other thing that we mentioned that we're going to do, which is really just a one-time presentation change, is take our partner managers, which have continued to grow as a business, and our share has grown, which is reflecting more into our numbers we're gonna actually bifurcate their revenues and expenses the portion that we own. Whereas today, we include only their FRE. So this change won't impact FRE or DE, but it'll increase the reported revenues and costs as a result impact the margins. Now the reason why we've always just shown their FRE is because they were a small part of the business. But as mentioned, they continue to grow and we're quite excited about that. So we want to provide more transparency around that. And this should also help investors better understand the components of our credit business specifically as well as the underlying fee rates for our credit strategies. But importantly, to get to really the crux of your question, the margins for our business will continue to because of that operating leverage that's built in. Across all of our platforms. And in fact, when we look forward every especially for 2026, every business should have stronger margins. Except maybe real estate only because they don't have the catch-up fees. So we're quite excited about the business in general for 2026 and onwards. And that will be reflected in the margins. Operator: Our next question comes from Mario Saric with Scotiabank. Mario Saric: Hi, good morning. I just had a quick follow-on question with respect to the emerging pursuit of the individual investor and wealth channel. I think, Connor, you highlighted three initiatives, for '26 on that front, including brand awareness. I'm just thinking from a cultural spread perspective, you know, Brookfield's culture has been very consistent. Very strong, excellent institutional culture to make Brookfield what it is today. How do you balance, you know, the drive for brand awareness on the private kind of individual wealth side with maintaining kind of that institutional culture that you've had historically? Connor Teskey: Our culture is one of our biggest and most valuable assets, and it is not going to change going forward. It guides how we operate, how we partner with our clients, how we're disciplined and take a long-term view to investing. When we speak about increasing brand awareness, one of the important things is it's about increasing the awareness of the Brookfield brand, which to your point is very distinct. It speaks to stability. It speaks to discipline. It speaks to long-term focus. And that's all we will be reinforcing. One thing we're incredibly proud of at Brookfield is everybody represents the brand. And that's really what we're gonna look to reinforce as we do increase the brand awareness. It's just ensuring that people know who Brookfield is and what we stand for. Operator: Our next question comes from Jaeme Gloyn with National Bank. Jaeme Gloyn: Yeah, thanks. Good morning, and congrats as well, Connor. On the private wealth and market as that continues to evolve and access for private markets, in 401(k)s, expands, how should we be thinking about the potential impact on BAM's key value capital and FRE in what do you need to have happen for that to become material? Connor Teskey: So when we think about the large opportunity in the future for the individual, we think about that in three parts. The retail and high net worth channel, the insurance policy and annuity holder, and the 401(k) and benefit market. In that third bucket, we do expect the opportunity set to be very, very large. But we expect it to grow incrementally over time. In terms of what's happening in the near term, we do expect guidance to come later this week, which we expect will be highly supportive of alternatives in 401(k)s and will include, we expect, initiatives that will create catalysts for increased reviews of alternatives within these portfolios. And we are very well positioned to capture opportunities in the DC channel. We are already working with leading target date fund managers to provide the best of Brookfield strategies to improve participant plan outcomes. We've been focusing on professionally managed portfolios and target date funds where we can co-develop sleeves and solutions with the existing providers of those products. And in that regard, we're very confident that we can demonstrate value for cost while meeting the regulatory requirements. And that really goes to the strength, track record, and durability of our private investment strategy. Maybe the last point just on this market because we're very excited about it. From all stakeholders, we continue to receive very positive feedback that our focus on high quality, downside protected, real that provide cash yield and inflation protection is uniquely suited to the objectives of these plan participants. And that's what we'll be looking to offer on an increasing basis going forward. Operator: Next question comes from Kenneth Worthington with JPMorgan. Kenneth Worthington: Hi, good morning. Connor, congratulations. My question is for Hadley. There was a more meaningful increase in the long-term fund in co-investment revenue in both transition and private equity businesses this quarter. For transition, it went from, like, $5 million to $28 million sequentially. In private equity, the revenue went from $4 million to $62 million sequentially. What drove the jumps here? And to what extent is this sequential jump in revenue this quarter sustainable at these levels? Or