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Operator: Thank you for standing by. Welcome to the Amdocs First Quarter 2026 Earnings Conference Call. At this time, all participants are in listen-only mode. After the speakers' presentation, there will be a question and answer session. To ask a question during the session, you'll need to press star 11 on your telephone. If your question has been answered and you'd like to remove yourself from the queue, simply press star 11 again. As a reminder, today's program is being recorded. And now I'd like to introduce your host for today's program, Matt Smith, Head of Investor Relations. Please go ahead, sir. Matt Smith: Thank you, operator. Before we begin, I need to call your attention to our disclaimer statement on slide two of the presentation. Note that some of our comments today may be forward-looking statements and are subject to risks and uncertainties, including as described in Amdocs' SEC filings. We will discuss certain financial information that is not prepared in accordance with GAAP. For more information regarding our use of non-GAAP financial measures, including reconciliations of these measures, we refer you to today's earnings release, which will also be furnished with the SEC on Form 6-K. Participating on the call with me today are Shuky Sheffer, President and Chief Executive Officer of Amdocs Limited, and Tamar Rapaport-Dagim, Chief Financial and Operating Officer. To support today's earnings call, we are providing the presentation which can be found on the Investor Relations section of our website. As always, a copy of today's prepared remarks will also be posted immediately following the conclusion of this call. On today's agenda, Shuky will recap our business and financial achievements for the first fiscal quarter 2026, including our strategic progress in generative AI and data services. Shuky will finish by addressing our financial and business outlook, after which Tamar will provide additional details on our first quarter financial performance and guidance for the full fiscal year 2026. And with that, I'll turn it over to Shuky. Shuky Sheffer: Thank you, Matt, and everyone joining us on the call today. Beginning on slide six, I am pleased to report a solid start to fiscal 2026 as we continue to focus on our primary goal of accelerating Amdocs' long-term growth and positioning ourselves as a market leader for the Gen AI era. First quarter financial results were consistent with our expectations. Revenue of $1.16 billion was slightly above the midpoint of guidance, rising 4.1% from a year ago and 3.5% in constant currency. Profitability improved by 40 basis points from a year ago and was unchanged on a sequential basis, reflecting our commitment to balance internal efficiency gains with accelerated investments to support long-term growth. Non-GAAP diluted earnings per share was $1.81, above the guidance range, primarily due to a lower than expected tax rate for the quarter. We finished Q1 with a 12-month backlog of $4.25 billion, up $60 million sequentially and 2.7% from a year ago. Turning to slide seven, I'd like to thank our people around the world for their part in delivering best-in-class mission-critical operation support over the holiday period and for achieving a high number of milestone deliveries under the many outcome-based projects and managed service engagements we are supporting for our customers. Q1 includes several important developments which strengthen our underlying business, accelerate our global growth potential, and advance our generative AI strategy. First, I am proud to announce that we signed a new multiyear agreement with T-Mobile that includes managed services, software development, and AI innovation. Under the new agreement, T-Mobile and Amdocs will collaborate to support T-Mobile's growth strategy and business objectives. Amdocs will continue to support T-Mobile's consumer and business domains, including the implementation of GenAI technology where applicable. As part of this agreement, Amdocs will also support integration activities related to common systems. Additionally, we are supporting T-Mobile in the integration of UScellular. As a reminder, integration activities by nature are nonrecurring and are ramping down by design once the integration is completed. Overall, this important agreement extends our long-standing strategic collaboration with T-Mobile. Having said that, as mentioned last quarter, we expect a revenue decline with this customer in fiscal 2026 due to a lower level of spending. Matt Smith: Second, Shuky Sheffer: we expanded Amdocs' global customer footprint and progressed our international diversification strategy this quarter through a combination of organic and inorganic moves. We signed an expanded multiyear engagement at Vodafone Germany, the largest of Vodafone's operating companies, and won significant transformation awards with two new logos in Western Europe. Additionally, I'm excited to report that we closed the acquisition of Matrix Software for $197 million in cash at the end of Q1. Based in California, Matrix is a strategic consolidation move which complements and extends our leading market position around the core of billing, monetization, and charging solutions. As such, we believe there is an amazing potential to bring our full suite of products and managed services in support of Matrix's impressive customer base. These customers include major tier-one service providers such as Verizon, Telus, Telefonica, Swisscom, Three, Virgin Media O2, and Telstra, as well as a growing list of many smaller field operators and MVNOs. Third, I'm encouraged by the highly positive recognition Amdocs is receiving as a market leader in data and generative AI from customers and industry analysts like Gartner. In my opinion, such recognition directly reflects Amdocs' very deep domain expertise, which is unmatched in the telco vertical. During Q1, our commercial momentum continued with digital GenAI-related wins at Telus and other customers. Our next-generation AI platform development is also progressing to plan, with today's announcement of AOS, an agentic operating system purpose-built for telecommunications, which we plan to showcase at Mobile World Congress in early March. Now turning to slide eight, I'd like to provide some additional color with respect to our growth strategy designed to deliver the tech-led products and services our customers need to maximize the value of generative AI data across our customer footprint, accelerate the journey to the cloud, digitalize customer experience in consumer and B2B, monetize next-generation network investments, and streamline and automate complex network ecosystems. Starting with data and generative AI on slide nine, we are busy executing the recent GenAI-related commercial awards we won with Optimum, Consumer Cellular, Telefonica Germany, and other first-mover adopters of Amdocs Amaze, our generative AI platform that leverages NVIDIA's AI capabilities. These early awards provide proof points as to the important role of generative AI in the telecom industry and transformation, as witnessed by the consistent pipeline expansion and growing commercial progress we are seeing. As an example, Telus, Amdocs, and NVIDIA recently teamed up to deliver an advanced AI-powered quality engineering solution on the Telus Sovereign AI Factory, specifically designed to meet Canadian data residency and compliance mandates. This strategic integration will enable secure autonomous testing, automation, and validation for Canadian enterprises and government agencies, helping them to adopt generative AI securely and to roll out digital services faster. As to our long-term strategy, last quarter, we shared that we are accelerating our investment to fast-track the development of Cognitive Core, a next-generation AI platform built on the foundation of Amdocs Amaze, which integrates prebuilt telco-specific agent libraries and actionable insights. I'm pleased to say that our development roadmap is progressing as planned with today's exciting announcement of AOS, the world's first agentic operating system purpose-built for telecommunications, which we plan to showcase at Mobile World Congress in Barcelona a few weeks from now. Designed to help service providers accelerate their generative AI strategies and innovate at scale, AOS operates on top of any BSS or OSS stack, embedding cognitive core and intelligence directly into telecom operations to elevate customer and employee experiences, unlock new growth opportunities, and drive measurable operational efficiency by executing complex end-to-end workflows across BSS/OSS environments. Overall, we are excited by the announcement of AOS, which we believe can emerge as a long-term growth engine for Amdocs as telcos realize the potential to simplify and accelerate their AI transformation journey. Switching to cloud on slide 11, Amdocs remains uniquely positioned as the preferred partner to lead the telco industry's journey to the cloud, reflecting our proven ability to accelerate public, private, and hybrid cloud migrations. We are continuing to grow our cloud migration collaboration with AT&T, supporting them as they move another key infrastructure stack to the cloud. This represents an important next phase in AT&T's cloud modernization journey. By applying Amdocs' AI-driven migration capabilities and deep telecom domain expertise, we are helping AT&T modernize core infrastructure faster, reduce transformation risk, and improve operational efficiency while creating the foundation for future innovation. As discussed last quarter, our SaaS-based platforms, including Amdocs ConnectX, Amdocs MarketONE, and Amdocs eSIM, are also contributing to growth with rising customer adoption. This quarter, Amdocs MarketONE was selected by Vizio, formerly Vizio, a leading smart TV platform powering over 50 million TVs globally. MarketONE will rise Vizio's global OTT subscription and streaming bundles on home AOS-equipped smart TVs, streamline OTT partner onboarding, enabling innovative subscription bundling, and digital services expansion across its international footprint. Looking forward, cloud will remain a primary focus for Amdocs as we continue to support our global telco customer base, many of which are just getting started on their multi-year cloud journeys. Turning to slide 12, I'd like to spotlight some additional deal wins across Amdocs' other strategic domains this quarter. Matt Smith: First, Shuky Sheffer: I'm delighted to announce that Vodafone Germany has extended its multiyear digital transformation engagement with Amdocs. As part of this, it will decommission multiple legacy technology stacks to simplify its IT infrastructure across its fragmented cable portfolio. The program will complete with a gradual migration following proven agile delivery, running fully in the public cloud, and utilizing GenAI tools to increase delivery efficiency. In Western Europe, we won significant digital transformation awards with two new logos that further expand our strategic relationship with large global telco service providers. In Italy, Swisscom's Fastweb broadened its use of the Amdocs platform as the unified orchestration layer to manage end-to-end order management across both wireline and wireless consumer domains in the new core resulting from the post-merger integration with Vodafone Italy. Within the BSS and OSS sphere, Swiss service provider Sunrise has extended its collaboration with Amdocs to support AI evolution in CRM, setting the foundation for further increasing its Net Promoter Score and offering customers the best service at any time. We also signed a new four-year agreement with Telefonica Germany to renew our Actix mobile network platform. Actix plays an important role in optimizing linear network performance, helping Telefonica Germany enhance coverage and network quality at scale. This renewal reflects the ongoing value we deliver in mission-critical network operations and further strengthens our long-term collaboration with the customer. Finally, we recently signed a proof of concept with a leading operator in Japan, deploying Amdocs RevenueONE with billing capabilities to run real operation scenarios. This engagement reinforces the strength of our revenue management portfolio in supporting complex, strategic customer environments and creates a path for potential expansion. Matt Smith: Now, Shuky Sheffer: to the current operating environment. We believe many growth opportunities exist across our several addressable markets of roughly $60 billion. By tapping new domains at our largest long-standing customers, capturing additional wallet share at existing customers and new logos, diversifying into new geographies such as Japan, Africa, and the Middle East, and bringing innovation in emerging strategic domains such as generative AI, fiber rollout, cloud migration, and the rapidly evolving MVNO segment. With our deep telco domain expertise and unique tech-led customer-based business model, we are well-positioned in the market and laser-focused on monetizing the rich deal pipeline we see in front of us. That said, we are, of course, closely monitoring our customers' demand and spending behavior within the prevailing global macroeconomic environment. Bringing everything together on slide 14, with our solid first-quarter performance and our visibility for the remainder of the year, we are reiterating our guidance for revenue growth of between 1.5% and 5.5% in constant currency for fiscal 2026. Similarly, we are on track for non-GAAP diluted earnings per share growth of between 4% to 8% in fiscal 2026, the midpoint of which equates to an expected total shareholder return in the high single digits, including our dividend yield. On a personal note, after many years serving Amdocs in a range of leadership roles, including more than seven years as President and Chief Executive Officer, I've decided to retire from my role as President and Chief Executive Officer. It has been the greatest privilege of my professional life to lead this incredible organization and its talented people for the past seven years. I'm immensely proud of what we've accomplished together. We didn't just navigate and choose the cloud and the rise of GenAI; we transformed Amdocs into a true catalyst for the digital age. I am pleased to announce that Jimmy Olfic, a long-time colleague and trusted partner who is here with me today, will succeed me as the President and Chief Executive Officer effective March 31, 2026, following a planned transition period. Matt Smith: I take Shuky Sheffer: this step with deep confidence in Amdocs' position, long-term strategy, and leadership team. Having worked closely with Jimmy over many years, I've seen his ability to lead the company through significant industry and technological change while maintaining a strong focus on customer execution. This planned succession reflects the depth of talent within Amdocs' management team and ensures continuity in our strategic direction. I am confident that Jimmy, supported by an experienced, highly capable executive team, will build on Amdocs' strong foundation and lead the company to new heights. I'm delighted to say that Jimmy is here with me in the room today. So let me hand things over to him to say a few words before moving to Tamar. Jimmy Olfic: Thank you, Shuky, for the kind words and for our partnership over the years. I'm excited to lead Amdocs into the next chapter. During my career at Amdocs across different leadership roles, I've come to appreciate what makes Amdocs a leader: our people and culture, our customer trust, and our technology innovation. As we look ahead, Amdocs is well-positioned to combine emerging technologies with deep domain expertise to drive value to customers and shareholders. I'm looking forward to building on everything we have accomplished and taking Amdocs to the next level. Shuky Sheffer: Thank you, Jimmy. And with that, let me turn the call over to Tamar for her remarks. Tamar Rapaport-Dagim: Thank you, Shuky, and hello everyone. Thank you for joining us, and Jimmy, best of success. To begin, I'm pleased with our solid financial performance for the first fiscal quarter as summarized on slide 17. Q1 revenue of approximately $1.156 billion was up 3.5% year-over-year in constant currency. Revenue was slightly above the midpoint of our guidance even after unfavorable foreign currency movements of roughly $3 million compared to our guidance assumptions. On a reported basis, revenue was up 4.1% from a year ago. Revenue from the acquisition of Matrix Software was immaterial in Q1 since the deal closed in the last week of the quarter. On a regional basis, North America was up nearly 4% from a year ago and was higher on a sequential basis for the fourth consecutive quarter. Europe was up by 17% year-over-year and increased by 1% sequentially, driven by organic growth initiatives and the December 2024 acquisition of Profinet, which made little contribution to the year-ago quarter. Rest of the world was down from a year ago but improved slightly as compared to the prior quarter. Consistent with our prior guidance, our strong sales momentum provides clear visibility to continued growth in Rest of the World this year. Let me remind you that quarterly trends may fluctuate given the project orientation of our customer activities in this region. Shifting down the income statement, non-GAAP operating margin of 21.6% improved by 40 basis points from a year ago and was stable on a sequential basis as we continue to balance the benefits of internal cost and efficiency initiatives with investments designed to accelerate our long-term growth, including the development of our next-generation AI platform. Interest and other expenses amounted to roughly $10 million in Q1. On the bottom line, non-GAAP diluted EPS of $1.81 was above the guidance range, primarily due to a lower than expected non-GAAP effective tax rate in the quarter. Similarly, diluted GAAP EPS of $1.45 exceeded the guidance range, which was also primarily due to a lower than expected GAAP effective tax rate in the quarter. Additionally, diluted GAAP EPS included a restructuring charge of roughly $0.09 per share, which was not included in our guidance for the quarter. Turning to Slide 18, Managed Services revenue of $746 million was up 2.3% from the prior year in the first fiscal quarter. As a share of total revenue, managed services accounted for roughly 65%, consistent with the last several quarters. During Q1, we maintained very high managed services renewal rates, signing expanded multiyear engagements, which together strengthen our business resiliency. In addition to the new agreement with T-Mobile and the new engagement with Vodafone Germany, we signed an agreement with Telefonica Mobile Argentina to operate water maintenance services, application managed services, and our software factory. Moving to the balance sheet and cash flow highlights on slide 19, DSO of 76 days decreased by five days from a year ago and was up by two days sequentially. Unbilled receivables net of deferred revenue was down by $32 million sequentially and by $6 million versus a year ago in Q1, aggregating the short-term and long-term balances. As a reminder, the net difference between unbilled receivables and deferred revenue fluctuates from quarter to quarter in line with normal business activities as well as our progress on multiyear engagements. Free cash flow before restructuring payments was $237 million in Q1, driven by strong earnings to cash conversion to begin the year. In fact, Q1 free cash flow already equates to roughly 33% of our full-year target, which is higher than usual after just one quarter. Including restructuring payments of $49 million, reported free cash flow was $188 million in the quarter. We ended Q1 with a healthy cash balance of approximately $248 million and aggregate borrowings of roughly $780 million, including a drawdown of $130 million on our $500 million revolving credit facility to fund the acquisition of Matrix Software, and our $650 million senior notes, which mature in June 2030. Overall, we have ample liquidity to support our ongoing business needs while retaining the capacity to fund our future strategic growth. Switching to capital allocation on slide 20, this quarter, we repurchased $146 million of our shares. We had up to $840 million of remaining repurchase authority as of December 31, 2025. We paid cash dividends of $57 million in the first fiscal quarter. Looking to fiscal 2026, we are on track to generate free cash flow of between $710 million to $730 million, not including payments we expect to make under our current restructuring program. Our free cash flow outlook equates to a conversion rate of roughly 90% relative to expected non-GAAP net income and translates to a healthy free cash flow yield of roughly 8% relative to Amdocs' current market capitalization. Regarding our capital allocations for the coming year, we expect to return the majority of our free cash flow to shareholders. Moving to slide 21, 12-month backlog was $4.25 billion at the end of Q1, up $60 million sequentially and 2.7% from a year ago. Now turning to our revenue outlook on slide 22, we are continuing to closely monitor the prevailing level of macroeconomic, geopolitical, business, and operational uncertainty in the current business environment. The second quarter and full fiscal year 2026 financial guidance reflects what we consider to be the most likely outcome based on the information we have today, but we cannot predict all possible scenarios. For the full fiscal year 2026, we expect revenue growth of between 1.5% and 5.5% as reported, roughly half of which will be inorganic in nature. This includes the acquisition of Matrix Software, which was already incorporated in our assumptions when we provided our fiscal 2026 guidance last quarter. This expected range compares with 1.75% to 5.7% previously, with the change reflecting foreign currency movements which are now assumed to provide the benefit of 0.5% for the full year as compared to 0.7% previously. For the full fiscal year 2026, we are reiterating our outlook for revenue growth of between 1.5% and 5.5% in constant currency. As for the second fiscal quarter, we expect revenue of between $1.15 billion to $1.19 billion. Moving down the income statement, we are on track to deliver non-GAAP operating margins within our target range of 21.3% to 21.9% in fiscal 2026, the midpoint of which is roughly 20 basis points higher than the prior year of 21.4%. Our profitability outlook reflects an intentional decision to accelerate our R&D, sales, and marketing investments with respect to generative AI and our next-gen agentic operating system, while balancing this with ongoing cost and efficiency gains resulting from our continuous focus on operational excellence, automation, and the internal deployment of generative AI-based tools across our business. As a reminder, our non-GAAP operating margin may fluctuate slightly on a quarter-to-quarter basis. Additionally, our margin outlook excludes additional restructuring charges we may take. Below the operating line, we expect non-GAAP net interest and other expenses to be impacted by higher finance costs this year, resulting from a reduced cash balance and funding of our strategic long-term growth plan. As anticipated at the beginning of the year, we expect our non-GAAP effective tax rate to be within an annual target range of 16% to 19% for the full fiscal year 2026. For your modeling purposes, in Q2 specifically, we expect our non-GAAP effective tax rate to be above the high end of this annual range. Bringing everything together on slide 24, we are reiterating our outlook for non-GAAP diluted earnings per share growth of 4% to 8% in fiscal 2026, the midpoint of which positions us to deliver high single-digit expected total shareholder return, when including our dividend yield of around 2.7%. With that, back to you, Shuky. Shuky Sheffer: Thank you, Tamar. I am pleased with our solid start for the fiscal year and the important progress we've made in respect to our long-term strategic partnerships, the expansion of our customer base globally, and today's announcements for the new agentic operating system AOS, which we believe can provide an additional engine for long-term growth. With that, we are happy to take your questions. Operator: Certainly. And as a reminder, ladies and gentlemen, if you do have a question at this time, please press 11 on your telephone. We ask that you please limit your questions. Our first question for today comes from the line of Shlomo Rosenbaum from Stifel. Your question, please. Shlomo Rosenbaum: Hi. Thank you very much for taking my questions. Shuky, Tamar, just the T-Mobile announcement, obviously, a significant positive. Everyone's kind of waiting for this renewal. I was wondering if you could give us just a little bit more color on that because it's just discussed as a multiyear agreement, doesn't say how long it is. You know, how could we compare this to the prior agreement? I know you talked about revenue being down in '26. Is there a continued trajectory that way? Or should we assume there's a new baseline? And just you know, is the scope the same with what you were doing? I know there's T-Mobile in the third quarter announced a very sizable charge against its, you know, its billing system. Including what it seems like, you know, stuff that was still in development. And maybe you could just kind of put a, you know, a finer point on what's going on over there since it is a very significant client, and then I have one follow-up. Thank you. Tamar Rapaport-Dagim: Sure. Hi, Shlomo. Let me try and give some more color. We're talking about a five-year agreement. This is quite typical for a long-term services engagement and additional engagement with the top customers. We are covering in this agreement, as we indicated, managed services. We are covering