were there one-offs that we should be accounting for? Hadley Peer Marshall: So one thing to keep in mind, and we've mentioned this for PE, is Pine Grove. And they had a great first fund with a final close of $2.2 billion. And that had catch-up fees. So that's what you're seeing there. So there's some catch-up fees there, but that is capital that's now going to be earning FRE going forward. So very exciting outcome there. On the transition side, what you're seeing there is one of our partners that we have in terms of revenues that they generated from there. That is probably a little bit more one-off generated that the overall business is performing quite well. But they did have a solid win, and so that's something that you're seeing flow through there. Kenneth Worthington: Okay. Great. Thank you very much. Connor Teskey: Yep. That's exactly it. Thank you. Operator: Our next question comes from Sohrab Movahedi with BMO Capital Markets. Sohrab Movahedi: Okay. Hey. Thank you for squeezing me. Congrats to Connor as well. Hadley, can you just give us a sense of how you arrived at the 15% DV bump and whether or not you expect to be below a 100% payout ratio next year. Hadley Peer Marshall: Yeah. So, look, we do a lot of forecasting and analysis around our business. By each business, tops down, and bottoms up. So this is a thorough analysis that we conduct. It does make it a little bit easier when we've got $200 million of FRE coming in for 2026 that we can forecast with incredible certainty around Oaktree and Just Group. So that's quite supportive. And when we think about our payout ratio, over time, as you know, we target around a 95%. And so that is the goal that we're going to be leading into especially as we get in carry, which is the second leg of our growth. So what gives us that confidence around 15% is the analysis that we performed, and then the overall long-term goal from that perspective. Operator: That concludes today's question and answer session. I'd like to turn the call back to Jason Fooks for closing remarks. Jason Fooks: Okay. Great. If anyone should have any additional questions on today's release, please feel free to contact me directly, and thank you, everyone, for joining us. Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.
Operator: Good morning, and welcome, everyone, to this webcast with a presentation of the Annual Report 2025 from Norden that was published this morning. [Operator Instructions] With that, I'll hand over to CEO, Jan Rindbo; and CFO, Martin Badsted from Norden. Please go ahead. Jan Rindbo: Thank you very much, and a warm welcome to this annual report presentation. And also welcome to the Center of Global Trade, where Norden plays a major role as one of the largest operators of dry bulk ships and product tankers, moving just under 130 million tonnes of essential raw materials across the globe. But let's dive into the financial figures for 2025. And we delivered a full year profit of $120 million, which was right in the middle of our latest announced guidance for the year, but significantly better than our guidance at the beginning of 2025. We have delivered a return on invested capital of 8.9% and the underlying net asset values in the portfolio were as of the 31st of December, DKK 379 per share. We are returning a significant part of the annual profit back to the shareholders through a combination of a dividend of DKK 2 per share and a share buyback program that will run until the end of April. This year was busy on the asset transaction front. We had 48 transactions for the full year. And an important part of our profit in 2025 was generated from vessel sales, where we sold 23 ships, of which 15 were from our purchase option portfolio, but we are not just selling vessels, we actually added even more ships. 25 came in through new leases and also the purchase of one vessel. And when you look at the purchase option portfolio, we actually finished the year with 90 vessels in the portfolio, which was a growth of 14% in the number of purchase options that we control. And of the 90 purchase options, 40 of them are in the money that can be acquired in the next 2 years at values that are 18% below broker values. So still significant value in the portfolio despite the fact that we have realized some of that during the year. With that, I'll hand over to you, Martin, to dive a little bit more into our NAV. Martin Badsted: Thank you very much. As Jan said, our NAV at the end of the year was DKK 379 per share. That was actually a decline of about 11% since the beginning of the year, but all of that was driven by a weaker U.S. dollar. So if you actually adjust for the FX change and the fact that we paid out dividends and share buybacks, there's actually a positive underlying development in U.S. dollars per share. The current NAV, as you will see from the table here, is about 2/3 exposed to dry cargo with $917 million of portfolio value and 1/3 is tankers, $428 million. And when you look at the numbers just below there, you will see that there's actually very little leverage on the balance sheet. So a very, very strong financial position is baked into these numbers. On the right-hand side, we show you the sensitivity of the NAV compared to changes -- potential changes in the market. So for instance, if both the dry and tanker market change plus 10%, then the NAV increases about 16% to DKK 441 per share. So a good exposure against rising markets. Now if you have had time to look into the recently published annual report, you will see that