development services, some AI-related activities, integration of common systems. So there's plenty of, I would say, breadth to the engagement that is covered there. We also indicated, beyond this agreement, that we are going to support in the integration of UScellular, which is, of course, a strategic move that T-Mobile announced already in the past. We feel that the relationship, of course, needs to take us to continuous support at T-Mobile both on the consumer side of the business as well as the support of the business segment of T-Mobile. We continue to see specifically, we are guiding now for 2026, so we're talking about the fact we want to be very transparent about the fact we still expect revenue to decline in 2026 as the spending appetite is lower. Not just with that. I think if you look into the commentary from T-Mobile, they are much more cost-cautious. And the other point that we say is that specifically, again, it's not specific to the contract. It's just to remind you that the kind of work we do for integration of systems, like the one we are doing with UScellular, is one that is typically not, you know, it's not recurring by nature. Integration has a beginning and an end, and, hopefully, of course, it will be successful. And, therefore, we wanted to make it clear this is not the what we're talking about multiyear agreement in other activities with T-Mobile. Integration of UScellular is not a five-year thing. Right? Usually, integration is measured by quarters rather than years. Shuky Sheffer: Okay. Overall, I agree with what Tamar said. I think it's we have a relationship with T-Mobile since 1999. So I think this extends our partnership with T-Mobile for days to come. Shlomo Rosenbaum: Okay. Thank you. And then just I want to dig in a little bit more on the Matrix acquisition. Just you guys you already bought a charging platform with OpenNet, like, five years ago, and I want to ask just what strategically you know, is this adding to what you had? And you know, if you could put a finer point onto the revenue that you're expecting from it this year? Is it, you know, if I take kind of the midpoint of your revenue guidance, assume half of it is you know, coming from acquisitions. I would you know, you and and kind of that over three quarters, sounds like it's like around $90 million run rate business. Is that the way to think about it? Shuky Sheffer: I would start with the value of the products, and Tamar will answer more of the financial question. Look. We are dealing with the world with different sizes and different complications of customers. Some of the tier-one customers need different types of charging and capabilities compared to what we call low tiers or mid-tiers. So I think the rationale of this acquisition was also it was a consolidation of a competitor with a very strong product. So I think the rationale, a, it gives us an additional charging engine that we can it's more like what we call tier-two level rather than tier-one. This is one. It gives us a very nice set of customers as we mentioned. And I think that between all our capabilities, I think it's it's trying to position us by far as the market leader in this critical domain of charging and monetization. Tamar Rapaport-Dagim: Yeah. Maybe just to add, you mentioned the acquisition five years ago of OpenNet. OpenNet is an amazing solution that we see deployed in many leading customers and, of course, latency is a significant thing on there. It's a beta solution for the high scale. Back to your point about the revenue contribution coming from M&A. So we did incorporate in the original guidance of the year about half of our growth coming from M&A. And Matrix was definitely mature in the pipe of M&As when we gave that guidance. So that's why I wanted to emphasize that it was planned, and now it's materializing. Now relative to the model of Amdocs, Matrix is a product, software product company. So less visibility into the model than our own regular model. We have taken that into consideration, of course, being the first year of integrating Matrix. We want to be cautious on the revenue view. So I think we are appropriately conservative there. Yes, it's in the numbers. It's not necessarily the end of the M&A plans we have for the year. We don't have any major buildup of expectations in terms of not only talking about revenue. I'm just talking about the fact we do see also an additional pipeline of good ideas on the M&A side that we may execute upon. But as I always say, M&A is not something you can plan for in a linear way. We want to do the right deals for the right reasons with the right prices. So I think we'll be able to get in a very prudent way in our guidance. Shlomo Rosenbaum: Thank you. Matt Smith: Thank you. Operator: And our next question comes from the line of Dan McDermott from Oppenheimer. Your question, please. Dan McDermott: Hi, guys. Dan on for Tim Horan. Thanks for taking our questions. Just two quick ones. Can you give us some more color on your new agentic operating system you announced today? You know, why it's unique and how it can serve as a new growth engine. And then second, Verizon has been very vocal about aggressively cutting expenses. We were wondering if you're doing anything there to help them with their restructuring and their AI initiatives. Thanks again. Shuky Sheffer: So the what we call AOS, the agentic operating system, and if you remember last quarter, we started to talk about this as we are developing a next-generation platform for GenAI. At the time, we talked about Cognitive Core, which is part of the overall AOS. And in a simple way, and I want to avoid becoming an architecture discussion, it's a layer that can sit on top of any BSS/OSS infrastructure. And actually can provide with, obviously, giving our knowledge of this very deep and intimate knowledge of this industry. We are building an agentic platform that actually eventually, you can operate all the activities through agents. And we are going to showcase this in Barcelona, meet with many customers, and so today, we announce it, and the full showcase will be roughly a month from now. We believe this will, in the future, serve as a new growth engine for Amdocs. We did not include any revenue for this in this current fiscal year, but we believe that from everything that we hear in the industry, this is going to be the probably the most, I would say, prominent and strong foundation to leverage GenAI, and we're very proud of what we are in the process of building. And regarding Verizon, I cannot comment more than you need to assume that we are engaging with Verizon to see how we can help them in the future. Operator: Thank you. And our next question comes from the line of George Notter from Wolfe Research. Your question, please. George Notter: Hi, guys. This is Terron on for George. Could you talk a little bit more about how the telcos are progressing in terms of looking to accelerate and simplify their AI journey? Specifically, can you talk about how the pipeline is progressing? And any new opportunities that have popped up for you? Shuky Sheffer: Thanks. I think overall and definitely, we talked about this before, we were very active in working with our customers, you know, building and developing different use cases in the call center, in the retail store, or any upsell or care type of scenarios. But this was more, I would say, different solutions to different needs, different use cases. The difference with AOS, it is a complete holistic value proposition to address all what we believe the future telco needs to level up this technology. All our customers are obviously trying successfully in many cases to leverage this, but it's more, I would say, it's like moving from opportunistic to strategic. From different use cases and different capabilities that all our customers are already experiencing, both in the IT and the network domain, to a much more holistic value proposition that actually will translate or converge in the future the way our customers work to a full agentic way. So this is the difference from what we've done so far to this daily solution. But, obviously, in the early days, I mean, most of our customers, as I said, are trying fields. We do a lot of field trials. In many cases, also, are getting some value, but I think this is very, very, very early days in this domain. George Notter: Great. Thanks. Operator: Thank you. And as a reminder, ladies and gentlemen, if you have any further questions, please press 11 on your telephone. Our next question comes from the line of Tal Liani from Bank of America. Your question, please. Tomer Zilberman: Hey, guys. This is actually Tomer Zilberman on for Tal. Maybe two for me. You mentioned in the prepared remarks that you had a slight beat to your expectations this quarter on revenues, and your Q2 guidance was also slightly above the street. But you were consistent in maintaining the fiscal year. I just wanted to ask if this is more about rightsizing when you expect the ramp down of T-Mobile revenues this year, if there's anything else to look there. And my follow-up is, as we think about this new multiyear agreement with T-Mobile, can you give us the progression and the trajectory of the milestones you need to hit to really ramp the revenues there? Thank you. Tamar Rapaport-Dagim: So, on the first question, it's not anything specific in particular. It's not a customer that caused that. Actually, I'm happy about the fact that we were able to show now faster performance on the revenue to meet the numbers. You know, we talked from the beginning of the year of a stronger half two than half one, but even then, it wasn't like a big difference. So I would say it's a slight change. And nothing in particular that I can point out that caused that. On your second question, it's not a matter of meeting a specific deliverable that is singular in nature. What we do for T-Mobile includes many activities. So we are doing the managed services that cover the ongoing IT operations. We are doing development work. Some of it is new project-oriented. Some of it is helping them to enhance existing systems. We are going to embed AI activities. We are doing the UScellular integration. We are going to help with other rationalization of common systems. So it's many, many things. It's not like a single project that I can point to a specific milestone. So it's mainly a matter of continuing to execute, bring value, and push forward to the demands and the desires of T-Mobile. Tomer Zilberman: Understood. Thank you. Tamar Rapaport-Dagim: Thank you. Operator: Thank you. This does conclude the question and answer session of today's program. I'd like to hand the program back to Matt Smith for any further remarks. Matt Smith: Okay. Thanks, operator, and thanks, everyone, for joining the call tonight. If you do have any additional questions, please give us a call in the IR group here. With that, have a great evening. Thanks. Operator: Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.
Operator: Good day, and welcome to the Chipotle Mexican Grill, Inc. Fourth Quarter and Full Year 2025 Results Conference Call. All participants will be in listen-only mode. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then 1 on a touch-tone phone. To withdraw your question, please press star then 2. Please note this event is being recorded. I would now like to turn the conference over to Cindy Olsen, Head of Investor Relations. Please go ahead. Cindy Olsen: Hello, everyone, and welcome to our fourth quarter and full fiscal year 2025 Earnings Call. By now, you should have access to our earnings press release. If not, it may be found on our Investor Relations website at ir.tpole.com. Additionally, supplemental investor information is available on our site as a reference for today's call. I will begin by reminding you that certain statements and projections made in this presentation about our future business and financial results constitute forward-looking statements. These statements are based on management's current business and market expectations, and our actual results could differ materially from those projected in the forward-looking statements. Please see the risk factors contained in our annual report on Form 10-Ks and in our Forms 10-Qs for a discussion of risks that may cause our actual results to vary from these forward-looking statements. Our discussion today will include non-GAAP financial measures. A reconciliation to GAAP measures can be found via the link included on the presentation page within the Investor Relations section of our website. We will start today's call with prepared remarks from Scott Boatwright, Chief Executive Officer, and Adam Rymer, Chief Financial Officer, after which we will take your questions. Our entire executive leadership team is available during the Q&A session. And with that, I will turn the call over to Scott. Scott Boatwright: Good afternoon, and thank you for joining us. Today, I will spend a few minutes upfront discussing the highlights of our financial results, and Adam will cover the details. My remarks will cover a broader view into my vision for Chipotle Mexican Grill, Inc., and my deep confidence in our growth strategy, as well as opportunities we have to sharpen our competitiveness by harnessing the core values of our brand. The results we issued this afternoon were in line with expectations and guidance for the full year. 2025 should be seen as a year of progress and resilience for our brand. For the year, revenue grew 5.4% year over year, which included a 1.7% decline in comparable sales. Adjusted diluted earnings per share grew 4.5% year over year to $1.17. We opened a record 334 new company-owned restaurants and 11 international partner-operated restaurants. We also made progress in the strategic areas that matter most for our long-term success, including investing in operational excellence, marketing and menu innovation, deploying new back-of-house technology, and growing our footprint internationally. It's important to emphasize all of this was achieved against a dynamic consumer backdrop, with our guests placing heightened focus on value and quality and pulling back on overall restaurant spending. This makes our investments and progress even more significant and highlights Chipotle's commitment to succeed through consumer cycles. With that in mind, I want to commend the incredible efforts of our teams for their thoughtful response and dedication during the recent winter storm. We have not seen a multistate storm like this in many years, and our operational excellence and prioritization of speed and agility were instrumental in reopening restaurants as quickly and safely as possible to serve our guests. Turning to our path forward, serving as Chipotle CEO is an incredible honor. From our guests to our people, to our partners around the globe, there is a deep love for our brand and the food we serve. Over the past year, I've had the privilege of visiting Chipotle restaurants around the world, including our restaurants in Europe, Canada, as well as the opening of our CityWalk restaurant in Dubai. These experiences have reinforced my conviction and our momentum and our ability to continue delivering exceptional service and elevated experiences for our guests in our restaurants. So what actions are we taking to build a stronger, more profitable Chipotle? Over the last several months, we conducted a comprehensive review of our business as well as the current market landscape and consumer trends, which are fundamentally different from what we experienced a year ago. Here are a few key learnings. Chipotle's brand and value proposition built on high-quality, delicious culinary, and best-in-class operational throughput remain strong and relevant across all age groups and income cohorts. We are seeing positive momentum in the business, with room to accelerate our growth and sharpen our competitiveness without compromising on the core values that define our brand. Our path for further success lies in leaning into what differentiates our brand, accelerating innovation into new offerings and occasions that are of growing importance to our guests, and optimizing the in-restaurant and digital experience. And the strength of our business model and balance sheet allows us to execute against our long-term strategy and emerge from this consumer cycle in a position of greater strength. These insights have shaped the next evolution of our five key strategies, which we are calling our recipe for growth. These strategies include protecting and strengthening the core by driving operational and culinary excellence to deliver exceptional value for our guests, evolving the brand messaging and accelerating menu innovation and new occasions that drive demand in our restaurants, modernizing our business model with industry-leading technology in leveraging AI and relaunching our rewards program to elevate the experience for our guests and our teams, expanding our global reach by scaling with intention proven company-owned and partner-operated markets, as well as strategic new regions, and cultivating the best talent in the industry that is energized and focused on speed and agility. We are acting on these strategies now and are already seeing results. First, we enter 2026 with a strong foundation. We aim to solidify that through a relentless focus on and culinary excellence across all our channels. This will be critical as we continue to scale our brand and meet the need or demand for the future. Driving this key strategy is the acceleration of our rollout of our high-efficiency equipment package, which will improve speed and consistency in our restaurants, delivering a better experience for our teams and our guests. As a reminder, this equipment improves prep by two to three hours, helps eliminate prep time during peak periods, and results in stronger and more consistent throughput execution. It also diminishes the learning curve for new team members in more challenging areas like the grill and improves the consistency of culinary with juicier steak and chicken and is cooked to perfection every time to meet our guests' expectations. For now, we are reinvesting the two to three hours of efficiency back into our restaurants to deliver greater hospitality. The results in the restaurants with the new equipment are compelling. In addition to higher taste of food and overall guest satisfaction scores, we are beginning to see better throughput and meaningful improvement in comp sales. A reminder, 350 restaurants have the full equipment package today, and we anticipate about 2,000 by year-end. Second is our brand positioning and menu innovation. Beyond our food, Chipotle excels at brand marketing. We have strong insights into what our guests want and powerful brand-building and demand-generating programs that have helped to establish our company as an industry leader. As we move into 2026, the consumer landscape is shifting with a heightened focus on value as well as high-quality protein, fiber, and clean ingredients, all of which are fundamental to Chipotle's North Star brand positioning. There remains significant opportunity to expand our leadership in this fast-growing segment by sharpening our positioning, increasing spend, and refreshing our campaigns to strengthen our value perception and further engage our guests through new occasions and increased menu innovation. A perfect example of this is the recent rollout of our high-protein line, which highlights our extraordinary value across a range of price points. Starting with a single taco with 15 grams of protein, at just $3.50, to a double protein bowl with over 80 grams of high-quality protein. Also includes a new high-protein cup for around $3.80 and is inspired by hacks that our guests rely on to boost their intake and offers a solution to those looking for smaller portions, which is a fast-growing trend with the adoption of GLP ones. Early results are strong, with incidence of extra protein increasing 35% and our recent double protein promotion achieving a record digital sales day. When I said that we will harness what is great about Chipotle and reinforce our value proposition to propel us forward, this is it in action. We also know from our data that our core guest is more likely to choose a restaurant that has a new menu item. To further drive demand, we will increase our menu innovation cadence to four limited-time offers in 2026, giving our guests more reasons to visit Chipotle. This will include the return of Chicken Al Pastor next week, which is the most celebrated limited-time offer in history, with two times the request on social media to bring it back compared to any other LTL. Limited-time offers are not just delicious. They yield traffic by bringing in new guests while increasing the of the existing base. Additionally, the LTO acquired guests demonstrate higher long-term value, maintaining elevated spend and frequency levels throughout the year. In addition to limited-time offers, we will roll out new sauces and build a strong pipeline of innovation in untapped sales layers like sides and beverages. As new menu items make their way through the stage gate process, we can pace and sequence these growth layers to provide a long path for transaction growth for years to come. We also see the group occasion as a big longer term. We are currently building awareness around build your own Chipotle for families or groups of four to six as well as testing the expansion of catering. Today, these two group occasions represent less than 3% of combined sales yet could be double-digit percentage of sales longer term. Build Your Own Chipotle continues to perform. It is also highly incremental and driving strong repeat purchases, which is why we are extending our trial promotion into 2026. To build on our momentum, we will scale awareness across our marketing channels, leaning into moments that bring people together like sports, holidays, and other shared occasions where we have seen our highest incidents. Regarding our catering tests, our teams are getting up to speed with the new equipment and technology that will support a bigger catering business. And we are ramping up our marketing efforts, including the recent rollout of one of the large third-party delivery platforms. While it is still early in a testing phase, we are seeing the catering orders begin to build, and we remain optimistic that we have found the right solution to help scale our catering business moving forward. Third, we are in the process of relaunching our rewards program this spring to widen the funnel, leverage our data and AI to power more personalized and impactful user experiences. In 2025, we grew our active members to over 21 million, thanks in part to our summer of extras campaign, as well as more engagement through programs like Free Potlait throughout the second half of the year. Through that, we experienced an acceleration in loyalty comps in the back half of the year that outpaced total comps by several hundred basis points. Currently, about 30% of sales are realized through our rewards platform, and the momentum gives us confidence that there remains significant runway for growth by bringing more guests into the funnel, deepening engagement, and driving sales throughout the year. One of the biggest opportunities is in-restaurant, as only about 20% of transactions are through our rewards program, compared to nearly 90% of our app transactions. Looking ahead, we have a strong campaign planned around the spring launch of a more engaging rewards program specifically designed to target the in-restaurant guest and remove friction from the checkout experience. Additionally, the campaign will include more programs like summer of extras and continuing to leverage gamification, which has resonated well with our guests. We look forward to sharing more details about rewards in the coming months. Fourth, accelerating global expansion. In 2025, we opened a record 345 new restaurants and saw over 9% new restaurant growth. We opened 334 company-owned restaurants where we surpassed 4,000 in December. This included 21 openings in Canada, an increase of 38% year over year for that country. We remain confident in our ability to reach 7,000 restaurants in North America longer term. And we are accelerating growth globally. In Europe, we ended the year with positive comps and another step change in the economic model. In fact, Central London and Frankfurt have reached strong cash-on-cash returns, which has unlocked growth for these markets in 2026. Now turning to the Middle East. With our regional partner, Al Shia Group, we opened seven more partner-operated restaurants in the fourth quarter and 11 for the year, with a total of 14 restaurants in the region. I recently had the opportunity to experience an opening in Dubai, where the energy was electric and thousands of guests chanting Chipotle as we unveiled the new restaurant, powerfully demonstrating the brand's affinity and enthusiasm for our delicious food. With Al Shire Group, we plan to nearly double our footprint and sales in 2026, including entering new markets like Saudi Arabia. Longer term, we believe we can have hundreds of restaurants in this region. Additionally, we remain on track to open our first restaurants in three new partner-operated markets this year, including Mexico, Singapore, and South Korea. The global growth story is gaining momentum across all markets, and we know that when we deliver our fresh, delicious culinary experience, with speed and exceptional hospitality, it resonates around the world. Fifth is the team. None of these strategies would be executable or goals attainable without our people. We know that when we take care of our team members, they take care of our guests. It's that simple. I'm extremely proud of the way in which our teams work this year, both in restaurants and at our support centers to deliver for our guests. Key to our culture that sets us apart from the others is promoting top talent from within. In fact, in 2025, Chipotle had 23,000 internal promotions, including 100% of our regional vice president roles, over 83% of our field leader positions, and nearly 90% of our restaurant management. We will always keep opening doors for our people, creating more pathways for career growth, and advancement at every level in our company. We move forward are building a culture of speed and agility and adding exceptional talent to drive our strategy. As you may have seen last month, we announced that Roger Theodoretas and Chris Brandt transitioned out of their current roles. I want to thank Roger and Chris for their leadership and many contributions. Roger has been a trusted adviser while Chris has been instrumental in helping Chipotle become a purpose-driven lifestyle brand as we grew our footprint more than 4,000 restaurants. We have promoted Aileen Eskenazi to be chief legal and human resources officer. He will bring her extensive experience overseeing a broad range of legal and compliance matters as well as talent management and compensation and benefits to help us execute our talent strategy. As I mentioned earlier, our marketing team and how we engage with our guests are at the heart of Chipotle's success. We have grown our marketing capabilities by leaps and bounds over the past eight years, which makes us the exact right moment to take it to the next level build upon our strong foundation. We are conducting a national search for our next chief marketing officer, I look forward to sharing more on that front soon. Additionally, to accelerate our approach to technology and innovation, we are hiring a new chief Digital Officer and a Vice President of Emerging Technologies. Each will play a critical role in helping us to become more efficient, enhance our operations, and develop and deploy industry-leading technology. Combination of our existing team, internal succession planning, and external response to searches gives us a high degree of confidence that we will have exceptional talent executing the recipe for growth strategy. And our leadership teams are committed to staying close to our guests and the frontline experience because the fact is the answers are in the restaurants. To close, I want to highlight that we recently celebrated the twentieth anniversary of Chipotle's IPO in 2006. Looking back over the last twenty years, what stands out to me is the consistency of our brand. Two decades later, we still have the same unwavering transparent commitments to sourcing the best ingredients. We continue to deliver exceptional value for our guests, and we are investing in the development and growth of our world-class teams. We look forward to the next twenty years I've never been more confident in the strength of this brand and our ability to win. Our recipe for growth and 2026 plan will position us for success in any environment. And we're confident it will drive transactions allow us to move faster, and create long-term sustainable growth for our people, our guests, and our shareholders. I will now turn it over to Adam. Adam Rymer: Thanks, Scott, and good afternoon, everyone. I'm pleased to report that we delivered sales results that were in line with our expectations with the accelerating trends throughout the quarter and into January. To support this performance, we made the strategic decision to elevate our marketing activity to ensure Chipotle remained top of mind with our guests. Now turning to our results. For the fourth quarter, sales grew 4.9% to reach $3 billion, with a comp decline of 2.5%. Sales benefited from a $27 million true-up following an annual gift card breakage analysis. This true-up did not impact comparable restaurant sales. Digital sales were 37.2% of total sales. Restaurant level margin was 23.4%, down 140 basis points year over year. Restaurant level margin also included a 70 basis point benefit from the gift card true-up. Adjusted diluted earnings per share was 25¢, consistent with last year. And we opened 132 new restaurants, including 97 Chipotlanes as well as seven additional partner-operated restaurants. As we move into 2026, we anticipate our full year comparable restaurant sales to be about flat. We are confident in our recipe for growth strategy, and we are encouraged by the meaningful improvement and underlying trends we've seen in January following the launch of our new protein menu and marketing campaign. However, we believe it's prudent to keep our full year guidance grounded in a conservative baseline given the evolving consumer dynamic. We will continue to take a disciplined and measured approach to pricing but do not expect it will fully offset inflation in the near term as we remain committed to delivering exceptional value for our guests. We anticipate the impact of pricing in the first quarter will be about 70 basis points compared to our expected inflation approaching the mid-single-digit range. We expect the gap between our pricing and inflation to be at its widest point in the first quarter, and then we'll narrow meaningfully throughout the year. I will now go through the key P&L line items, beginning with cost of sales. Cost of sales in the quarter were 30.2%, a decrease of about 20 basis points from last year. The benefit of menu price, lower dairy prices, and cost of sales efficiencies offset inflation, primarily in beef, and chicken, as well as the impact of tariffs. Tariffs impacted the quarter by about 30 basis points. For Q1, we anticipate our cost of sales to be in the mid-30% range primarily driven by higher costs across several items. Most notably beef, avocados, and cooking oils, partially offset by the benefit of carne asada ramping down, modest pricing leverage, and lower tariffs. With the recent removal of tariffs on beef and other agricultural goods, we now anticipate our ongoing tariff impact to be around 15 basis points. Overall, we anticipate cost of sales inflation to be higher in the first half of the year, and will step down to the low to mid-single-digit range in the second half of the year as we lap elevated beef costs. This results in full-year cost of sales inflation in the mid-single-digit range. Labor costs for the quarter were 25.5%, an increase of about 30 basis points from last year. As higher pricing and lower performance-based bonuses were more than offset by lower volumes, and wage inflation. For Q1, we expect our labor cost to be in the high 25% range, with wage inflation in the low single-digit range. Other operating costs for the quarter were 15.5%, an increase of about 100 basis points from last year. Primarily driven by higher marketing, delivery, utility costs, as well as lower sales volumes, an increase of about 50 basis points from last year. Marketing costs were 3.5% of sales in Q4. As I mentioned earlier, we accelerated our marketing spend in the quarter which helped us remain top of mind with our guests. We expect our marketing costs to remain in the mid-3% range for Q1 and in the low 3% range for the full year. For Q1, we anticipate other operating costs to be in the mid-15% range. G&A for the quarter was $160 million on a GAAP basis, $162 million on a non-GAAP basis. Excluding a $4 million reduction in legal contingencies and around $2 million related to retention equity awards granted to key executives in August 2024. G&A also includes $145 million in underlying G&A, $21 million related to noncash stock compensation, which included a reduction in our performance share accruals, $1 million related to our upcoming all-manager conference which will be held in Q1 of this year, offset by $5 million lower bonus accruals. We expect G&A in the first quarter to be around $203 million on a non-GAAP basis, which will include $142 million in underlying G&A, around $26 million in noncash stock compensation, although this amount could move up or down based on our actual performance, and is subject to the final 2026 grants, which are issued in Q1. Around $28 million related to our upcoming all-manager conference, and around $7 million related to employer taxes associated with shares that vest during the quarter. Depreciation for the quarter was $93 million or 3.1% of sales. For 2026, we expect it to remain around 3% of sales. Our effective tax rate for Q4 was 23.7% for GAAP and 23.4% for non-GAAP. Our effective tax rate benefited from an increase in US federal income tax credits. For fiscal 2026, we estimate our underlying effective tax rate will be in the 24% to 26% range, though it may vary based on discrete items. Our balance sheet remains strong as we ended the quarter with $1.3 billion in cash, restricted cash, and investments and no debt. During the fourth quarter, we purchased $742 million of our stock at an average price of $34.14, bringing our full year 2025 total to a record $2.4 billion at an average price of $42.54. During the quarter, the board authorized an additional $1.8 billion to our share purchase authorization and at the end of the quarter, had $1.7 billion remaining. To close, the momentum we are seeing today reinforces our confidence in our recipe for growth strategy, enabling us to build on what differentiates Chipotle and to compete and win with greater efficiency and impact. We remain committed to the financial discipline required to both protect and strengthen our strong economic model. And with our brand strength and customer loyalty as our foundation, we will continue executing our strategy and expanding our runway for extraordinary growth. We look forward to sharing our progress along the way, and we are ready to take your questions. Operator: We will now begin the question and answer session. For the interest of time, please limit yourself to one question and one follow-up. To ask a question, you may press star then one on your touch-tone phone. If you were using a speakerphone, please pick up your handset before pressing the keys. Please press star then 2. At this time, we will pause momentarily to assemble our roster. First question comes from Brian Bittner with Piper Sandler. Please go ahead. Brian Bittner: Hey, thank you. Just a question on the guidance for about flat same-store sales. I guess, one, can you just help us understand the components embedded in there? For transactions and menu price and mix, that would be helpful to understand. And then just to anything you can offer on the cadence you'd expect. And I'm asking because you mentioned being encouraged by January. It would seem like there's some easy compares ahead, so just anything you could offer there would be helpful. Adam Rymer: Yeah. Definitely. Thanks, Brian. So for the full year, like we said in our prepared comments, we're excited about the momentum that we've seen in our underlying trends in January after the launch of the protein menu and that whole campaign. We're confident in our recipe for growth strategies and that they'll continue to drive transactions up throughout the year, including with chicken al pastor launching next week. But with that said, we think that it's still very early in the year, and consumer trends have been really tough to predict. So we wanted to be conservative in our full year guide to account for this. And our full year guide only includes, I would say, really a modest impact from the initiatives that we have this year. And then when you're thinking about how this works out throughout the rest of the year, we expect comps to improve throughout the year as our initiatives drive transactions. And as our compares get a little bit easier throughout the year. Brian Bittner: Okay. Thank you. And then just on the high-efficiency package, in the prepared remarks, you're referencing some increased throughput, maybe a lift to comp sales at those 250 restaurants. Just wondering at those restaurants, any quantification you could provide on what you're seeing at those stores and that's something you might I think you said 2,000 at the end of the year, but would you look to accelerate that over the next couple of years? Scott Boatwright: Hi, Brian. Excuse me. It's Scott. Thanks for the question. We're really excited and encouraged by the results we're seeing with the heat package. We're seeing better engagements, consumer engagement scores, we're seeing better scores around food quality and taste of food. And like we said in the prepared remarks, we're seeing hundreds of basis points of improvement in comp sales in those restaurants alone. That gives us confidence that we are approaching the strategy the right way, and it's having a meaningful impact for our team members and for our guests. We have already accelerated the program. We should be at 2,000 restaurants by the end of the year. And then you could see that there is a path to probably finish the rollout at some time in 2027. And we will go as absolutely fast as we possibly can. Brian Bittner: Thank you. Operator: Our next question comes from Sara Senatore with Bank of America. Please go ahead. Sara Senatore: Thank you very much. I guess maybe two quick questions. One is if you could talk about the LTO. I know that that's something you're gonna do more frequently. You talked about chicken al pastor being, I guess, twice as requested as anything else. I think about the fourth quarter, I think carne asada was maybe it didn't act exactly how you expected, although you can correct me if I'm wrong. So I guess how are you thinking about the LTOs? Are you gonna market it differently, or maybe it's more accessible price point just in terms of, you know, ensuring that you get the biggest lift from the LTO that, you know, what you would normally expect. So and then I'll have a follow-up, please. Scott Boatwright: Hi, Sara. It's Scott. Thank you for the question. So carne asada did perform as it relates to incidents just as well as it did in 2023, and I'm confident it did move the needle on transactions. To what extent, I can't really parse out at present. Here's what I will tell you is what we know from what we learned in 2025, which is really a year of progress, as I said, and resilience, is that the LTO consumer, the consumer that chooses an LTO at Chipotle has a higher lifetime value, visits the brand more often, and spends more. We're gonna lean into that moment with our core consumer. We've done exhaustive work around who the Chipotle customer is this past year. What they're looking for from our brand, and menu innovation and new news really at the top of the list. As it relates to how we'll market those components, we've increased the spend this year to account for fully supporting four stand-alone LTOs. I think the marketing message you'll see will begin to evolve. Hopefully, you've already seen the high protein wash that just happened, the Choices ad that just ran a couple of weeks ago. We're approaching the messaging differently, and we're gonna celebrate what is unique and different about Chipotle in a more meaningful way in the upcoming year. And you'll see that evolve as we continue to as the year unfolds within the marketing strategy. Sara Senatore: Okay. Thank you. Very helpful clarification. And then just a follow-up as related. You mentioned doing a national search for Chief Marketing Officer. Just curious, since you are, as you noted, spending more, you know, the percentage of revenues and, you know, multiple LTOs. Does that the fact that you, you know, perhaps are doing a search, is there any, I don't know, just risk of disruption or that, you know, the plan changes? Just trying to understand kind of the cadence. Scott Boatwright: Yeah. I would think of this, Sara, more as a chapter change. And here's what I would tell you. As we have both great internal candidates for the position as well as a lot of interest externally, and what we want to do is ensure that we stay on brand. We're gonna stay core to who we are. And we're just gonna lean into celebrating what, again, our points of differentiation. And our uniqueness in a more compelling way. So think of it as a chapter change for the brand. Chris Brandt did a tremendous job making us a purpose-driven lifestyle brand. That doesn't change, and that doesn't go away. They give us the next evolution of the marketing strategy. That really pushes us into the next phase of growth for Chipotle. Sara Senatore: Thank you. Operator: Our next question comes from Lauren Silberman with Deutsche Bank. Please go ahead. Lauren Silberman: Thank you very much. I have a question on comp and then one on the value side. Just on the comp in January, I know there's a lot of noise. Can you just help level set what you're seeing quarter to date, perhaps pre-storm, if that's the best you know, thought on what's going on there. And then are you assuming underlying trends from January continue throughout the year? Or just help contextualize what's embedded there. Scott Boatwright: Yeah. You know, I've said in the prepared remarks, we saw a lot of momentum coming into January. Recall that the protein menu launched kinda late December. And we really saw an acceleration in the trends. All the way up until the storm hit, you know, a multistate impact with massive restaurant closures. So it's a lot of noise in the underlying trend at present. But I'll pass it to Adam. Adam, do you have anything you want to add to that? Adam Rymer: Yeah. And I would just say, you know, for Q1, this gets us to an underlying trend somewhere in that minus 1% to minus 2% range, and that's what's embedded in our expense line guidance and our prepared comments. But you have to keep in mind that that comp range includes about 100 basis points impact from the restaurant closures from the large winter storm that Scott mentioned. And that's 100 points of impact on the quarter. On the quarter. Correct. Yeah. Lauren Silberman: Okay. Very helpful. On the value proposition side, you guys have you're talking about opportunities to strengthen that. You've been promoting protein. With a single taco, the cup of protein for under $4. Is there more opportunity for entry-level pricing or how you're thinking about smaller portions overall and just how you're thinking about balancing that with not cannibalizing the core business? Scott Boatwright: Thank you. Yeah. What's great about the offering in the protein menu is we're not discounting the product. We're just celebrating something that's on the menu that may have little awareness today. I think having a taco at $3.50 and a protein cup around $3.80 across the country is really an approachable price point that really gives the consumer a meaningful way into the brand, but also solves for, you know, those people that are looking for a different choice whether they're GLP one users, or looking for other dietary restrictions, more high protein, or high fiber. We will test and learn on a couple of new ideas that may be price-pointed throughout the year. And see if they make their way through Stage Gate and actually make a national calendar. But we feel really comfortably situated where we are today. Given the pace of LTOs that will all unfold starting with chicken al pastor on February 10, we have some new news. We have a, you know, a couple of tried favorites. True favorites that have performed well historically. I think the marketing calendar I don't think the marketing calendar this year is more robust and it'll be better supported. With targeted media than we've seen historically in the brand. Thank you. Operator: Our next question comes from David Tarantino with Baird. Please go ahead. David Tarantino: Hi. Good afternoon. I have a question on the margin outlook. And Adam, I was wondering if you could comment on where you think the full year restaurant margin would shake out on a comp that's about flat. I, yeah, I think you have some pricing coming in. You said you're gonna narrow the gap versus inflation. But just any comment on where the full year might shake out given the guidance on the comp? Adam Rymer: Yeah. Yeah. Definitely, David. So margins in 2026 will be under pressure, and it's mostly due to our investment of taking less price compared to the inflation that we're experiencing. But again, I would emphasize that's temporary. And we'll balance it out towards the end of the year. And like I said in my prepared comments, that gap will be the widest in the first quarter. So to put some numbers into it, we expect pricing to be about 70 basis points of impact in the first quarter. While inflation is closer to about 4%. So just then and there, that's about a 250 basis point margin headwind. We'll chip away at throughout the year. When you think about it on a full year basis, I would anticipate pricing to be in that 1% to 2% range. While inflation will be closer to that 3% to 4% range. So just that dislocation alone will be about a 150 basis points. On a year-over-year decline. And then there's a little a couple other adjustments in there, like ad promo is gonna go up maybe 10 or 20 basis points. You have the gift card benefit in 2025, which is another 20 basis points or so. Then, of course, you've gotta make the adjustment for transactions on a flat guide. There'll be a slight degradation in the margin from there. But the good news is that dislocation is temporary. We'll get that back by the end of the year. And all the initiatives that we have in place to drive transactions will resonate with our guests this year, and we're confident that we can drive up above that full year guide with some upside potential from us. So that's a good way to think about it, though, thinking from '25 to '26. Scott Boatwright: David, I would add to that. You know, we still have confidence in the long-term algorithm. Of getting to $4 million AUVs and approaching 30% margins. Although this year will be challenged for a couple of reasons, we have no reason to think that the long-term algorithm doesn't hold. David Tarantino: Great. I was just gonna ask about that, Scott. So thanks for preempting my question. But I guess, what is the path then from this baseline to get to, I guess, margins approaching 30%? I guess, is as simple as getting the volumes up, you know, a million dollars or so a unit? Or, I guess, is there something else, you know, or levers that you have to pull to strengthen, you know, productivity or, I guess, what is your framework for getting to that higher margin? Adam Rymer: Yeah. I'll start and then Scott definitely jump in. And so in the short term, it's definitely that dislocation that I talked about earlier, but we'll solve that by the end of the year. From there, it's all about driving transactions north and getting the flow through on those additional transactions. That will allow us to get not only back to the historical margins that we're a year or two ago at the volumes slightly above where we're at now, but to continue to increase those margins into the 27-28 range and beyond as we approach $4 million in AUVs. Scott Boatwright: Great. Yeah. And I'll tell you, David, the pricing approach we're taking this year at 1% to 2% compared to where the industry is closer to 4% will continue to strengthen our value proposition and give us pricing power in years to come. And so that combined with other initiatives that we have identified, whether it's in supply chain, or in labor, as we make this reinvestment in the business around heat, could still be opportunity down the road to capture some margin savings there as well. David Tarantino: Great. Thanks very much. Operator: Our next question comes from David Palmer with Evercore ISI. Please go ahead. David Palmer: Thanks. Just a couple of follow-ups on that topic of pricing power and, you know, efforts you could make to lean into boosting your value perception. I, you know, first, you know, there's been some pricing rolled out so far. Is there any learnings you have from that pricing? You know, what does price elasticity look like as you've rolled those out selectively? Adam Rymer: Yeah. Yeah. So as you know, we started the approach probably about, what, October, November, so last year. And it's going really well, and it's pretty much as anticipated. And so we expect to continue down this path of this really disciplined and measured approach to raising prices throughout the year. As I mentioned earlier, I expect the full year impact to be about 1% to 2%. But the beauty of this approach is it allows us to adjust throughout the year depending on what we're seeing, get much better data points, as well as get better reads throughout the year on inflation. But so far, so good with this approach. David Palmer: And I wonder, you know, you're gonna be existing among these giant fast food players that are rolling out value menus. And you know, you've done some things along the way. You've you have an entry price point cup with the new protein menu. You said you have some price-pointed things. Looks like you have a new style of advertising where you've pointed out, you know, pretty clearly there's a difference in the way Chipotle makes food versus what you'd see at a traditional fast food place. I just wonder if is there any, you know, do you feel like the offense might be working with these price-pointed things and the messaging and I'm just wondering if there's anything you can do to really shorten this cycle, this, you know, reinvestment in cycle rather than just wait for your price to underprice inflation for a while? And thank you. Scott Boatwright: Yeah. Thanks, David. You know, I'll tell you, you know, with what the momentum we saw in early January, the January gives us confidence that the strategy is exactly what our consumer is looking for. I talked earlier about doing this deep dive on the core Chipotle consumer to truly to really parse out who that consumer is and what they want. What we've learned is the guest skews younger, a little more higher income, is typically a digital native. And that their grounded purpose aligns with our North Star as a brand around clean food, clean ingredients, high protein, and we are the way they wanna eat. We're gonna lean