we have now decided to show some of our numbers a little bit differently. We have 6 segments in Norden: that is the Dry Owner, Tanker Owner; and then the Dry Operator, large and small tanker operator; and Logistics. And up until now, we have allocated or we have made subtotals for these segments into asset management and into FST. That changes now. And instead, we will group these segments by Dry Cargo and Tankers, which we feel actually is probably more intuitive for most investors thinking about which exposure they are buying when they're buying a Norden share. So going forward, we will be reporting the Dry Cargo business unit and the Tanker business unit. But of course, nothing changes in the group figures and all the segment data will still be there. Looking then into Dry Cargo in this case, let's start with the market development. It's clear from this graph where the dark line shows the spot rates for Supramax during 2025, but it was a year in 2 halves. So the first part of the year was actually fairly weak, whereas in the middle of the summer, the market suddenly actually took off and the second half was much stronger. That was to start with mainly a Capesize thing, but it actually impacted all the segments. I will say, though, that Norden had a fairly high coverage during the second half. So most of this has been impacting asset values and deferred periods. Looking then into the numbers for Dry Cargo, you will see the 4 segments in the middle here. And it's clear that the Dry Owner part really delivers the bulk of earnings with $67.7 million for 2025. The other 3 combined, of course, produces a loss as is quite evident. And I think the important thing to notice here is that they are actually all improving quite a lot compared to 2024. So the trajectory is good, but the actual levels are, of course, not satisfactory. You are seeing that trajectory on the graph on the right-hand side, where the red line indicates the total for 2024 and 2025 for the Dry Cargo business unit, which has then increased from minus $56 million to plus $29 million for the full year 2025. So of course, we hope to continue those improvements. On the Tanker side, it was a little bit the same. The market in MR spot actually increased during the year and actually ended the second half of the year stronger than 2024, I think, against many people's expectations. That, of course, impacts our Tanker business unit because a lot of the exposure there is directly linked to the spot market. And looking into the Tanker numbers, you will see that we made $116 million total between Tanker Owner and Tanker Operator. It is clearly Tanker Owner that delivers the bulk of these earnings. And the decline in Tanker Operator was very much expected because that is part of the business model. You can say that when the market is strong for a long period of time, the cost of tonnage goes up and it becomes harder and harder to make a good margin. But I will actually emphasize that we have been able to grow the Pool part of our Tanker Operator business, delivering good management fees for a very low risk, which actually helps a lot in the measurement of return on invested capital. So with that, I will hand you back to Jan for a look at our guidance. Jan Rindbo: Thank you, Martin. So looking ahead now to this year, 2026, we have an expected full year net profit for 2026 in the range of between $30 million to $100 million. And there are 3 key drivers in the guidance numbers. The first I'd like to highlight is the new activity that we bring in during the year. So there's, of course, some uncertainty both in the terms of the volume of the new activity, but also the margins that we can generate from this new activity. Then the second point is that we have a significant open position of days that are not yet covered and exposed to the spot market. We have 5,700 open days in tankers and just over 7,000 days in dry cargo for the balance of 2026. And then the third point is just a reminder that the guidance here only includes known vessel sales. So we have already concluded sales for -- with profits of $20 million, but it's only the known transactions that are included in our guidance for the year. If we move on to the business model of Norden, we have 4 main engines in the business, so to say. We have both Dry Cargo and Tankers. And as Martin just showed, we have actually made a profit in both of these 2 segments. And then we have the asset-light, the operator part of the business and the asset heavy, which is the asset management part of the business. And here, clearly, the results in 2025 has been driven mostly by the asset management or the asset heavy, the ship-owning part of the business. What we can see if we zoom out and look at this over a longer period of time is that having multiple legs to stand on having different types of activities actually helps generate superior returns over time because usually, if not all 4 engines are running, then at least some of them are. And in some years, it can be the dry cargo. Other years, it can be tankers or asset-light or asset-heavy. But over time, we have generated in the last 5 years, a return around 25% on the invested capital, which is significantly higher than our industry peers. What we also see in this graph is where you have the absolute returns on the graph to the left. Then at the bottom, you see the volatility in the earnings. And here, you can also see that the earnings in Norden have been more volatile than our industry peers. And this is something that