into that in the most meaningful way. I'll tell you, after looking at the data last week, we learned that 60% of our core users are over $100,000 a year in income. In average household income. That gives us confidence that we can lean into that group in a more meaningful way, whether it's the solo occasion and or group occasions to really drive meaningful transaction performance in the year. Operator: Our next question comes from John Ivankoe with JPMorgan. Please go ahead. John Ivankoe: Hi. Thank you. Okay. I'm gonna follow-up on the income question, and then I'll have a question on development. You know, first on the income side, 60% of customer is over $100,000. You know, there's a lot of puts and takes, you know, with tax refunds and just overall changes in tax rate and student loans, what have you. Do you think the core consumer that Chipotle has will actually benefit in '26 from all the different puts and takes that are just, you know, kinda happening out of DC in terms of affecting the customer's wallet and spending ability? Scott Boatwright: Yeah. Hey. I would tell you that we believe it's gonna be a nice tailwind to spend and aligns nicely with our ramp-up and menu innovation. As it is a larger percentage of overall guests. And I think initially for the under $100,000, there'll be a nice bump after tax season and spending in general. And I think we have an opportunity to really garner more than our fair share in that window as well. John Ivankoe: Okay. Thank you. Helpful. And the second question is on development, specifically North America company development. Have we, you know, don't know if, you know, exactly the number 330, 340, 350, you know, something, you know, between 25 and 26. So just correct me on that exact number. Are we kind of hitting a natural level of, hey, we should be thinking about nominal growth rates of units in this core important market as opposed to expecting. What has been historically some, you know, pretty decent leg ups. You know, in development. In other words, now I'll ask the question more succinctly. Are we at the kind of development level in company North America that should just be the absolute level going forward, or do you think you actually have an ability to ramp it? Maybe that's a better way to ask it. Scott Boatwright: You know, we built 334 restaurants in 2025. And we did it successfully. And we had the right teams ready, prepared, at the right development level to take on new growth. And not affect or impact negatively the core business. This year, we'll build 350. So think one new Chipotle restaurant almost every day. And we think that's the right growth rate for our brand. And gives us a lot of confidence that we'll continue to build them and have returns in the 60% range. And so we still can neck up to the 9, 10% new unit growth if we add in partner-operated restaurants into the mix as well. But we feel really comfortable at that growth rate out to 7,000 restaurants in North America. John Ivankoe: And the final one, you know, just give confidence outside of Central London and Frankfurt. Those are obviously two very specific type markets. Are you feeling, you know, good elsewhere in UK, good elsewhere in Germany? And I'll conclude there. Scott Boatwright: Yeah. France is a tough one, I'll be honest with you, because of wage inflation, because of occupancy costs. It's not to say we don't like France as an opportunity. We're just not seeing we're seeing some recovery there, but not at the same pace. But so we just need a little more time in France, I believe. As it relates to London proper or UK proper, Central London is our biggest opportunity. We've made some strategic bets a couple of years back outside of Central London. That didn't perform at the level we wanted them to perform at. So we think about the strategy for London more lot more similar to New York or Downtown Chicago, where there's so much opportunity to build within Central London and have, you know, very successful return on investment. That that's where we're gonna lean into. But then we'll look to expand to other adjacent markets, whether that's Benelux, the Nordics, Poland, or Spain. Operator: Our next question comes from Danilo Gargiulo with Bernstein. Please go ahead. Danilo Gargiulo: Great. Thank you. Scott, in the past, you mentioned that you may have identified 100 to maybe 150 basis points of margin upside opportunities that over time, you should be able to unlock. Was wondering if you can give more color on the timing of those opportunities and what levers you can pull today without impacting demand? Thank you. Scott Boatwright: Yeah. So we are in the throes. Great question. Thank you for that, Danilo. We're in the throes of going through a very comprehensive supply chain review and there are strategic savings that are there that don't affect the ingredient quality that we bring in the back of our restaurants. So we have a lot of confidence we'll be able to pull margin there. But, also, the equipment high equipment high equipment package has margin savings that we are reinvesting at present. That over time could have a meaningful impact to margin as well. Danilo Gargiulo: Great. And I would like to follow-up also on the snacking occasions. Specifically, handheld seem to be another area where you could be leaning more into. I was wondering how does this fit into your marketing strategy, and more importantly, how are you gonna be enhancing your value orientation while ensuring that you're not cannibalizing your own sales and using consumers to trade down. Thank you. Scott Boatwright: You know, that was, you know, consumer trade down concern was one of the concerns we had around the high protein menu. And, frankly, we just didn't see it. Extra protein incidence is up 35% during the menu launch. Which gives us confidence that the core consumer is not like necessarily looking for a smaller, lower price-pointed component to the menu. What they are looking for is excellent culinary, excellent in-restaurant and digital experiences, and then product that is on brand and on trend. And so that gives us confidence in the strategy. We will test ideas like, dare I say, a happier hour to see what that looks like for our brand. I don't know if it'll be a meaningful unlock for Chipotle, but we're gonna test the idea. And stage gate it and give it the appropriate resources necessary. Operator: Our next question is Dennis Geiger with UBS. Please go ahead. Dennis Geiger: Great. Thank you. Wondering if you guys could talk a little bit more about how you're sizing up those key sales drivers in '26, many of which I know you commented on. But I believe you mentioned only embedding a modest impact from the initiatives this year. So I'm just curious if you could sort of unpack is that sort of consistent with your methodology on often not embedding LTOs in the comp guide or is it much more of a let's be conservative in thinking about a lot of these impactful initiatives, just given the environment that we're in. Just curious if you could unpack that for us, guys. Thank you. Scott Boatwright: Yeah. I'll let Adam jump in on his reference as it relates to embedding in guide. LTOs, or other strategies. Here's what I'll tell you. We have sized up the opportunities whether that's, you know, relaunching or reimagining rewards. Or group occasions, or what the heat equipment package will do for our brand. Of course, we're still early days on many of those things, so we dare say, you know, what that will look like. We have a pretty broad range on each of those items. But I think they're more multiyear than a 2026 initiative. Adam Rymer: Yeah. And then in terms of, you know, looking at the guide, if you look at more of our short-term guides, what I mentioned example for Q1 of a minus one to a minus -two percent, that does not include any further initiatives the quarter. So think of Chicken Al Pastor, or that momentum that we're getting from the protein menu and campaign that can provide upside to it. But then when we're thinking about full-year guides, we usually include a modest impact from the initiatives throughout the year. And this year, we definitely took into account there, like I said earlier, just what's going on in the consumer environment. We just wanted to be a little bit more conservative on that full year just because of that. Dennis Geiger: Thanks, guys. I appreciate it. Operator: Our next question is Chris O'Cull with Stifel. Please go ahead. Chris, your line may be muted. We're unable to hear you. Chris O'Cull: Sorry about that. Can you hear me now? Scott Boatwright: We have you, Chris. Go ahead. Chris O'Cull: Okay. Great. Scott, I had a follow-up question regarding the CMO search. I'm just wondering what specific next-level expertise are you looking for in a leader to help drive Chipotle into this next phase of growth? Scott Boatwright: Yeah. We're just looking to evolve our key messaging, really talk about our points of differentiation in a new way that's compelling. Continue to drive strong menu innovation for our brand that is on brand, and that drives really consumer demand. And then support and help as it relates to digital to help support our new chief digital officer as we think about digital commerce differently in the years to come, whether that's reimagining the loyalty program which you talked about, or better partnership with our third-party aggregators and really figure out meaningful ways to drive transaction through those channels. Because we know those channels to be different whether you're talking about Uber or DoorDash. One is heavily focused on price differentials for in-restaurant versus delivery. Other one's more promotionally driven. And so figuring out the right approach to that. And then also, really making our white label experience more approachable to really accelerate the transactions we're seeing in that channel as well. So holistically, I know I said a lot there, Chris. Looking for I guess, a unicorn. Good news is, I talked about this earlier, we have great internal talent. We have great external excitement for the job. So I think we'll have someone in the chair in the coming months that is world-class, and that'll deliver on the expectation. And deliver on our recipe for growth strategy. Chris O'Cull: Okay. And then just my second one. How are you thinking about communicating to light or lapsed users who probably represent a big opportunity but are likely not going to see the first-party loyalty offers? Scott Boatwright: Yeah. So I think we've talked about personalization in the past, Chris, and we're starting to really accelerate the personalization journey. I'll give you an example. We're leveraging the AI model to really identify those lapsed users and create journeys that get them reengaged with our brand. More importantly is we're able to parse out deals or offers for based on how often they frequent our brand in the past. And what we anticipate their lifetime value to be. Which is really a meaningful step change in how we really drive demand in the channel and targeting lapsed and at-risk consumers. Chris O'Cull: Okay. Great. Thanks, guys. Operator: Our next question is with Andrew Charles from TD Cowen. Please go ahead. Andrew Charles: Great. Thank you. Scott, you reiterated the 2026 development guidance, and I'm curious what you would need to see to slow development to intensify the focus on improving traffic. Is it overly simplistic to think if 2026 comps were to be negative instead of flat, then this would make you reconsider development plans? Scott Boatwright: Yeah. I think it's a couple of things. I think number one, is if we started to see cannibalization that exceeds our historical levels, which we haven't seen any deterioration there to date, or in the last couple of years. And or if we stop seeing the performance of new restaurants at 80% or better of the existing asset base, or we see margins or return on investment start to be marginalized, that would cause us to slow down. Fortunately, we're not seeing any of that to date, which gives us confidence we're on the right track. Andrew Charles: Very clear. Okay. Thank you. Then my follow-up question is just for the four new LTOs this year, should we think about them being roughly evenly spaced around three months each? Or Al Pastore obviously has been a hero for you guys in 'twenty three and 'twenty four. Might that one run a little bit longer than the, you know, implied three months each? Scott Boatwright: Yeah. So think about them between eight to twelve months in total. So there'll be different cadences, and we have the ability to extend or reduce that timeline based on how we see the market trending. But I think you're thinking about the right way. Andrew Charles: Very helpful. Thanks, guys. Operator: Our next question is from Sharon Zackfia with William Blair. Please go ahead. Sharon Zackfia: Hey. Thanks for taking the question. There was a lot of talk over the summer about the younger consumers slowing down. And I'm curious as you've seen the comps accelerate, it sounds like through the fourth quarter and into January, have you seen that consumer as well kind of a comeback? Is there anything to call out from a demographic standpoint? Scott Boatwright: Yeah. So I'll tell you, Sharon, that I'll give you an anecdote, then I'll tell you the story. So we started down the path in the fourth quarter of really finding out how to reengage that younger consumer or lower-income consumer and get them reengaged with the brand. I'll tell you our digital team worked wonders as it relates to finding ways to gamify the experience and create rewards that were meaningful enough to drive that cohort back into our restaurants. One of those examples, I was in Florida just before the holidays, and we launched our free potlait campaign. I was in a restaurant, and I was like father time standing in the line that was out the door. The average age of the customer in the line that day had to be 20 maybe 21 years old. And so I'll tell you that worked tremendously getting those consumers back in our restaurants, and it will be used to inform the 2026 strategy as we engage that cohort more meaningfully. Adam Rymer: Yeah. And I would just add to that as well. I mean, a lot of the initiatives that we've done since last summer, especially with Red Chimichurri, the new protein menu and campaign, as well as just LTOs in general, really have outsized performance with that group. So you're gonna see us continue to lean in on those well for that reason. Sharon Zackfia: Thanks for that. And then as a follow-up, on the high protein launch, was that successful in bringing in new customers to Chipotle or was it really kind of a frequency or upsell kind of dynamic? Scott Boatwright: It did both actually, Sharon. So new customers to our brand, who really didn't know about the high-quality proteins that we have. And I shared this with the marketing team, and they share my enthusiasm around the topic. We have the best proteins in the world. Why wouldn't we celebrate those in the most meaningful way to really, again, drive our points of differentiation compared to our competitors who may also be promoting protein at the same time. And I think we had a meaningful impact on the trend change in the business. But more importantly, the adoption of the protein cup protein side being up 35% is evidence that the strategy works. Operator: Thank you. Our final question will come from Christine Cho with Goldman Sachs. Please go ahead. Christine Cho: Hi, thank you for taking the question. So just a quick follow-up on the performance of the high protein cup. So are you seeing any specific consumer cohorts responding more favorably, such as the younger consumers? And did you also see any impact on the late afternoon traffic? And then also, incremental color on your plans to address the new kind of side and beverage occasions throughout the year would be appreciated. Thank you. Adam Rymer: Yes. I'll start on the protein side. So absolutely. I think this protein trend that we're seeing across the nation right now is having an outsized impact on the younger cohort. Really is across the board. But we're definitely seeing an outsized impact there. And again, it's mostly coming through additions. There's a little bit coming in and just getting the cup or just getting the single taco, the vast majority are utilizing that as a checkout on. And then you had a second question about drinks. Christine Cho: Yes. Your plans for the sides and drinks. And occasions throughout the year. Scott Boatwright: Yeah. So we will, Christine, we will pepper in new sides and beverages. We'll do a beverage in the summer. And we will look at different sides that we're bringing, whether they're dips or other sides that we'll bring in that really tested really well through Stage Gate that we're really excited about. I wish I could tell you. I think if I did, my marketing team would throw me out of the building. But we're super excited about what we have to offer. Look forward to an incredible year. Thank you. Operator: This concludes our question and answer session. I would like to turn the conference back over to Scott Boatwright for any closing remarks. Scott Boatwright: Thanks, everyone. Hey, I just want to close by thanking our team members for their hard work and dedication across our 4,000 restaurants and around the globe. They truly are the backbone of this great brand. I also want to reiterate my deep confidence in our growth strategy. We are doubling down on what uniquely differentiates our brand to position Chipotle for what I talked about earlier, our next phase of growth. We will win by investing in operational excellence, accelerating innovation into new offerings and occasions, relaunching our rewards program, deploying new back-of-house technology and equipment, and growing our global footprint. As I laid out, we're already seeing progress and validates that our focus on these strategic priorities is already resonating with our consumer. Our recipe for growth plan will position us for success in any environment and I am confident we'll drive transactions, allow us to move faster, and create long-term sustainable growth for the brand. And with that, I just want to say thank you, and have a great day, everyone. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Julianne: My name is Julianne, and I will be your conference facilitator today for the Amgen Inc. Q4 2025 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. There will be a question and answer session at the conclusion of the last speaker's prepared remarks. In order to ensure that everyone has a chance to participate, we would like to request that you limit yourself to asking one question during the Q&A session. I would now like to introduce Casey Capparelli, Vice President of Investor Relations. Mr. Capparelli, you may now begin. Casey Capparelli: Thank you, Julianne. Good afternoon, everyone, and welcome to our fourth quarter 2025 earnings call. Bob Bradway will lead the call today and be followed by a broader review of our performance by James E. Bradner, Murdo Gordon, and Peter H. Griffith. Through the course of our discussion today, we will use non-GAAP financial measures to describe our performance and have provided appropriate reconciliations within the materials that accompany this call. We will also make some forward-looking statements which are qualified by our Safe Harbor statement and please note that actual results can vary materially. Over to you, Bob. Robert A. Bradway: Okay. Thank you, Casey, and good afternoon, everyone. Thank you for joining us today. Today, we'll cover full-year results for 2025 and provide a preview of what to expect from us in 2026. Amgen Inc. delivered strong operational performance across the board in 2025, and you can see that in the breadth of our business. Note that 14 of our products achieved blockbuster status with sales of a billion dollars or more. 13 products delivered double-digit sales growth, and 18 products achieved record results for us. The strength of that broad portfolio enabled us to post double-digit growth in revenues and earnings per share for 2025. Looking to 2026, I would highlight six areas of momentum. Three of these, Repatha, Evenity, and TestSpire, all grew by more than 30% year over year in 2025. These medicines have a few important things in common. First, they're highly effective, innovative therapies that address important public health needs. Second, they're leading products in their fields. And third, while each of these products represents a multibillion-dollar global franchise already, they address areas of large unmet medical need where there are millions of patients yet to be treated. In this sense, they represent growth drivers not just for 2026, but for the rest of the decade. In rare disease, our portfolio generated more than $5 billion in sales in 2025. Here too, many of our medicines are early in their life cycle and positioned as leaders in their respective categories. Growth has been fueled by reaching new patients, expanding into additional geographies, and launching new indications. We see further opportunity ahead as we scale these therapies. Uplisna exemplifies this growth opportunity with approvals in IgG4-related disease and generalized myasthenia gravis in 2025. Our innovative oncology portfolio grew at 11% year over year in 2025, driven by our BiTE or bispecific T cell engager medicines. Particularly excited about Imdeltra, which has rapidly become the standard of care in patients with second-line or later small cell lung cancer, supported by unprecedented survival benefits. We're an industry leader in biosimilars. Our biosimilars portfolio has contributed more than $13 billion in sales since the launch of our first medicine there in 2018. With $3 billion in 2025 sales, this business is an important contributor to our organization and poised for growth with the next wave of biosimilar launches. You can appreciate the depth of our business through the lens of our research and development activities. 2026 will be a year of disciplined data generation. From a number of exciting phase II and phase III programs that will pave the way for long-term growth at Amgen Inc. Our confidence continues to build in Meritide as a differentiated treatment for obesity, type two diabetes, and obesity-related conditions. In a field featuring dozens of potential daily oral and weekly injectable medicines, Meritide stands alone as the only therapy in late-stage development to offer the paradigm-changing prospect of strong efficacy and favorable tolerability at monthly, every other month, or even quarterly dosing. In addition to Meritide, we remain excited about opaziran and what it might represent for patients with elevated Lp(a), a heritable risk factor for cardiovascular disease. We see opaziran as an opportunity to build on our leading positions in cardiometabolic disease. It shouldn't be lost on any of us that Repatha, opaziran, and Meritide together would represent a very compelling set of cardiometabolic medicines to expand our leadership in the treatment of serious chronic diseases well into the next decade. Beyond the pipeline, there's a great deal of enthusiasm about the convergence of technology and life science. And based on what we're seeing at Amgen Inc., we believe that enthusiasm for convergent innovation is well placed and will have a significant impact on how we discover, develop, and commercialize medicines. As always, I thank my Amgen Inc. colleagues around the world for supporting our mission to serve patients. And with that, let me turn over to Jay for an update in R&D. James E. Bradner: Thank you, Bob, and good afternoon, everyone. The fourth quarter capped off a year of strong disciplined execution across R&D. Throughout 2025, we advanced multiple late-stage programs, delivered five key regulatory approvals, and strengthened the evidence base supporting our marketed medicines. Taken together, these contributions demonstrate real scientific rigor and illustrate the breadth of opportunity ahead. Let me begin with Meritide, which continues to develop in meaningful and very encouraging ways. The Maritime Phase III program is rapidly advancing. With strong enthusiasm from investigators and participants. Both of our Phase III chronic weight management studies are fully enrolled and our ASCVD and heart failure outcome studies are progressing well. In parallel, we continue to expand the clinical landscape of Meritide across obesity-related conditions as we begin enrollment of our two Phase III sleep apnea studies in adults with and without positive airway pressure therapy. Altogether, we now have six global phase three studies underway with Miratide. Collectively designed to deliver a comprehensive evidence base. In addition, as we shared last month, we've completed part two of the VERITIDE Phase II chronic weight management study, We also completed the first 24 weeks of the Phase II Type II diabetes study that enrolled participants with and without obesity. Results from these two studies further increased our confidence that Meritide can represent a new paradigm in obesity, type two diabetes, and other obesity-related conditions. We believe Meritide has the potential to expand what's possible for patients. Availing an opportunity for monthly or less frequent dosing. Meritide's strong efficacy, infrequent dosing, and excellent tolerability at target dose have the potential to further enhance the patient experience and therefore treatment persistence. A major unmet need in the field. Beyond obesity and general medicine, the fourth quarter brought a landmark contribution to cardiovascular health from Repatha. In November, full results from the Phase III Vesalius CV trial were presented at the American Heart Association Scientific Sessions and simultaneously published in the New England Journal of Medicine. This study enrolled more than 12,000 patients without a prior heart