we are -- that we would like to address in our strategy. And this is clearly where the operating part of the business has had larger fluctuations. But if we look towards the strategy and the direction for us towards 2030, then one objective for us is to reduce this earnings volatility, obviously, maintain the high returns. We like that, but we like to bring that with a higher degree of stability in the earnings so that we don't have such a large volatility in our earnings. And the way we will do this is, first of all, we will look at the engine room of the operating business, become even more customer focused, really look at our cargo network, how we build a more efficient cargo network, reducing ballast time, capture more margins, optimize cargo flows, the voyage efficiencies that we see. We are also expanding into areas where -- that are less volatile. One of the significant points in 2025 has been our expansion into MPP and Project Cargo. We have, in the last 3 years, made 3 M&A acquisitions all within this area. And we have now also built a core fleet of leased vessels, so in the typical Norden style with purchase options and extension options. And those ships are actually starting to deliver already this year in 2026. So Project Cargo, minor bulk, port logistics, are all areas where with our expertise, we can bring more stable returns as it's more capability-driven and less exposed just to market fluctuations. But I think the third point in our strategy towards 2030 is that we are maintaining the core elements in our business model, the 4 main engines that I showed you because we think that really brings a lot of value as we have seen also in the past. And that brings me to the last slide, where we're just looking at summarizing as an investor, what are the main drivers for Norden that you should have as part of your thinking when you look at Norden. And I think the first point to highlight is that we are actually in an industry with good fundamentals. We see an aging global fleet. Especially when we look longer term, so towards 2030 or even beyond 2030, there is a significant aging of the fleet, both in Dry Bulk and in Tankers. And we have a relatively low order book and especially in the smaller segments of dry, but actually a low order book compared to the fleet age profile. And all these geopolitical tensions that we are seeing are creating dislocations that is also supporting tonne-mile demand. And that reduces the risk of prolonged periods of oversupply, which traditionally has hit the shipping industry in -- after periods of good markets. The second point is this business model that I just highlighted. So I don't need to say too much more about that, but we think that's a very strong model to generate value from. And then the third element is that we are within that business model, really focusing now on more the -- what we call the capability-driven earnings that are less market exposed. So our operating capabilities and building these more sort of complex cargo flows, essentially building higher barriers to entry in what is traditionally very commoditized segments. And then the last point is continuing this disciplined capital allocation, which has really driven our ROIC outperformance. So the benefit of running a large business with an asset-light platform is that we have the freedom, so to speak, to also buy and sell vessels. We are still servicing our customers because we are able to do that through the charter fleet that we do. And this sort of strict capital discipline allows us to return a lot of our profits to our shareholders. Over the last 5 years, we have actually returned through dividend and share buybacks, $1.2 billion, which is about the same level as our market cap today. And that has also driven over time, a strong shareholder value creation. And then overall, our target for Norden remains to generate ROIC above 12%, so well above the capital cost, but also continuing to generate returns that are better than the peers that we compare ourselves with. So with that, that concludes our presentation, and we're now ready to go to the Q&A part of the presentation. Operator: Yes, we are now ready for the Q&A session. [Operator Instructions]. But let's go ahead with the first question here. To what extent are the involving U.S. sanctions framework reshaping investment decision by shipowners and operators when it comes to ordering new tonnage, especially considering exposure to secondary sanctions, financing constraints and future trading flexibility? Jan Rindbo: Thank you. That's a great question because this was a big topic in 2025 with the USTR, the U.S. sanctions against Chinese shipbuilding and then the retaliation from China against the U.S. So there was a lot of noise in the markets, and I think everyone was scrambling to prepare for that. I think it's fair to say that when we look at the investment part of this and what has happened since then is that there is no clear pattern showing that people or the industry is shying away from ordering in, for example, China. If you look at dry bulk and tankers, I think now close to 70% of new orders are coming to Chinese shipyards. So you can argue whether there is actually a choice that shipowners can make. Order books are also pretty full until at least 2029 now. So I would say there's no clear pattern that the industry has shied away from investing in Chinese shipbuilding or in Chinese ships from Chinese yards. So I would say that it hasn't really changed the dynamics. Operator: And according to the Q4 financial report, the company had around 70 leased vessels and 12 owned vessels. Furthermore, it appears that 24 new leasing agreements has been made in 2025. Can the company explain the interest rate risk associated with the leasing agreements? Martin Badsted: Yes. Thank you for that question. So the structure really works in the way that instead of buying the ship, we take it on lease, which is typically a 5-year period with a firm lease payment during the period. And since that is a firm and constant lease payment during the period, that actually implies that we have sort of fixed the interest cost that is baked into that project. It's the same with the OpEx for running the ships that is all taken care of within that fixed time charter hire. So in essence, I would say the leases that we do have a fixed interest rate component, meaning that we have very low interest rate risk from that part at least. Operator: And the next question goes, why do you expect a weaker second half for tankers? Martin Badsted: Yes. So if I can answer that. So the current strength in the tanker market is, to a large extent, based on strong crude market where OPEC is pushing out a lot of products to the global markets. Of course, still the Russia sanctions and the Suez Canal issues, but also a low supply growth. But when we look into the second half of the year, we think actually that supply growth will accelerate a little bit. So that will keep or add more pressure to the market. And it's probably also likely that OPEC at some point will need to adjust because the way that we view it at least is that there's simply too much oil coming to the market at the moment. And at some point, this will hit inventories and that will hit prices. So we think there's reason to believe that the second half of the year will be somewhat weaker than what we have seen recently. Operator: Thank you. And the next question here. If dry bulk continues its positive momentum and tankers also does so partly in the first half, at least of 2026, I'm left with the impression that your guidance may be somewhat on the low side. Is your guidance set low and conservatively partly to be able to counteract geopolitical surprises? Jan Rindbo: So our guidance is based on the market expectations that we see now. Of course, if the market expectations or the markets continue to go up and improve, there is further value. We have the open days that we mentioned during the presentation, both actually in dry bulk and in tankers. And of course, if asset values also continue to go up, then that will support the NAV value of Norden. So of course, there is uncertainties as we look into a year. Again, we are just at the beginning of the year. We also have a significant part of our business, which is the new activity that is coming in that will generate a margin. And here, there are some uncertainties around both how big that activity will be and what margins we can lock in there. So it is the reason or one of the reasons why we have a larger span in the full year guidance. And again, just to repeat, the guidance only includes the asset sales that are already agreed. And therefore, if we choose to sell more ships during the year, and here, we are very optimistic looking at the opportunities in the market, looking at the market developments. But if there are further sales that we can do at profits, then that could add to the expectations during the year. And as I think we've shown you during the presentation, there's a lot of underlying value in Norden, both on the purchase options and on the owned vessels that we have in the fleet. But it will be opportunity driven as we go through the year. Operator: And the next question here. What is Norden's strategy for MPP/Project segment for the next 5 years? Jan Rindbo: Thank you. That's a great question because it ties right into the heart of our strategy. So we have done 3 M&A transactions that are all supporting our development in this part of the business. A big change for us in 2025 was that the sort of natural evolution was to then start building a core fleet, and we have done 16 transactions on MPP vessels alone during the year. So building a core fleet of the most fuel-efficient vessels. So a great fleet that we have very high expectations for and already are seeing significant customer demand for. So the strategy in the next 5 years towards 2030 is to keep growing this part of the business. It will help us to generate more stable earnings because this part of our asset portfolio is where we typically see the least volatility. And it's driven by capabilities from our teams across the world. And we, by the way, also see strong synergies between what we do in the MPP and Project Cargo space across our other vessel sizes. So we are now regularly carrying Project Cargo, not just on MPP vessels, but actually across our entire range of Dry Bulk vessels. Operator: And the next question here. How do we plan to restore a stable and competitive earnings in Dry Operator, especially large vessels, which is once again delivering a large negative EBIT? Jan Rindbo: Yes. So again, it ties in with the strategy that we presented earlier. And what -- the component in our business that we are looking to grow here is what we call the Base Margin business. So all the margins that we generate, not from market fluctuations, but simply from having good cargo combinations, efficient voyage executions where we're able to match a vessel and a cargo in the market without taking much market