attack or stroke testing the impact of Repatha for LDL-C lowering when added to optimize lipid therapy. Namely statins, with a median follow-up of approximately 4.5 years. In Vesalius CV, we're demonstrated a 25% relative risk reduction in the composite of coronary heart disease death heart attack, or ischemic stroke. And delivered a 36% reduction in heart attack. With no new safety signals observed. These data clearly demonstrate that intensive LDL-C lowering with Repatha can meaningfully reduce the risk of a first cardiovascular event reinforcing its role across the full continuum of cardiovascular risk. Turning to opasiran our potentially best-in-class small interfering RNA medicine targeting Lp(a) the fully enrolled OCEAN A outcome study continues to progress. As previously discussed, this is an event-driven study and the aggregate endpoint accrual rate remains lower than initial predictions. As the study matures, we will update on the date for primary analysis as appropriate. Our conviction in olpasiran to reduce cardiovascular risk conferred by elevated Lp(a) remains strong. Grounded in compelling genetic, and epidemiologic evidence that establish elevated Lp(a) as an independent risk factor for heart disease. Moving to rare disease, the fourth quarter was highlighted by important regulatory momentum for APLISMA. In November, the European Commission approved APLISNA for the treatment of adults with active IgG4-related disease And in December, the FDA approved Eplizna for the treatment of generalized myasthenia gravis. In adults who are anti-acetylcholine receptor or anti-MuSK antibody positive. These approvals built on strong Phase III data demonstrating durable efficacy, a steroid-sparing benefit with every six-month dosing. This research further extends the impact of CD19-directed B cell depletion across serious autoimmune diseases. More broadly in B cell depletion, where we have a number of proof of concept studies underway, we expect to initiate two pivotal studies this year. The first is for patients with autoimmune hepatitis a serious disease, characterized by persistent liver inflammation that can lead to progressive scarring, loss of liver function, ultimately liver failure. The second studies chronic inflammatory demyelinating polyneuropathy or CIDP. A disabling immune-mediated neuropathy that damages peripheral nerve myelin resulting in worsening strength, worsening sensation, and for many patients substantial impairment in daily activity. For the plasma, are targeting these diseases at their root cause, by depleting pathologic B cells that drive disease through secreted autoantibodies. Given the strong efficacy of aplism in other settings, we're excited about the potential to bring a meaningful new option to patients with these two devastating conditions. We are also advancing desodoliveb, our CD40 ligand targeting biotherapeutic with both Phase III studies in Sjogren's disease now fully enrolled and study completion expected in 2026. We're pleased today to announce positive Phase II data with daxdilimab a first-in-class plasma cycloid dendritic cell depleting monoclonal antibody targeting ILT7. For the immunoglobulin-like transcript seven protein. This study in patients with primary discoid lupus erythematosus, met both primary and key secondary endpoints with an attractive safety profile. Encouraged by these data, we are working to advance Daxilimab to the next phase of development in this setting. In inflammation, the test by our Phase III program continues to advance, with ongoing studies in chronic obstructive pulmonary disease and eosinophilic esophagitis. Where we expect study completion in the second half of this year. We recently announced the decision to terminate the role rocotinlimab development and commercialization collaboration with Kewa Kirin. With significant breadth and depth across all four therapeutic areas, we took a portfolio decision to focus resources on other late-stage programs. Rocotinlimab will return to our partners at Kewa Kirin who will assume full ownership of the program. Turning to oncology. In November, the FDA granted full approval to IMDELTRA for the treatment of adult patients with extensive-stage small cell lung cancer. With disease progression on or after platinum-based chemotherapy. This approval represents a meaningful advancement for patients facing a disease that has seen very little innovation for decades. To extend the impact of Andeltra, we are presently advancing this medicine as combination therapy in frontline extensive-stage small cell where we observed unprecedented survival in early phase clinical trials. Further, we are also advancing INVELTRA with an ongoing Phase III study of limited-stage small cell lung cancer. It's a joy to see Imdeltra, like BLINCYTO, becoming a standard of care in the management of advanced cancer. Our first-in-class STEAP1 directed bi T cell engager zalaritamab continues to advance through Phase III development in prostate cancer. Beyond prostate cancer, we have recently initiated a Phase 1b study in relapsed or refractory Ewing sarcoma. A rare malignancy with high STEP-one expression and patients in an urgent need for targeted therapy. Across indelstrom, lincyto, zalaritamab, we continue to see meaningful long-term impact from our bispecific T cell engager platform. We remain committed to bringing transformative and innovative therapies like these to patients with cancer. To close out oncology, given the previously announced results from FORTITUDE-one hundred one and FORTITUDE-one hundred two, we have decided not to pursue regulatory approval for bimirtuzumab. Our FGFR2b targeting monoclonal antibody in first-line gastric cancer. Though overall efficacy did not meet our expectations, we observed an emerging signal of putative survival benefit in a subset of biomarker-defined patients. We expect to share these findings with the scientific community in the future. As with rocotinlimab, we took a portfolio decision to focus resources on our other late-stage programs. Across biosimilars, both ABP-two zero six and ABP-two thirty four biosimilar candidates to Opdivo and Keytruda respectively have completed enrollment in each of their comparative clinical studies. Supporting continued progress of the next wave of our biosimilar portfolio. Before closing, as described in our press release, we are engaged in an ongoing dialogue with the FDA regarding TABNIO's. Our medicine for the treatment of a rare and severe disease ANCA associated vasculitis. We will update you on those discussions as necessary. Now let me finish by saying that 2025 was a year of consistent execution, real scientific progress, and disciplined decision-making. We expect 2026 to bring another year of strong execution disciplined data generation, and new scientific advances as we continue to progress our robust pipeline. I want to thank our colleagues across Amgen Inc. for their continued focus on patients, and their commitment to advancing innovative medicines for serious diseases. With a broad and deep pipeline, we are well-positioned to deliver sustained long-term growth. I'll now turn it over to Murdo for the commercial update. Murdo Gordon: Thanks very much, Jay. In 2025, we delivered 10% sales growth with 13 products achieving double-digit or better performance. 14 products exceeded $1 billion in annual sales and 18 products achieved record sales. These results underscore the strength and growth potential of our portfolio and demonstrate the disciplined execution of our teams serving patients globally. Starting with general medicine, Repatha sales grew 36% year over year in 2025 surpassing $3 billion. This performance was driven by growing urgency to treat patients in both secondary and primary prevention. Today, more than 100 million people around the world still need effective LDL cholesterol lowering. Repatha remains the first and only PCSK9 inhibitor with outcomes data for patients in both high-risk primary and secondary prevention. As Jay mentioned, the landmark VACILIA CV trial showed a reduction in the risk of first major cardiovascular by 25% in high-risk patients. These data strengthen Repatha's position as the most evidence-backed therapy in the PCSK9 class. And support this critical role in earlier and more intensive LDL cholesterol management. Given these results and our leadership in this category, we believe there is now a clear opportunity to update clinical guidelines and quality measures. We expect these changes will encourage cardiologists and primary care physicians to manage LDL cholesterol more proactively. Alongside lifestyle modification, and reduce cardiovascular risk in both primary and secondary prevention. In The U.S., we continue to improve patient access to Repatha with broad formulary coverage and the launch of Amgen Now, our new direct-to-patient program. Amgen Now offers a simplified lower-cost cash pay option for patients to access Repatha. Following a successful launch, we've announced plans to expand this program to additional medicines and we're excited to make our therapies available through Trump Rx, helping improve affordability for Americans. Evenity sales increased 34% in '25 reaching $2.1 billion in sales. EVENITY remains the only treatment that simultaneously builds new bone and reduces bone resorption. A dual mechanism that is proven to rapidly reduce fracture risk in postmenopausal women. In The U.S., Evenity sales grew 41% driven by higher volumes from both established and new prescribers. Evenity leads the bone builder segment with over 60% market share and is now growing faster than the category overall. To date, approximately 300,000 U.S. Patients have been treated with EVENITY. With a 33% increase of new patients in just one year. Increased investment has helped accelerate this growth which we expect to continue. Despite strong progress, nearly 90% of the 2 million women at very high risk of fracture remain untreated. Presenting a clear opportunity for EVENITY to drive growth and impact. Prolia delivered $4.4 billion in sales in 2025, an increase of 1% year over year. In 2026, we expect accelerated sales erosion driven by increased competition as multiple biosimilars have launched globally. Our rare disease portfolio grew 14% year over year to nearly $5.2 billion 19% in the quarter. With strong performance across the portfolio. EPLISMA sales increased 73% year over year to $655 million reflecting growing patient demand across all three approved indications. In December, Eplisna received FDA approval for the treatment of generalized myasthenia gravis marking an important milestone for patients with this chronic debilitating disease. Early physician response has been strong across both bio-naive and switch patients. Prescribers have noted the benefits of aplizumab upstream B cell mechanism targeting the root cause of the disease and it's also has demonstrated safety profile and the convenience of his twice-yearly dosing. Uptake of aplisna for use in IgG4-related disease continues to grow. Since the launch in The U.S., nearly 500 specialists, including rheumatologists, gastroenterologists, among others have prescribed Vuplisna. In addition to the more recent launches, continues to lead in NMOSD and remains the most prescribed FDA-approved Therapy In The U.S. For this condition. Supported by consistent new patient growth, and strong adherence across treatment cycles. TEPEZZA grew 3% to $1.9 billion in '25 driven by higher net selling price. Over 25,000 patients have received treatment since launch in The U.S. With growing interest from both new and returning prescribers. We continue to see increased prescribing by endocrinologists and a broadening base of specialists. In Japan, approximately 1,200 patients have been treated since launch, reflecting growing awareness of the burden of thyroid eye disease among both patients and prescribers. We plan to launch TEPEZZA in additional markets in 2026, expanding access to this important therapy globally. TADNIA sales were $459 million in 2025, an increase of 62% year over year driven by strong volume growth. More than 7,000 patients with ANCA-associated by vasculitis have now been treated with Tamios, with over 4,000 healthcare professionals prescribing the therapy since its launch in 2021. Anchor-associated vasculitis is a serious potentially life-threatening disease that can cause significant organ damage if not well controlled. And has limited therapeutic options. We remain confident that Tavneos is an important and effective medicine based on clinical data, real-world evidence, and its favorable benefit-risk profile. In inflammation, TestBio sales grew 52% year over year to nearly $1.5 billion for the full year. Taspire is well-positioned to reach more patients in The United States due to its differentiated TSLP mechanism that targets multiple inflammatory pathways driving severe uncontrolled asthma. Including in those with coexisting chronic rhinosinusitis with rhinosinusitis with nasal polyps, TestBiR substantially reduced the need for surgery in this population reinforcing its value in eosinophilic disease. TESSPIRE is now the leading therapy for new-to-brand patients amongst allergists in severe uncontrolled asthma. Fueled by strong prescriber confidence and continued expansion across respiratory specialties. Otezla sales increased 7% year over year to nearly $23 billion for 2026, We expect sales erosion driven by unfavorable pricing in The U.S., and generic launches particularly in The EU. Our innovative oncology portfolio, which includes BLINCYTO, INVELTRA, LUMICRAZ, VECTOBIX, KYPROLIS, ENDLATE, and XGEVA grew 11% year over year, generating $8.7 billion in full-year sales. Imdeltro delivered $627 million in full-year sales fueled by strong clinical conviction and rapid adoption across care settings. Over 1,600 U.S. Sites now administer IMDELTRA with the majority of doses provided in the community setting. Imdultra was granted full FDA approval in the fourth quarter, supported by compelling data from the Phase III DELPHY-three zero four trial. NCCN guidelines also recognize Imdeltra as the highest recommended therapy. And it has become the standard of care in the second-line setting. Reinforcing its leadership position in small cell lung cancer. BLINCYTO grew 28% year over year to over $1.5 billion in full-year sales. Driven by broad prescribing across both academic and community segments. BLINCYTO is widely recognized as a standard of care in combination with multi-agent chemotherapy for patients with Philadelphia chromosome-negative b cell ALL. Our biosimilar portfolio delivered another strong year with sales increasing 37% to $3 billion. Our expanding biosimilar portfolio provides meaningful top-line growth durable cash flow and broad patient access to high-quality cost-saving biologic medicines. PAV Blue, a biosimilar to EYLEA continues to gain momentum reaching $700 million in sales in 2025. Adoption continues to build among retina specialists who value the product's ready-to-use prefilled syringe format and the reliability of Amgen Inc.'s manufacturing and supply chain. We delivered strong results in 2025 with continued momentum across our priority growth brands. And we look forward to serving even more patients with Amgen Inc. products in 2026. Now I'd like to hand it over to Peter. Peter H. Griffith: Thank you, Murdo. We're pleased with our execution and performance in the fourth quarter and for the full year 2025. And we remain on track with our long-term objectives. The financial results are shown on Slides 34 to 36 of the slide deck Murdo has covered our strong revenue growth across the portfolio. For the full year, we delivered a non-GAAP operating margin of 46%. We continue to invest in advancing our pipeline with non-GAAP R&D spending increased 22% year over year for the full year to a record $7.2 billion. This reflects increased spending on an unprecedented number of opportunities in our late-stage pipeline. Including continued investments in Meritide, opaciran, zalutamide, and rare disease, In addition, we closed several business development transactions in the third and fourth quarters. Resulting in roughly $300 million in incremental R&D spending. Full-year non-GAAP other income and expense was $2.1 billion. We continued to strengthen our balance sheet. With $6 billion of debt retired in 2025. Our non-GAAP tax rate increased 1.4 percentage points year over year to 15.9% for the full year primarily due to changes in earnings mix. We generated $8.1 billion in free cash flow for the full year reflecting operational momentum across the business, and rigorous management of working capital, all while continuing to invest in innovation. We're leveraging AI across the value chain to accelerate therapeutic discovery and late-stage development. Optimize manufacturing, and improve customer engagement. Allowing us to drive productivity at speed and scale. We executed capital expenditures of $2.2 billion in 2025. Our capital expenditures reflect significant investments across The United States. Including Ohio, North Carolina, Puerto Rico, Rhode Island, and California. To support continued volume growth in our commercial brands, and to prepare for pipeline product launches including Meritat. In addition, we returned capital to shareholders through competitive dividend payments of $2.38 per share in the fourth quarter representing a 6% increase compared to 2024. Let's turn to the 2026 outlook on Slide 37. We expect our 2026 total revenues in the range of $37 billion to $38.4 billion and non-GAAP earnings per share between $21.6 to $23. Our revenue range reflects continuing strong performance from our six key growth drivers. Repatha of Entity, TESSPIRE, our rare disease, innovative oncology, and biosimilars portfolios, positioning 2026 as a springboard year for future growth. We expect this growth in 2026 to more than offset anticipated declines from increased denote biosimilar competition. Price declines for certain other products in 2026, and continued increases in 340B program utilization. As you model the 2026, consistent with historical trends, tied to the annual United States health insurance cycle we expect a seasonal headwind to sales driven by benefit plan changes, insurance reverifications, and higher patient co-pay obligations. We also expect Otezla and Enbrel to follow their historical pattern of lower sales in the first quarter relative to subsequent quarters and expect additional impact from denosumab biosimilar competition in Q1. Additionally, note that we saw roughly $250 million of inventory build in 2025, that could potentially impact first-quarter sales. For total company revenues, we expect lower mid-single-digit year-over-year growth in the first quarter. For the full year, we expect other revenue in the range of $1.6 billion to $1.8 billion reflecting our commitment to investing in the best innovation while also driving execution excellence efficiency and prioritization across the organization, we project the full-year non-GAAP operating margin as a percentage of product sales to be roughly 45% to 46%. This guidance does not include any potential business development that may occur throughout the year. We expect non-GAAP R&D expense to grow low single digits excluding the roughly $300 million of business development in 2025. We continue to execute six global Phase III clinical trials for miratide advance additional late-stage assets, and invest in the best innovation. While maintaining disciplined resource allocation. In line with lower product sales in the first quarter, we expect Q1 non-GAAP operating margin to be the lowest of the year and roughly the same as 2025. We anticipate non-GAAP other income and expense to be about $2.3 billion to $2.4 billion in 2026. We expect a non-GAAP tax rate of 16% to 17.5%. We expect share repurchases not to exceed $3 billion in 2026. We expect capital expenditures of about $2.6 billion in 2026. This is consistent with our capital allocation priority to invest in our business and scale manufacturing capacity for volume growth. Including preparing for Miratide's launch. We remain focused on delivering sustained long-term growth and creating value for patients and shareholders by doing what we said we would do, advancing innovation in areas of high unmet medical need and maintaining rigorous financial discipline. I'm grateful to work with all of our colleagues worldwide in serving patients, This concludes the financial update. And now I'll hand it back to Bob for Q&A. Robert A. Bradway: Okay. Thank you, Peter. And as I hope you all appreciate now, I think we ended '25 with our track record intact for having delivered against the objectives that we set for you at the beginning of the year. We're determined to do the same now in 2026. We're entering the year with momentum, excited about what we see ahead. Let's open up the call to questions, Julian. We'd be happy to entertain any of our callers now. Julianne: Thank you. If for any reason you would like to remove that question, please press star followed by one. Again, to ask a question, press star 1. Our first question comes from Michael Yee from UBS Financial. Please go ahead. Your line is open. Michael Yee: Hey, guys. Good afternoon, and thanks for all the color and looks like guidance is growth, for the year despite the, the biosimilars. Obviously, is top of mind for everybody and you've disclosed some information on Meritide recently. I was wondering, and to ask your view of the portfolio overall in obesity given that folks like today are disclosing combinations with monthly or monthly and then combinations and how you see this playing out given you're focused on Meritide, but not so sure about the rest of the portfolio there. Thank you. Robert A. Bradway: Okay. Thank you, Michael. We'll take a stab at answering your questions. Connection wasn't great, but I think we got most of what you were trying to ask. Jay, you want to kick off? James E. Bradner: Yeah, I'd be happy to. Thanks, Michael. Amgen Inc.'s really made for this moment. Of developing Meritide across so many different indications, a leading cardiovascular company, all a leading respiratory disease company, there are so many opportunities there for Meritide. We've been in obesity, as you know, a long while, all the way back to the leptin days. And enjoyed stable discovery leadership team since that time. Internally, we have another clinical stage asset, called AMG five thirteen. We have yet to disclose the mechanism of that medicine as progressing in phase one clinical investigation. And preclinically, we have a rather exciting set of rising programs that are both incretin based as well as non-incretin based. Of both injectable as well as oral medicines. And the aperture is always open. For innovation on the outside. I think you should expect us to be competing broadly in the field, Michael. Okay, let's move on. Next question. Julianne: Thank you, Michael. Our next question comes from Yaron Werber from TD Cowen. Please go ahead. Your line is open. Yaron Werber: Great. Thanks so much. I have a question actually about dasodilumab for primary Sjogren's syndrome. It looks like studies are now fully enrolled, and you're saying completion the second half. You're the only company with both the systemic and the symptomatic study in phase three based on the phase twos. Should we expect the data this year? And do you want to give us any color on the reliability of the Phase II into the Phase III, just given it's a tough condition? Thank you. James E. Bradner: Thanks, Yaron, and thanks for noticing about tesotali about This is a very exciting medicine in the portfolio. This is a CD40 ligand targeting biotherapeutic. And the CD40 pathway has long been postulated to be driving the inflammatory cascade in Sjogren's syndrome The challenge is only that the biology is somewhat ambiguous, and so we take a really nice and incisive approach with case of polyvaptanous disease As you noted, the two phase III's that we have open in Sjogren's syndrome will be in moderate to severe symptomatic activity. That's our population one. As well as in patients with a very high symptom burden that's population two. Sjogren's has been very challenging for drug development. But we find this hypothesis quite compelling. The second study has already completed enrollment of patients. This is the moderate to high symptom burden group with low systemic disease activity. And we expect completion of the trials later this year, and we'll inform later about our plan to communicate this information. As for reading through the reliability of phase two into phase three, there have been historic challenges here. But the performance against this SI score which is the clinically utilized as well as regulatory paradigm for approval, you know, was one of the first medicines ever to improve an STI score in that disease space. So we're confident going into Phase III and can't wait to look at the results. Julianne: Thank you, Yaron. Our next question Our next question comes from David Amsellem from Piper Sandler. Please go ahead. Your line is open. David A. Amsellem: Hey, thanks. So I had a couple of PlozNet related Can you talk about the extent to which the underlying IgG related disease population is larger than what literature has suggested historically and what that means for the underlying opportunity. And then secondly, I know it's early in gMG, but can you just can you talk about how the product is being used to date and what kind of role do you think it's going to have in the admittedly more crowded treatment armamentarium? Thanks. Robert A. Bradway: Let me tackle this in two parts. Jay, if you take the first part then maybe Murdo, you can jump in on the second. Go ahead. You know, there is in medicine, an experience where the availability of a targeted therapy a really effective therapy, can actually increase the incidence of a disease through awareness of the disease. Why