risk. Pool Management, as Martin mentioned during the presentation, is also a great generator of these base margins. So that's where we have our strategic focus. We still want to retain the ability to also position ourselves for the ups and downs in the market because that has done us very well over time. But building a more solid foundation of these base margin earnings is a key component in our strategy, and that will help us to both stabilize and hopefully also generate positive and better margins in the Dry Operator part of the business. Operator: And a question here. Can you please explain the strategy behind the coverage in Dry Cargo for 2026? Jan Rindbo: Yes. So we have a high level of cover, which has taken -- which was taken during 2025. So we had a more cautious view of the market. That was one driver. But it is also part of our business model to actually have a relatively high level of cover so that we don't like to be totally exposed to the markets, which, of course, when markets go up, means that we're not getting the maximum out of the markets, but also during downturns, it means that we protect the downside. And again, looking at this over a 5-year horizon, we have generated great returns by having that kind of approach to the markets. So we are more covered for 2026. But when you look at the numbers and our position, you will also see that we have a fairly large open position in dry bulk for 2027 onwards. We have over 30 newbuildings coming in. We have invested in Capesize, also new buildings that are coming in, where we have seen prices actually go up significantly from the time we made those investments. But it was always with a view that 2027 would be the time where we would see those benefits. It has come -- it's fair to say that, that has come a little bit earlier than also what we had expected. But our portfolio as such is actually well positioned to capture those upsides. But as things stand right now, it's mainly from 2027 onwards. Operator: And the next question here. You achieved a net profit of $120 million in 2025, but you're only guiding for $30 million to $100 million for 2026. What specific factors are causing earnings to expect it to fall so significantly? And what will it take for you to reach the upper end of guidance? Martin Badsted: Maybe I can at least start with this. So as Jan said before, the guidance, $30 million to $100 million is only based on the known vessel sales that we have agreed to already, whereas the $120 million for '25, of course, includes all the vessel gains that were made during the year. And that was actually $17 million, leaving the $50 million residual as the operating earnings. And that, of course, indicates that the new guidance is more on par with actually the operating earnings from 2025. And new gains if we make new agreements on profitable sales, will come on top of that. So that is a big part of it comparing sort of the vessel gains and the operating earnings in 2 different ways. Operator: And the next question here. What are your expectations regarding the recent agreement between U.S. and India, where India has pledged to stop buying Russian oil? Could that have a positive spillover effect on your business? And how are you positioned in relation to India? Is this agreement factored into the guidance for 2026? Martin Badsted: I would say, overall, it is factored in to the extent that we base our guidance also on forward rates that are prevailing in the market. So if the market sort of has priced this in, which typically happens very fast, then it's also baked into our guidance. It's clear that if this were to have a very positive effect, that would be positive for our spot earnings during the year. And you can say, in principle, all the disruptions that we are seeing, including the fact that India now may not buy Russian oil is net positive typically. But we have also seen over the last couple of years with new sanctions and disruptions that the market is really fast in actually adapting to new situations and it often ends up not having a big impact because people will find ways around these disruptions. So it's both yes and no, I would say. Some positive effect it's baked in, but it's not something that will, I think, change fundamentally the market outlook. Operator: And then the last question here. How do you access the impact of a potential Hafnia acquisition of TORM on your competitive position and the markets? Jan Rindbo: That's a good question. Of course, there's no direct impact on Norden, but I think consolidation in the industry is a good thing. So we, in a way, welcome that, but it's not something that really concerns us that much. We are focusing on our own business, servicing our own customers, running an efficient Pool Management business towards the third-party owners that are part of our pool, I think that is what is top of our mind. Operator: Thank you. There seems to be no further questions, and I'll leave the word to management for a final remark. Jan Rindbo: All right. Well, first of all, just the usual caution about forward-looking statements. But having said that, thank you very much for tuning in to this annual report presentation. Thank you very much for the many great questions. I think that gives us an opportunity to put a little bit more color to some of the highlights that we've shared with you in the presentation. So thank you very much for that. Thank you for engaging. And we look forward to seeing you again next time when we report on the Q1 results later this year.