take a diagnosis unless you have reason to intervene effectively? And that may in the fullness of time be the case here. Limiting a precise description of the epidemiology even over the last five to ten years, is the lack of really coherent registry data as well as appropriate coding that would allow such an analysis from electronic medical record data? And so I think it's a good question. I think it's a moving object. And we'll have better precision on that in the few years to come. Myrtle, what are your instincts? Murdo Gordon: I think that's a very clear description, Jay. I think the the availability of the ICD 10 coding as you alluded to is really about a three-year presence in the market. Right now, we estimate the diagnosed population to be in the neighborhood 35,000 And that could grow as you outlined. There are mentions in the literature of higher numbers However, we're obviously focused on those that are already diagnosed already in care, and we're trying to build that awareness that you spoke of. James. So far so good. The Plasma is doing extremely well in its uptake. In IgG4-related diseases. We see a nice breadth of prescribing across a number of different specialties that see these patients because of the end organ involvement in the inflammatory condition. And we'll continue to make sure that we do our part to improve that awareness, improve diagnosis These patients undergo a very complicated patient journey in that this disease can masquerade as many other things. But so far so good and we're happy to be able to help these patients finally get a treatment, the only one FDA approved that can help with their symptoms and obviously the long-term health outcomes particularly for their target organs. Just on Neplizumab and gMG, we're very pleased with initial uptake. As you said, Dave, it's very early in the launch, but what we're pleased about, and I I mentioned this in in my opening remarks is that roughly half of the patients who are being treated are bio-naive patients. And the other half coming from switches from other therapies As we've said before, this is a large, but still quite dissatisfied category where the current treatments have limitations whether that be dosing inconvenience, whether that be duration, of efficacy and perhaps some waning efficacy in this category. And so far what we've seen is a very strong interest in the Plasma for its mechanism. As well as for the convenience that it represents for patients. So so far so good. Excited about Aplisna overall. In the broader rare disease portfolio. Okay, thanks. Let's go to the next question. Julianne: Thank you, David. Our next question comes from Salveen Richter from Goldman Sachs. Please go ahead. Your line is open. Just follow-up here on Neplinza. Walk us through what's given you confidence here in moving forward with a Phase three study in CIDP and the opportunity in that indication? And if you could also just separately touch on Repatha and how you're thinking about potential impact from the launch of Merck's oral PCSK9 and how you're adapting your commercial strategy there? Thank you. With two ends of the spectrum there from the very rare to the very common. Robert A. Bradway: So let's do Jay, you do the first question and then Murdo, you can take a sec. James E. Bradner: Okay. I'll take Salveen. We are, as Murdo shared, very bullish about aplisna. Specifically, this unique mechanism of action that targets and depletes the CD19 pathologic B cell. These, as you surely know, CB19, the B cell compartment, is evident on mature B cells like CD20 targeted by rituximab and other medicines of that type. But also the pre B cells. The more naive B cell, the cell that expands and elaborates many of these autoantibodies. And so now seeing efficacy of aplisna in so many immunoglobulin related disorders like IgG4 related disease, like myasthenia gravis, the chance to bring it to additional autoantibody mediated immune conditions is just a great chance to help patients with these severe diseases. In some cases there are signals from CD20s that we intend to follow-up with a broader more active, and hopefully much more convenient aplisna. Autoimmune hepatitis, which I mentioned earlier, is associated with autoantibodies. You see ANA, you see anti smooth muscle, you see anti actin, you see anti LC1. And the same is true, though, to a lower proportion. With CIDP as well, where maybe five percent to ten percent of patients will have autoantibodies to what are called paranodal proteins. NF155 CNTM1, I could go on for a long time. And so this biology being driven by the compartment that a plasma targets makes for a really great chance to extend the benefits of targeting B cells in both of these conditions. Murdo? Murdo Gordon: Yeah, just the size of the opportunity here is interesting. Rough the prevalent pool in The U.S. is estimated to be about thirty five thousand maybe seven thousand to ten thousand incident new diagnosed cases per year in The U.S. So hopefully, we can develop this drug and offer some benefit for for these patients. Which is yet another steroid intensive condition and we believe that we can do better than that. So let let's let's hope for that best. Outcome in those clinical trials. On Repatha, I alluded to what our strategy is in my opening remarks. We are excited by the landmark data that were revealed at the American Heart Association last year in November. Where we can now clearly promote Repatha for the prevention of first heart attack or first stroke in a high-risk patient population and or a high-risk primary prevention population. And so that is our focus right now and we are the only PCS that has both secondary and primary prevention data in our label. The Vesalius data are being met very positively by both cardiologists and primary care physicians in particular for the primary care physician for the diabetes patient. That were enrolled in the trial who did very well. So we are focused on making sure there's high awareness of these data. Repatha enjoys great access, broadly preferred on national template formularies by PBMs and health plans around the country. And around the world. And of course, we know that there's an immense amount of trust now in the profile by prescribers. And for the millions of patients that have received treatment and are taking Repatha, there's strong acceptance that a every two-week injection to lower cholesterol to the forty-five milligrams per deciliter target dose that was achieved in the Repatha arm in Vesalius. So that patients can reduce their cardiovascular risk. So we've got a lot to talk about. We've maintained all along that there is a lot of room in this market for other therapies to come in, but they will not have the data package and profile that Repatha has established and we'll continue to remind prescribers and others about that. Okay. Let's go to the next question. Julianne: Thank you, Salveen. Our next question comes from Mohit Bansal from Wells Fargo. Please go ahead. Your line is open. Mohit Bansal: Great. Thank you very much for taking my question and congrats on all the good progress here. Maybe like, just again, the question on PCSK nine and at this point. So Murdo, can you please remind us what percentage of your prescriptions are coming from primary care at this point? And with the Vesilius data, like how do you see the primary case segment of the market evolving over time? Thank you. Murdo Gordon: Yeah, thanks Mohit. I put a number out before the Vesalius data promotion started where roughly 40% of our prescriptions were coming from patients who were considered primary prevention, patients who have not yet had an event. Where physicians were looking to lower those patients' LDL cholesterol. I would imagine that that will increase and grow over time. What we're seeing is equal interest quite frankly from cardiologists who are excited by the Vesalius data and the consistency of both the primary endpoint, the secondary endpoint the MI subgroup, quite frankly the overall incidence of death in the trial was also something that attracted attention. From specialists. So the cardiology group has seen this as an affirmation of what they were already doing and being aggressive in treating LDL cholesterol. And primary care physicians, as I mentioned, are much more intent and aligned to adding Rupatha to the optimized statin therapy that most patients are on. As for how much we don't give product specific guidance. But hopefully you can tell I am extremely excited about the momentum that we have on Repatha right now. I'm really pleased with the execution of our teams around the world. We've made incremental investments in advance of the opportunity of promoting the Vesalius data and I expect that momentum to continue. Okay. Thank you. Let's go to the next question. Julianne: Thank you, Mohit. Our next question comes from Louise Chen from Scotiabank. Please go ahead. Your line is open. Louise Chen: Hi, thanks for taking my question. I wanted to ask you about TEPEZZA and your thoughts on another potential competitor coming to market and then also where you stand with AMG seven thirty two for TED. Thank you. Robert A. Bradway: Okay, great. Maybe again we could do this in two chunks. Jay, you want to talk about the clinical piece and then Mirko talk about the commercial piece? James E. Bradner: Thanks, Louise. TEPEZZA is proving to be just a very important medicine. For the management of thyroid eye disease. We have established a very strong evidence base in both the high clinical activity score and lower clinical activity score patient populations that are quite proud of this data generation, and also the apparent impact that it's having on patients being treated today. We have an ongoing subcutaneous Phase III clinical study in moderate to severe active TED. Fully enrolled, as we have shared and we expect to complete this study in the second half of this year. So we have a really terrific medicine that's increasingly a standard of care that's helping a lot of patients and a strong data set that it sits on top of before handing off to Myrtle, I'll just quickly comment. On AMG seven thirty two. Thank you for noticing. This is an IGF-1R targeting monoclonal antibody. Also achieves subQT administration. Phase two studies enrolling, initially studied in moderate to severe and active TED. And we'll have more to say on that in the future. Murdo Gordon: Yep. Thanks, Jay. As Jay mentioned, we're expanding our treatment for patients with thyroid eye disease into the lower clinical activity score patient population who tends to be managed by different specialists than the higher clinical activity score patients. We have historically been able to drive very strong penetration with oculoplastic surgeons and general ophthalmologists we are expanding our prescribing base to include endocrinologists. We made investments at the beginning of last year and those investments are starting to return now by an increased base of endocrinologists prescribing So that's in The U.S. And we expect that we'll continue to broaden our treatment of the low clinical activity score patients while maintaining our share of the higher clinical activity score patients. But also our international launches, our launch in Japan has gone extremely well. We're seeing nice uptake there. We're seeing a very well-received product for higher clinical activities for patients, and we're in the process of launching in multiple markets around the world as we speak. So overall, TEPEZZA will be a a good growth driver for us this year. Thank you. Let's go to the next question. Julianne: Thank you, Louise. Our next question comes from Terence Flynn from Morgan Stanley. Please Terence Flynn: Hi, thanks for taking the question. I had one on the Miratide Phase III program. Appreciate all the details today, but just was wondering if you have any update in terms of how to think about the design of the Type II diabetes CVOT trial, particularly the control arm as I know that's something that you guys were debating here post the, you know, seeing some of the data from some of the competitors but just wondering how you're thinking about Control Arm in that setting. Thank you. Robert A. Bradway: Sure. Jay, you want to? James E. Bradner: Sure. Happy to share, Terrence. We're just thrilled by the opportunity to develop Miratide for patients with type two diabetes. This is really where we see a potential paradigm shift in the management of that disease. In my medical training, practice with insulin and insufficient orals and titrating dosing and here we have a medicine that can be dosed monthly We've seen efficacy and chronic weight management bimonthly. We've recently described maintenance approach using quarterly dosing. This is just a new paradigm. In management of diabetes. We've shared the major insights at JPMorgan from the phase two type two diabetes study, which is ongoing. There are additional parts to this trial. It's importantly given us an experience with low BMI patients and also seeing A1c across the dose range. And so the robust findings of this trial position us very well to start to pursue Phase III clinical investigation. The specific design of these studies control arms and the patients recruited, will be a subject for a future engagement. Okay, thank you. Let's go to the next question. Julianne: Thank you, Terrence. Our next question comes Chris Schott from JPMorgan. Please go ahead. Your line is open. Chris Schott: Great. Thanks so much. Just another merited question and just on the topic of less frequent than monthly dosing. It certainly seems like there could be a trade off here where even more infrequent dosing, you know, would obviously be a huge benefit even if it was associated with a bit less weight loss. I guess, so as you're thinking about just pushing the program beyond monthly, what profile do you think you'd need to see for that to have a role in the market? Are there minimum efficacy bars you're looking at? And just in general, is your confidence about the ability to push this beyond monthly? Thanks so much. Robert A. Bradway: Okay. That's an interesting question. Murdo, do you want to take shot at what we think we see in the marketplace and why we believe Meritide has a potential to address what is emerging as a very large unmet need in the field? Murdo Gordon: Yeah. I'll make a few comments here, Bob. Thanks for the help opportunity. I think it's pretty clear as we look at the market as it exists today that there's dissatisfaction with the weekly GLP ones. And I think you can actually see that in a fairly dramatic way with the advent of oral sema and how rapidly it's been taken up in the market that tells you that clearly patients and prescribers are looking for other opportunities. Now what I like is the opportunity that we have to deliver what has been mentioned a couple of times in this call as a paradigm-changing therapy. And that's the ability to come into a weekly market bring a monthly therapy, that can achieve similar weight loss in a very well-tolerated regimen. And then for those patients, who achieve their weight goal, for them to convert to every eight-week or every twelve-week dosing regimen to maintain that weight and or the metabolic benefits of their therapy. And I think that's a pretty compelling offering. I think that we're targeting that kind of profile and we'll have multiple ways of generating data to that effect. Robert A. Bradway: Chris, maybe we'll have Jay just address a piece as well. James E. Bradner: Yeah, Chris, thanks for the question. You don't mind, I'm going reject part of the premise of your question, this idea of less frequent dosing being an absolute tradeoff for efficacy we're not certain that we will see that. Having observed the large majority of patients maintaining weight, on low dose and on quarterly dosing, In the field of obesity they call this the defended fat mass. And the capacity to avoid weight regain is a sign that the reset of body weight has been achieved. We've seen with all medicines to date dose ranging effects on weight loss, and here we might expect to see schedule ranging effects on weight loss. Would be individualized for patients. And so I wouldn't necessarily assume that we'll see a big tradeoff with less frequent dosing of miratide. Okay. Thank you. Let's go to next question. Julianne: Thank you, Chris. Our next question comes from Umer Raffat from Evercore ISI. Please go ahead. Your line is open. Umer Raffat: Hi, guys. Thanks for taking my question. I'm really, really lost today. I'm trying to figure out what happened all of a sudden. Why did FDA decide to ask you to pull the ChemoCentryx drug? Was there some litigation or some correspondence? Like, what prompted it in the first place? And then if I dig in a little more specifically, they're saying that nine patients need to be readjudicated Is that referring to the primary endpoint on week 26 remission or the week 52 sustained remission? I asked because week 26 endpoint was not inferior anyway. So even if you readjudicate those, it's still not inferior. So I'm just really lost today. Robert A. Bradway: Okay. What's Jay, go ask Jay. You addressed the question. You may wanna just start at the high altitude, remind people what Tavneos is say a few words about the disease that it addresses. It's obviously a very small product in our portfolio relative to the other things we have going on. But it may be a medicine that's less familiar to most of our callers. James E. Bradner: Yes, sir. Thanks, Umer. And just by way of background then, ANCA-associated vasculitis is a group of very serious rare, and destructive inflammatory illnesses that targets blood vessels and can therefore damage vital organs like kidneys, lungs, skin, nerves, even heart The prior treatment paradigm for tabnios was quite toxic. Cyclophosphamide chemotherapy with azathioprine and rituximab accompanied by long-term steroid use And chronic use of steroids proved very common but also very challenging. Hyperglycemia, dystrophy, bone health, mood disorders, immune suppression, And then enter tabnios or avacopan, This is an oral complement factor five a receptor blocker, and so it blocks complement mediated destruction. We acquired Tavneos from ChemoCentryx in 2022 after it had been on the market market for a year. Based on approval. For the ADVOCATE Phase III study that you referenced as published in the New England Journal. This established the efficacy of tabnios over prednisone steroid tapering for sustained remission out to fifty-two weeks when it was added to induction therapy with at that time, standard of care rituximab. And cyclophosphamide. As we shared, the FDA requested a voluntary withdrawal on January 16. We were surprised by this. There were concerns raised about a process followed by ChemoCentryx to readjudicate primary endpoint results for nine of the three thirty-one patients. And We're in discussions with FDA and we'll answer questions as we talk with them. Okay. Let's go on to the next question. Julianne: Thank you, Umer. Our next question comes from Alex Hammond from Wolfe Research. Please go ahead. Your line is open. Alex Hammond: Hey, guys. Thanks for taking the question. So you had a strong quarter with Pav Lu. I guess, how do you kind of expect to maintain this leadership position when other manufacturers launch biosimilars in the second half of the year? I guess, essentially, can you kind of help level growth expectations for this year? Robert A. Bradway: Well, obviously, we're not giving guidance on an individual product Alexander. But Murdo, go ahead and talk a little bit about the strong performance that we've observed so far with our biosimilar to Pat. Murdo Gordon: Yes. I think what we've been able to do thus far is establish good inroads with the largest national retina retina specialist networks. And the I think what what I would say is they they tend to want to pick a product that they know allows them to manage their patients effectively. We think we've got a great device that helps them do that. We obviously are competing effectively against the innovator and given that we have a lot of biosimilar experience, we'll we'll compete effectively when others enter the market, whenever that may be. Okay. We'll take one last question as we're right up against the bottom of the thirty-minute mark here of the hour. So why don't we take one last question and then as always, Casey and his team will be around to answer questions if we didn't get to you on this call. Julian, last question. Julianne: Thank you, Alex. Our last question will come from Courtney Breen from Bernstein. Please go ahead. Your line is open. Courtney Breen: Okay, Courtney. Fantastic. Thanks so much for squeezing this in. I am going to bounce you back to Maritide and just as we think about maintenance and that kind of less frequent dosing opportunity, can you describe how you might think about the role of this product in the market? Is it only post maritide weight loss? Or how should we be thinking about that switching opportunity and the type of data that you might demonstrate for that positioning over time. Thanks so much. Robert A. Bradway: Yeah, I can imagine there's probably a lot of interest in that. Murdo, do you want to share any thoughts at this point? Murdo Gordon: Well, thanks Courtney. Obviously, we think we've got as has been said now, many times and I'll repeat it again, a product that changes the paradigm of weight loss diabetes, ASCVD, heart failure management, And we see it as both an effective product to start patients on to get to weight goal and also for patients who to receive the medical of their treatment need to be on these therapies for multiple years. This opportunity for maritide's profile to deliver a convenient, well-tolerated, efficacious regimen that could be monthly, could be every eight weeks, and could be quarterly. We think that's that's really exciting. And then, of course, as you hinted at, there may be patients out there on other therapies that want to switch to something as convenient and as well tolerated as Maritide. So the answer is all of the above. Okay. So again, thank you all for your interest. We appreciate you joining our call. I'll just reiterate, if we didn't get to you, please reach out directly to Casey and his team. In the meanwhile, I hope we've left you confident the momentum that we're carrying into 2026. Again, I would just reiterate that we're excited about the year that we have in prospect here. A year which as Peter has described, we view as a springboard to the future growth here at Amgen Inc. So excited about the hand that we have and look forward to sharing it with you during the course of the year. Thank you. Julianne: This concludes our Amgen Inc. Q4 2025 earnings conference call. You may now disconnect.
Operator: Hello, and thank you for standing by. My name is Tiffany, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Q3 fiscal year 2026 quarterly earnings results call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you would like to ask a question during that time, simply press star, then the number one, on your telephone keypad. I would now like to turn the call over to Nicole Shevins, Senior Vice President of Investor Relations and Corporate Communication. Nicole, please go ahead. Nicole Shevins: Good afternoon. Thank you for joining our conference call to discuss our results for the 2026 ended December 31, 2025. Today's call will be led by Strauss Zelnick, Take-Two Interactive Software, Inc.'s Chairman and Chief Executive Officer, Karl Slatoff, our President, and Lainie Goldstein, our Chief Financial Officer. We will be available to answer your questions during the Q&A session following our prepared remarks. Before we begin, I'd like to remind everyone that statements made during this call that are not historical fact are considered forward-looking statements under federal securities laws. These forward-looking statements are based on the beliefs of our management as well as assumptions made by and information currently available to us. We have no obligation to update these forward-looking statements. Actual operating results may vary significantly from these forward-looking statements based on a variety of factors. These important factors are described in our filings with the SEC, including the company's most recent annual report on Form 10-Ks, quarterly report on Form 10-Q, including the risks summarized in the section entitled Risk Factors. I'd also like to note that unless otherwise stated, all numbers we will be discussing today are GAAP and all comparisons are year-over-year. Additional details regarding our actual results and outlook are contained in our press release, including the items that our management uses internally to adjust our GAAP financial results in order to evaluate our operating performance. Our press release also contains a reconciliation of any non-GAAP financial measure to the most comparable GAAP measure. In addition, we have posted to our website a slide deck that visually presents our results and financial outlook. Our press release and filings with the SEC can be obtained from our website at take2games.com. And now I'll turn the call over to Strauss. Strauss Zelnick: Thanks, Nicole. Good afternoon, and thank you for joining us today. I'm pleased to report that we delivered another outstanding quarter, including net bookings of $1.76 billion, which surpassed meaningfully the high end of our guidance. All of our labels outperformed substantially our expectations and contributed to our ongoing success. Due to our strong results and positive momentum that has continued in the current quarter, we're once again raising our outlook for the full fiscal year. We now expect net bookings to range from $6.65 billion to $7 billion, which represents 18% growth compared to fiscal 2025. At the midpoint, our revised net bookings forecast is approximately $725 million above the initial outlook we provided in May 2025, which reflects the creative passion, hard work, and consistent execution of our teams. Turning to highlights from the period, I'll begin with the fantastic performance of our mobile business. Peak's forever franchise, TuneBlast, grew 43% year-over-year and surpassed $3 billion in lifetime net bookings, an extraordinary achievement for a title that has been engaging players for more than eight years. The game continues to rank among our most valuable franchises, showcasing the long-term value of our match-three portfolio. Match Factory, another hit from Peak, grew approximately 17% over last year. The title remains a top contributor two years after its launch, affirming our strategy of building a diverse portfolio of games with vast global appeal. Color Block Jam remains Rolex's all-time top-performing title and was featured in Apple's 2025 free games list in the US, underscoring the title's success. Empires and Puzzles and Words With Friends grew 116%, respectively, over last year. Advertising revenues grew 10% over last year, driven by higher average revenue per daily active user, and we're highly confident in the future of this component of the business. 2K's mobile offerings also had another solid quarter, with WWE SuperCard surpassing 38 million lifetime downloads, NBA 2K's Mobile continuing to expand its audience, NBA 2K26 Arcade Edition holding its top five position on the Apple Arcade charts, and NBA 2K All-Star in China growing to nearly 9 million registered users after less than one year in the market. Mobile direct-to-consumer business delivered its strongest quarter on record. We've introduced recent enhancements that enable more personalized offers, flexible pricing, reduced payment friction, and alternative payment methods. With the regulatory environment becoming even more favorable to us, we view direct-to-consumer as a meaningful growth driver that will help accelerate net bookings, margins, and profitability. NBA 2K26 delivered another stellar quarter, yielding significant upside to our forecast. To date, the title has sold in approximately 8 million units, representing a high single-digit percentage increase over NBA 2K25. Recurrent consumer spending, daily active users, and MyCareer daily active users all grew 30% year-over-year. Based on its phenomenal year-to-date performance, NBA 2K is on track to generate the highest level of annual net bookings and recurrent consumer spending in franchise history. I'd like to thank the NBA and NBA Players Association for their extraordinary partnership and support. Grand Theft Auto series also vastly outpaced our forecast, with recurrent consumer spending growth of 27%, led by GTA Online's A Safe House in The Hills update, which featured long-awaited mansion properties and the return of the fan-favorite protagonist, Michael DeSanta. Full game sales of Grand Theft Auto V remain strong, with the title now having sold in over 225 million units since its launch in 2013. GTA Plus continues to thrive with membership levels nearly doubling over the same period last year, and we're excited about its potential to add even more value to the player experience in the future. In December, Rockstar Games expanded Red Dead Redemption and Undead Nightmare onto new platforms, bringing these classic blockbusters to PlayStation 5, Xbox Series X and S, Nintendo Switch 2, and iOS and Android mobile devices for Netflix subscribers. We're immensely proud of our teams and their ability to deliver consistently the highest quality and most engaging entertainment experiences. As we continue to explore and invest in new technologies, particularly AI, we'll unlock greater efficiencies that will allow our talent to focus on the kind of innovation that has enabled us continually to set new creative and commercial benchmarks in interactive entertainment. Our execution throughout fiscal 2026 has been extraordinary, and we're highly confident as we approach fiscal 2027, which promises to be groundbreaking for Take-Two Interactive Software, Inc. and the entire entertainment industry, led by the November 19 release of Grand Theft Auto VI with Rockstar's launch marketing set to begin this summer. With ongoing momentum in our business, coupled with our robust forward release schedule, we continue to project record levels of net bookings in fiscal 2027, which we believe will establish a higher financial baseline, set us on a path to enhanced profitability, and further provide balance sheet strength and flexibility. I'll now turn the call over to Karl. Karl Slatoff: Thanks, Strauss. I'd like to thank our teams for delivering another fantastic quarter, which reflects our world-class talent and the breadth and depth of our portfolio. I'll now discuss our recent and planned product offerings for the balance of fiscal 2026. On January 14, 2K and HP Studios announced an array of new content for PGA Tour 2K25, including three new courses for the 2026 major championships: the 2026 PGA Championship at Oraneman Golf Club, the 126th US Open at Shinnecock Hills Golf Club, and the 154th Open at Royal Brookdale Golf Club, with more to come, including new seasons. Additionally, we look forward to growing the community with the launch of PGA Tour 2K25 on Nintendo Switch 2 on Friday. Paroxys Games will continue to deliver a steady cadence of updates for Sid Meier's Civilization VII, and on Thursday, 2K will launch Civilization VII for mobile devices exclusively on Apple Arcade, representing an exciting opportunity to expand the Civilization audience. On March 13, 2K and Visual Concepts will once again raise the bar for a wrestling franchise with the release of WWE 2K26. Featuring the biggest roster in the series' history, players will be able to choose from over 400 legends and current superstars and enjoy new customization options throughout the game. We plan to support the release with a new ringside pass live service model and a series of add-on packs that can be purchased individually or together as part of the season pass. 2K and Gearbox Software will continue to support Borderlands 4 with new content and updates, and we expect the title to achieve strong sell-through over its lifetime. Zynga will continue to deliver new features and drive innovation across its live services, as well as pursue the development of new titles. Looking ahead, we believe strongly in our upcoming launches and will provide our initial three-year pipeline for fiscal 2027 through fiscal 2029 with our Q4 results in May. I'll now turn the call over to Lainie. Lainie Goldstein: Thanks, Karl, and good afternoon, everyone. Our third-quarter results were fantastic, with all of our labels delivering excellent results, and we are pleased to once again raise our outlook for the fiscal year. Many of our core franchises continue to thrive, and fiscal 2026 is on track to be one of our strongest years in recent history. I'd like to thank our teams for their vision, passion, and dedication. Turning to our performance, we delivered third-quarter net bookings of $1.76 billion, which was significantly above the high end of our guidance range of $1.55 billion to $1.6 billion. This reflected better-than-expected performance from NBA 2K, the Grand Theft Auto series, and several mobile titles, including TuneBlast, Empires and Puzzles, and Top Eleven. Recurring consumer spending rose 23% for the period, which strongly outperformed our guidance of 8% growth and accounted for 76% of net bookings. NBA 2K grew 30%, Grand Theft Auto Online increased 27%, and mobile increased 19%, all of which exceeded our expectations. During the quarter, we launched WWE 2K's Mobile for Netflix and Red Dead Redemption and Undead Nightmare for several new platforms. GAAP net revenue increased 25% to $1.7 billion. Cost of revenue increased 26% to $754 million, and operating expenses increased 10% to $984 million. On a management basis, operating expenses rose 13% year-over-year, which was in line with our guidance and represented significant operating expense leverage on our fantastic top-line growth. Turning to our guidance, I'll begin with our full fiscal year expectations. We are once again raising our net bookings outlook and now expect to achieve $6.65 billion to $6.7 billion, which represents 18% growth at the midpoint over fiscal 2025. The increase reflects our third-quarter outperformance and higher expectations for several of our key titles during the fourth quarter. The largest contributors to net bookings are expected to be NBA 2K, the Grand Theft Auto series, TuneBlast, Match Factory, Empires and Puzzles, Color Block Jam, Borderlands, Red Dead Redemption series, and Words With Friends. We now expect recurrent consumer spending to grow approximately 17% and represent 78% of net bookings. This is up significantly from our prior forecast of 11%, driven by strong momentum across most of our major franchises. Our revised recurrent consumer spending forecast assumes that NBA 2K grows 37%, mobile increases approximately 13%, and Grand Theft Auto Online increases slightly. All of these expectations are raised from our prior forecast. We project the net bookings breakdown from our labels to be roughly 46% Zynga, 38% 2K, and 16% Rockstar Games. We are raising our operating cash flow forecast to $450 million, which is up from our prior expectation of $250 million, with the increase reflecting the strength in our business. We remain on track to deploy approximately $180 million in capital expenditures. We are also updating our forecast for GAAP net revenue, which is now expected to range from $6.55 billion to $6.6 billion, and cost of revenue, which is expected to range from $2.78 billion to $2.8 billion. Our total operating expenses are now expected to range from $3.96 billion to $3.97 billion, compared to $7.45 billion last year, which included a $3.6 billion impairment of goodwill and intangible assets. On a management basis, we now expect operating expense growth of approximately 8% year-over-year, which is down slightly from our prior forecast due to a shift of some marketing expenses into next year. Given our strong net bookings outlook, this assumes meaningful operating expense leverage over last year. Now moving on to our guidance for the fiscal fourth quarter. We project net bookings to range from $1.51 billion to $1.56 billion, compared to $1.58 billion in the prior year. Our release slate for the quarter includes Sid Meier's Civilization VII for Apple Arcade, PGA Tour 2K25 for Switch 2, and WWE 2K26. The largest contributors to net bookings are expected to be NBA 2K, the Grand Theft Auto series, TuneBlast, Match Factory, WWE 2K, Empires and Puzzles, Color Block Jam, Red Dead Redemption series, and Words With Friends. We project recurrent consumer spending to increase by approximately 7%, which assumes a high 20% increase for NBA 2K, mid-single-digit growth for mobile, and a modest decline for Grand Theft Auto Online. We expect GAAP net revenue to range from $1.57 billion to $1.62 billion, and cost of revenue to range from $675 million to $692 million. Operating expenses are planned to range from $973 million to $983 million. On a management basis, operating expenses are expected to grow by approximately 3% year-over-year, primarily driven by higher performance-based compensation and user acquisition investments to support robust performance in our mobile portfolio, which is partly offset by lower production expenses. In closing, our business momentum remains outstanding. We are very confident in our future. With Grand Theft Auto VI and other eagerly anticipated titles on the horizon, we believe that we will generate higher earnings power, strengthen our balance sheet, and deliver sustainable shareholder returns. I'd like to thank you all for your support and look forward to sharing more details in the coming months, including our initial outlook for fiscal 2027 when we report our fourth-quarter results in May. Thank you. I'll now turn the call back to Strauss. Strauss Zelnick: Thanks, Lainie and Karl. On behalf of our entire team, I'd like to thank our colleagues for their shared commitment to excellence and Take-Two Interactive Software, Inc.'s long-term success. To our shareholders, I want to express our appreciation for your continued support. We'll now take your questions. Operator? Operator: Press star, then the number one on your telephone keypad. To withdraw your question, simply press star 1 again. We'll pause for just a moment to compile the Q&A roster. Your first question comes from the line of Doug Creutz with TD Cowen. Please go ahead. Doug Creutz: Hey. Thank you. The last few days, the equity markets have really punished your stock and those of other video game makers because of fears about what AI means for your business. I wondered, Strauss, if you'd like to expound upon whether you think what's happening in the market is an accurate reflection of the threats and opportunities you see coming from AI. Thank you. Strauss Zelnick: Thanks, Doug. Oh, I have to admit I'm a little confused. You know, the video game business since its inception was built on the back of machine learning and artificial intelligence. We create our games in computers with technology. And ever since questions began about generative AI about eighteen months ago, I've been incredibly enthusiastic about what the future can bring. As it happens now, we're actively embracing generative AI. We have hundreds of pilots and implementations across our company, including with our studios, and we are seeing opportunities to drive efficiencies, reduce costs, and create the opportunity to do what digital technology has always allowed, which is the mundane tasks become easier and less relevant, which frees up our creators to do the more interesting tasks of making superb entertainment. The history of the interactive entertainment business has been one of great creators using technology to do amazing things to please audiences. And that's our job around here, and that remains unchanged except perhaps accelerated. Just a reminder, our strategy has three parts: be the most creative, be the most innovative, and be the most efficient company in the entertainment business. And generative AI squarely falls within the category of innovation and is already moving into the category of efficiency. I'm hopeful that it will also move into the category of creativity as it allows our creators to use digital tools to expand what we do to make it even more beautiful, engaging, and exciting. Thank you. Operator: Our next question comes from the line of Eric Handler with ROTH Capital Partners. Please go ahead. Eric Handler: Yes. Good afternoon. Thanks for the question. Strauss, you just had another really strong quarter with mobile. Strauss Zelnick: And mobile has just been on a very big tear for the last seven quarters now. Wondering if you could talk about some of the initiatives or bold beats, as they used to call them, that you thought what are you finding that's really resonating? What is keeping these games that have been out for a number of years still relevant and drawing in new players? Strauss Zelnick: Well, our Zynga team still refers to bold beats. They're a big part of what we do. And just to put a fine point on it, you're right. Our mobile business is up 19% year-over-year. TuneBlast was up 43%, Match Factory 17%, Empires and Puzzles 11%, Words With Friends 6%, and Color Block Jam is a huge hit for Rolex. And that really is the tip of the iceberg. We really are firing on all cylinders at Zynga and also with 2K's mobile properties. What do I think is going on? Look, I think we are actually making hits, and that is still pretty unusual in the mobile business. The hardest thing to do is create new hits in the mobile business. And Zynga has proven an ability to do so by doing what we do, which is creating a home for the best talent in the business, encouraging them to pursue their passions, and supporting them and marketing with an A-plus structure and a really strong balance sheet. It's really hard to do that. There aren't very many companies that are doing it. I believe we're the only company that's doing it over and over again. You are right also, though, that the backdrop is strong. There was a disappointing moment in mid-2022, which is as it happens when we acquired Zynga, where for the first time the mobile market was down post-pandemic. And it was down more than we expected, and it took a while to rebound. The market has rebounded. There are tailwinds. So much as I'd like to take credit for all of the team's success, that's not really my style. I do think a rising tide lifts all ships, and we are benefiting from consumer engagement with mobile games. Eric Handler: Great. That's helpful. I also wondered, would you be willing to sort of give some type of indication of what percentage of your mobile recurring spending is coming from direct-to-consumer? Strauss Zelnick: It's meaningful. We haven't given a number. The environment for direct-to-consumer is improving. It has been a big strategy since we acquired Zynga. You may recall we talked about the synergies that we would find on the revenue side. I said in calls right after the acquisition that we thought the potential for direct-to-consumer could be seen as a revenue synergy because effectively what happens is we are actually capturing a higher share of those revenues and enhancing our margins. The recent regulatory environment has become much more favorable, and we also predicted that. I do think we're going to continue to see third-party take rates decline, which will drop to the bottom line. Eric Handler: Thanks. Operator: Your next question comes from the line of Colin Sebastian with Baird. Please go ahead. Colin Sebastian: Yes. Thanks, everyone. A couple of questions for me. And maybe first, continuing on the RCS theme of growth. Maybe you could expand a bit on the SafeHouse expansion in terms of driving higher levels of engagement. Are there specific learnings from that informing other future content updates? And I guess, secondly, maybe to Strauss, how are you thinking about capital allocation priorities with the growing cash balance, which is likely also going to expand quite a bit later this year? Thank you. Strauss Zelnick: So what we learned from a Safe House in the Hills update is that you deliver great material, consumers show up. And Rockstar always aims to do the best possible work. Some of the content updates have performed better than others, and this one has been nothing short of stellar. But I think the broader point is the one that matters, which is as we head into the release of GTA VI, I think there was some trepidation on the part of market participants that GTA V or GTA Online would somehow become less relevant. And I think the contrary is true. The anticipation is yielding even more engagement with GTA. GTA V, of course, has now sold in 225 million units. But what's it all driven by? It's the reason that GTA is so extraordinary is because Rockstar makes an extraordinary game and continues to make extraordinary features and additions and opportunities, and the Safe House update basically shows that. So this is an example of where our strategy pays off. We're focused on creativity, and it pays off. Strauss Zelnick: I'm sorry. On your second question, capital allocation remains unchanged. So you know, we have three uses of our capital. And I agree that if things go well and as planned, our cash balance should continue to grow. And, of course, we are generating significantly more operating cash flow than expected this year. These results. The first is, of course, to support organic growth. That's been our story here. This is an organic growth company with a handful of very selective acquisitions, thankfully, all accretive ones, most notably the acquisition of Zynga in 2022. So that leads me to the second use of our capital, which is inorganic growth opportunities, and we'll continue to pursue those in just a selective and disciplined way, and we are looking only for accretive opportunities. And the third is to return capital to the shareholders, which we've done over and over again. We've typically done so opportunistically with buybacks. And, thankfully, our buybacks have all turned out to be good for the shareholders in the fullness of time. I am a believer that you do buybacks when your balance sheet can afford it, on the one hand, and when you can do so at deep value, on the other hand. Our most recent buyback was executed at about $158 a share. There were some moments where people thought that was a bad thing. Turns out it was a very good thing. Operator: Your next question comes from the line of Chris Schoell with UBS. Please go ahead. Chris Schoell: Great. Thank you. You've seen consistent outperformance with NBA 2K and continue to post very strong growth despite the difficult comparisons. Can you just touch on what is resonating most, do you think, with players? And as you think about the next leg of growth for the franchise, what do you see as the biggest opportunity? Is it going to be growth internationally, expanding the user base, or enhancing monetization? Thank you. Karl Slatoff: So it's hard to say that one particular thing is driving the success of NBA. Obviously, it's been an incredible year for us, selling a lot of units, and also the performance of RCS across the board and engagement has been off the charts, 30 plus percent year-over-year on basically every mode that we have. Those things don't come easy, and I think the best way to describe why this works for us is because of the way that VC and 2K run their business, which is really in a state of perpetual diligence. They're constantly communicating with the consumer, seeing what the consumer is doing, watching how they play, seeing what works, doesn't work, and refining the game year after year. And it's that maniacal attention to detail when you add it up year over year, that culminates in so much success. And this is one of those years where everything was just humming in the right direction. And on top of that, there's always an effort every year to do something a little bit different, a little new. For example, the cruise this year, which is a really interesting concept. People can pair up together with 50 people, play against other teams, and it's a really exciting thing, a social thing, which has had a pretty big impact on the MyCareer mode. So it's not one thing. It's everything. And I'd say it's culture, as much as it is anything else. I think there was a second part. Oh, biggest opportunity. Well, first of all, the biggest opportunity is to continue to do more of what I just described, which will lead to a higher installed base of folks and also to higher engagement, which ultimately leads to higher monetization. I do believe that there is a significant international expansion opportunity. The NBA continues to be an amazing partner for us. They're expanding internationally. Basketball is a global sport, and we've got that going for us. So I think that will help us drive. And just without regard to just the NBA expanding, there are lots of opportunities for us to expand also in North America as well. As we grow with the brand and partnership with NBA. So at this point, I think the sky is still the limit. We surprise ourselves every year. The game does better and better, so we're very optimistic about the future, obviously. Operator: Your next question comes from the line of Andrew Marok with Raymond James. Please go ahead. Andrew Marok: Hi. Thanks for taking my question. Maybe specifically, again, back to the commentary on generative AI. You know, we hear loud and clear Take-Two's ability to harness that. But maybe on Genie specifically, we've been getting a lot of questions from investors about the similarities and differences between world models and game engines. Can you maybe give us an overview of what you think tools like Genie can and cannot do as it relates to some of the proprietary game engines that you operate? Thank you. Karl Slatoff: So in terms of commenting on the specific technology, I think we're not going to go into great details about the tech differences because, frankly, Genie's early in its iteration at this point. And trying to make a comparison to a game engine is just really they're not even in the same ballpark. Genie is not a game engine, and I would it's very exciting technology, and I think the question is, how can it benefit our creators? And I think there will be a moment in time where that will become more defined. It certainly doesn't replace the creative process. And I would say, look, it looks to me more like a procedurally generated interactive video at this point. There are limitations, and Google has said as much. So to compare the technologies, I think there's really no way to do that because they're so far apart. And there are so many more elements to game development that go beyond, you know, quote, world creation. And the question is, what is a world creation? So even beyond world creation, there's everything else that's involved. There's the storyline, there's emotional connection, there's vibe, there's mission structure. All of those things, you cannot capture through AI. And certainly not through a world builder. So that's just a very, very small component of what we do. And if this tool bears out, it will make a component of what we do all that much better and more efficient. Andrew Marok: Great. Thank you. Operator: Your next question comes from the line of Edward Alter with Jefferies. Please go ahead. Edward Alter: For the question. I want to dig into your app mobile advertising results. I think it's the second time you guys have grown that year over year since acquiring Zynga. I wanted to dig into what's going so right there and where kind of the opportunity for continued growth in the mobile advertising space is for you guys. Strauss Zelnick: That's pretty simple. When we took over Zynga, there weren't a lot of ad units in most of the games, and we have selectively added ad units pretty much across the board, not entirely certain games. Don't merit that. Also, I think Zynga's been very smart about the way they go about monetizing that advertising. And there really is much more opportunity there without interfering with the experience at all. The strategy ultimately is to make sure that one way or another, we monetize the bulk of our users. As you know, in the mobile games business, fewer than 20% of your users actually engage with you to pay. Edward Alter: And given your comments on how the impending GTA VI is a positive for GTA Online in its current form, what is your view on what GTA Online is going to continue to be the current iteration once GTA VI does come out? Strauss Zelnick: Look, Rockstar Games is the locus of information about, you know, where the titles go, content, and marketing. Generally, you know, we have a pretty light touch when we talk about the labels' creative activities. At the same time, I have every reason to believe we'll continue to support GTA Online. There's a great community that loves it, that stays engaged. And, again, in this quarter, Rockstar has shown that when you deliver great additional content, despite how long GTA Online has been in the market, people show up. Edward Alter: Great. Thank you. Operator: Your next question comes from the line of Jason Bazinet with Citi. Please go ahead. Jason Bazinet: I think this is a while back, but I think when you first talked about GTA VI coming out, you noted that you expected your non-GAAP earnings to grow the year after it was released, not just the year. You know, the year is released being the base. I just wonder, is that still true? And do you mind just sort of unpacking sort of the main drivers of that? Presumably, one of it is just getting four quarters attribution, but what else would you say are the key drivers of that expectation if it is still true? Lainie Goldstein: What we have been saying is that we expect that our release schedule is going to drive sequential growth next year. And then that will bring us to establish a new baseline for our business going forward. So we haven't really been talking about detailed guidance beyond fiscal year 2026. And now in our May earnings call, we'll give our guidance for fiscal year 2027. And we're not planning on providing detailed guidance for any years beyond that at this time because our release schedule includes numerous titles each year, and even modest shifts can have a significant effect on results in any given period. So all of our years will be driven by our release schedule, and we have a very robust release schedule over the next couple of years, and that's what's really driving the growth in the business. Jason Bazinet: Perfect. Thank you. Operator: Your next question comes from the line of Alec Brondolo with Wells Fargo. Please go ahead. Alec Brondolo: Yeah. Hey. Thank you so much for the question. It seems like the market is creating potential opportunities for M&A. So in that light, could you maybe refresh our understanding of what makes a studio appealing to Take-Two? You noted in response to a prior question that any M&A has to be accretive. And so with that said, what are the other qualities in the studio you look for? Thanks. Strauss Zelnick: Well, you're right to ask that because accretive is a financial calculation based on the decision to proceed. The decision is based on the talent, the technology, and the intellectual property. And we think there may be some opportunities out there that, you know, you have to be incredibly selective. You know, broadly in the market, as you know, most corporate M&A fails because most corporate management teams love the notion of presiding over a bigger and bigger empire. Don't look at the world that way. You know? Our job is to entertain the world. Our job is to make the most creative properties that anyone can make and to bring them to consumers wherever they are. If there is an enterprise available on favorable terms that sits within that strategy and can operate within our unique culture, then it's potentially interesting to us. Alec Brondolo: Thank you. Operator: Your next question comes from the line of Michael Hickey with Benchmark Company. Please go ahead. Michael Hickey: Hey, Strauss, Karl, Lainie, Nicole. Good quarter, guys. Congratulations. I guess the first question, you've got two. Is on GTA VI. Glad to hear that summer marketing is going to start here. That's encouraging. But just sort of curious, Strauss, how much marketing you really have to do here if there's leverage versus prior releases just given the strength of GTA V, GTA Online, in fact, this is, you know, massive pent-up demand for what will be probably the largest entertainment release of all time, seem like you have to market much. So just curious your view there. And then, I guess on the topic of affordability, which is obviously very topical, certainly within the video game space, just curious your specific thoughts given that we're sort of year five here approaching year six of the current console cycle and pricing of consoles are going up. We've got now memory cost issues, so they can even go up further by the time the GTA VI comes out. We've also seen some inflation on software. So just broadly speaking, how do you think your fits within that affordability picture and how you think about providing value, which I know is a centerpiece of what you've done in store? Thanks, guys. Strauss Zelnick: Hey. Thanks, Mike. I mean, I love your question, your first question. Like, are we just going to sit back and relax as we head into the release of GTA VI? And I think the opposite is true. You're talking to a team that you've known for seventeen years, and the business of eating red meat for breakfast. I think we'll be having a lot more red meat in the coming months. So we are very fortunate. The consumer anticipation for GTA VI is indeed huge. And one does have to be judicious in the way one markets such an extraordinary property. But rest assured that you'll be pretty astonished by the creativity that Rockstar's marketing team brings to consumers in the coming months. On the affordability question, you know, we do feel a compact with the we've talked about for a very long time to deliver way more value than what we charge. I think we're known for that. And you know, we're in the business of entertaining people. We're not in the business of creating revenue. Revenue comes from entertaining. And interactive entertainment on a real basis is getting more and more affordable all the time because we offer extraordinary value for the money. You know, people engage with our properties for hours and hours and hours, and on a real basis, frontline prices have declined in the past twenty years. Meaningfully declined. So we see it the same way, which is we, you know, we do believe in democracy access to what we do around here. We want everyone to be able to engage. I just mentioned it in terms of mobile. You know, you want to have a great mobile experience. We offer the best mobile experiences on earth free. And you can play them and have a wonderful experience completely free. On the console side, of course, you know, that's not expected by consumers. Because of the deep value that we bring, and consumers do expect to pay for that. But on a real basis, we're making it more and more affordable and more and more accessible. Operator: Your next question comes from the line of Drew Crum with B. Riley Securities. Please go ahead. Drew Crum: Okay. Thanks. Hey, guys. Good afternoon. So you have a few undated mobile titles as part of your frontline release schedule. Recognizing it's been a tough launch market for new titles for a while now, based on the strength you're experiencing with your mobile business, can you comment on what you're seeing in terms of market dynamics for launching new games and whether the backdrop is more supportive of delivering new hits? Strauss Zelnick: Thanks. You know, there are really only two companies in the mobile space who are delivering new hits in the last five years. We're one of them. It's super hard. Incredibly hard. It's been hard. You're quite right. Ever since you had to pay for user acquisition, which is, you know, the better part of, I guess, nine years, it's become much more difficult. And, you know, the early days of mobile, of course, now is a new market and people are very accepting of new IP and new markets. So we're exceedingly respectful of the difficulty of launching any new hit, that includes in our mobile space. I do think the Zynga team has come up with an approach that is more likely to succeed more regularly than our prior approach because while they arrive at this. And once again, it's sort of, you know, be selective. And focus on the best talent in the business and make sure that that talent pursues their passion. And then, of course, listen to the data. Iterate according to the data. But you can't iterate at the beginning to create a hit. You need creative passion to create the hit from which you build. Operator: Your next question comes from the line of Brian Pitz with BMO Capital Markets. Please go ahead. Brian Pitz: Thanks for the question. Strauss, we saw your recent announcement of the CFX marketplace, which appears to be a push in the direction of UGC gaming. Can you talk more about this launch and how you're thinking about the broader opportunity? And also, maybe any insights around developer economics in the marketplace with respect to bookings? Thank you. Strauss Zelnick: I mean, I think that we've always welcomed quite some time user-generated content. We have that in numerous parts. Of course, we have the role-playing server business at Rockstar. So we see this as an important and interesting development with more opportunity to come. At the end of the day, you know, what we're known for here is our creators making the very best in entertainment. That's our job, and we think that that never goes away as a driver of the business. At the same time, there are users who want to create and engage, and we want to create a home for them as well. And tools that make that more viable and more accessible could be an opportunity for us. Brian Pitz: Great. Thanks. Operator: Your next question comes from the line of Martin Yang with Oppenheimer. Please go ahead. Martin Yang: I have a question on engagement and a follow-up on monetization. Personal engagement, can you maybe talk about how the GTA player base is engaging with the game? Is it primarily GTA Online? Or do you see still the full game getting substantial playing hours per user or MAUs? Strauss Zelnick: Look. We've, you know, we sold a whole bunch of units of GTA V in the quarter. And Rockstar continues to bring new consumers into the tent. It's both. It's the full game and it's the online version, which, you know, is up meaningfully year-over-year, about 27%. Operator: Your next question comes from the line of Omar Dessouky with Bank of America. Please go ahead. Omar Dessouky: Hi. It's Omar Dessouky. So I think you mentioned that Zynga comprised a little bit less than half of your revenue of the entire business. You know, over the last couple of years, it's been well known that, you know, solutions to avoid App Store fees would become commercially available, and, you know, there have been several that have been announced, such as, for example, Unity's cross-platform ecommerce solution that would help reduce the amount of fees that game developers have to pay to the app stores. How much of your fees that the distribution fees that you pay to the app stores do you think are addressable, you know, through such a third-party solution, you know, outside of the fact that you already have, you know, growth in your own DTC channel, are the two mutually exclusive? And how much, how much do you think you can save and how much time will it be before you implement, you know, such a third-party solution? Karl Slatoff: So I'm not really going to comment on third-party solutions. So the fact is a lot of our DTC efforts, we really do in-house at this point. That's not to say that third-party solutions can't be helpful now or in the future. But primarily, this is an internally driven thing for us. And in terms of the opportunity, I think we've said before, right now, it's still pretty early. It's growing in terms of not all of our games, even some of our really large games, don't have DTC components to them. I think all of them at one point could. We'll see how that shakes out. So we're pretty early in the process, and we think there's a lot of growth ahead of us. But it's something that we're certainly excited about. It improves our margins. And as Strauss mentioned earlier, the legislative environment has been favorable towards that. Strauss Zelnick: Thank you. Operator: That concludes our question and answer session. I will now turn the call back over to Strauss Zelnick for closing remarks. Strauss Zelnick: Thank you so much for joining us today. Obviously, we're thrilled with the company's results. We're thrilled with our revised outlook for the rest of the year. And we're beyond thrilled with our expectations for next year, including WWE coming up this year and, of course, NBA 2K, and then most notably, GTA VI. I want to just take a minute to thank our teams, our creative teams, for showing up every day, bringing their passion to the table, not taking no for an answer, and always willing to push as far as they can to deliver the most extraordinary entertainment experiences. And I want to thank our executive teams who subscribe to our strategy of creativity, efficiency, and innovation and who also show up every day doing their very best work in service of our collective goal to be the best entertainment company on earth. Thank you too to our shareholders for your support. These are really exciting times, and we're happy that you're along for the ride. Operator: Ladies and gentlemen, this concludes today's call. Thank you all for joining. You may now disconnect.
Jessica Hazel: This dynamic is reflected in the $0.11 year-over-year increase in adjusted loss per share, even as our net loss improved. Our disciplined approach to capital allocation continues to drive meaningful value for our shareholders. We generate significant, stable cash flow, and expect this year to be no different. We then invest in the business, grow the dividend, and return excess capital to shareholders through share repurchases. In the first half of this fiscal year, we have returned $508 million to shareholders in the form of dividends and share repurchases. We have approximately $700 million remaining on our current share repurchase program. Turning to our full year outlook, we are reaffirming the following ranges as provided in today's earnings release: Revenue between $3.875 billion and $3.895 billion, EBITDA between $1.015 billion and $1.035 billion, an effective tax rate of approximately 25%, and adjusted EPS between $4.85 and $5. Our outlook continues to contemplate certain key assumptions: First, industry growth in line with historical norms, or about 1%; continued emphasis on achieving a healthier balance of volume, price, and mix over time; the strategic prioritization of assisted and paid DIY, the two areas that deliver the strongest lifetime value for H&R Block; an expanding contribution from small business as a meaningful revenue driver in fiscal 2026 and beyond; and continued franchise acquisitions when opportunities arise at attractive EBITDA multiples, which remains a prudent and value-accretive use of capital. Taken together, these inputs underpin our fiscal 2026 outlook and reinforce our focus on disciplined execution of our strategy, which we believe positions us well to continue delivering meaningful value for our shareholders. With that, I'll turn it back over to Curtis for closing remarks. Curtis Campbell: Thanks, Tiffany. Our priorities are clear: focused on the client, equipping our tax pros to build trust and deliver meaningful outcomes at every turn. Coupled with products designed for clarity, confidence, and convenience, we focus on meeting clients where they are, on their terms. Combining disciplined execution with a commitment to progress, we're positioning H&R Block, Inc. for lasting growth. I am confident in our team's ability to adapt, deliver, and strengthen our company for the future. Thank you for your continued trust and partnership. Now, operator, we will open up the line for questions. Operator: Star 11 on your telephone, and wait for your name to be announced. To withdraw your question, please press 11 again. Please stand by while we compile the Q and A roster. Our first question comes from Alex Paris with Barrington Research. Your line is open. Alex Paris: Hi, guys. Thanks for taking my call. Congrats on the better-than-expected off-season quarter. Jessica Hazel: Thanks, Alex. Curtis Campbell: Yeah. How are you doing, Alex? Thank you for the question. So, Yeah. I'll go ahead and jump in. We don't see any material impact from the government shutdown, and I'll remind everybody that Block has been in business for seventy years, so we are not unfamiliar with government shutdowns. Our tax pros are prepared to guide our clients through any uncertainty, especially any connected to the one big beautiful bill. Alex Paris: Gotcha. And then, you know, again, it's very early in the tax season. But any trends to note out of the first ten days or so? Curtis Campbell: It's early in the tax season without a doubt. So e-file opened up last Monday. Tiffany talked about this, but we expect the industry to grow at approximately 1% this year. I'll tell you, I'm confident in the work the teams have done to prepare for this season. I mentioned in my prepared remarks, we're focused on executing not just for the season, but we're also focused on testing and experimenting with new capabilities and experiences that are connected to our multiyear strategy that we'll share more about as we go throughout the year. I also want to highlight, Alex, a couple of important changes that we made: the second look to scale it, the work we've done to embed AI-enabled tax pro assistance into the tools of our tax pros, advancements we've made to TPR, the work we've done to optimize our assisted virtual experience, and especially the training our tax pros have to help clients navigate any uncertainty due to the one big beautiful bill. I feel like we're well positioned for the season. Alex Paris: Yeah. No. Sounds like it. One of the other things I think we talked about in the call is you expect, not only normal growth, 1% ish, you know, for tax filing this year. But also, that assisted should, take some share from DIY again, say, to the tune of about 20 basis points. Any change in that expectation? You know, perhaps driven by one big, beautiful bill, and increased complexity. Curtis Campbell: No. We'd expect the tailwind from the One Big Beautiful bill. What we have historically seen is when there's significant tax complexity, it drives clients to seek assistance. Alex Paris: And you're still thinking low single-digit price increases across both assisted and DIY? Curtis Campbell: That's correct. Alex Paris: Great. Alright. Well, thank you for that. I appreciate it. Good luck on the balance of the season. We'll have checkpoints between now and then, and I'll get back in the queue. Curtis Campbell: Thank you, Alex. Operator: Thank you. Our next question comes from Kartik Mehta with Northcoast Research. Your line is open. Kartik Mehta: Hey. Good evening. Curtis, as you look at this tax season, are you anticipating similar behavior to last year in terms of the peaks, or do you think the One Big Beautiful Bill will change that in any way? Curtis Campbell: Hey, Kartik. How are you doing? Thanks for your question. You know this, what we've seen over the last several years is slower starts to the season from an industry perspective, I wouldn't expect that to change. Without a doubt, the one big beautiful bill will drive uncertainty. Don't think that it's going to dramatically change taxpayer behavior other than the fact that they may reach out for assistance more. But I don't think that's going to change the timing of which they reach out to get their taxes done. Kartik Mehta: And then, Curtis, I know it's early, but have you seen a change in the refund amount? Is that know, the expectation is that it'll be larger than last year. Have you is that come to fruition? Curtis Campbell: Yes. It's really, really early, but I would say that I expect, depending on the client, there to be a portion of their client base that does receive a bigger refund. You know this, look at the standard deduction, that's up $750. Incremental changes with the tips income deduction, the overtime pay deduction, the new senior deduction. Increase in default deduction are, in some cases, pretty big moves. Depending on who you are as a taxpayer, you could see a slightly higher refund. Perfect. Thank you very much. It's too early for us to share data that confirms what we're seeing, but I would expect that to be the case. Kartik Mehta: Okay. Thank you. I appreciate that. Curtis Campbell: Thanks, Kartik. Operator: Thank you. Our next question comes from George Tong with Goldman Sachs. Your line is open. Sammy for George Tong: Hi, this is Sammy on for George. Given expectations for greater complexity and a shift towards the assisted filing this tax season, what's driving your outlook for assisted share loss rather than stabilization or even gain since this type of environment is your strength? Curtis Campbell: Yeah. Let me jump in on this one. What's important to understand is why our market share hasn't consistently grown in assisted. I start with a CEO perspective. We've got names of clients that choose to with us every year. And we lose far too many in our mid to lower funnel. This comes down to, at the end of the day, us understanding why. We've spent quite a bit of time over the last six months examining every aspect of the client journey in our assisted business, and the same thing for our tax pros, examining every step of the journey for tax pros as they work to engage with our clients. A large portion of the reason why we've had some challenges is a significant amount of manual processes that are dependent on our tax pros to operate consistently at a high level. As I mentioned in my prepared remarks, we're focused on leveraging technology to reduce that manual non-value-added work. We believe this will help automate workflows, ensure consistent funnel management, and at the end of the day, deliver a better client experience. Our clients care about confidence, convenience, and the way they get every dollar they deserve. Enabling tax pros via technology ensures that. This journey will be multi-year, not overnight, but we believe it's the best for improving client experience at Block. Tiffany Mason: And just to clarify, we've been chipping away at assisted share loss over the last couple tax seasons, That's point number one. Number two, for our full-year outlook, the high end assumes we hold share in the assistant category. That’s top of guidance, and I want to make that point clear today. Sammy for George Tong: Got it. Implementing AI tools like AI Assist, is that a long-term threat to the assisted business if DIY becomes easier? Curtis Campbell: Thank you for your question. We don't think so. Meeting clients where they are makes blended experiences important. DIY clients can connect with pros when facing uncertainty, aligning with our multiyear strategy. Sammy for George Tong: Got it. Helpful. Thank you. Operator: Thank you. As a reminder, to ask a question or reenter the queue, please press Again, that is 11 to ask a question. Our next question comes from Scott Schneeberger with Oppenheimer. Your line is open. Scott Schneeberger: Thanks very much. Good afternoon. Curtis and or Tiffany, with the 1% industry volume growth, what drivers might lead to upside or downside as you look out over the season? Thanks. Tiffany Mason: Hi, Scott. Thanks for the question. Surely, 1% industry growth is historical. For both channels, especially assisted, we expect a positive shift due to the One Big Beautiful Bill. Any larger refunds might modestly boost growth, but I anticipate no outsized impact. So, 1% seems right and is reflected in guidance. Scott Schneeberger: Okay. Thanks, Tiffany. On marketing approach this year? Timing and spending nuances year over year, if you care to share. Thanks. Curtis Campbell: Sure. No big change in historical marketing spending. But focus this season is on meeting customers where they are, highest lifetime value. Expertise of tax pros navigating complexity is in TV commercials, digital ads. Connecting AI impacts marketing as consumer behavior shifts toward AI engine optimization, not just SEO. Jessica Hazel: From H&R Block’s perspective, AI as an enabler of significant client and pro experience improvements. AI tools like the AI-tax pro assistant, streamlining manual processes, and enhancing experiences, aim for pros to build relationships, guidance, and coaching. Clients choose assisted for confidence, trust, judgment, not just math. Fifty-five percent consistently seek assistance, seeing AI as an opportunity, not a disruptor. Scott Schneeberger: Great. Thank you, Curtis. Tiffany, on increased consulting costs year over year, will that continue? Tiffany Mason: Thanks, Scott. Engaged a consulting firm for strategic sourcing to drive cost efficiency. This engagement completed first half of the year, will yield sustainable savings to reinvest in strategic growth areas. This was all in our outlook, no step changes. Scott Schneeberger: Understood. Alright. Thanks very much. Curtis Campbell: Thanks, Scott. Operator: Thank you. I’m showing no further questions at this time. I would now like to turn it back to Jessica Hazel for closing remarks. Jessica Hazel: Thank you, everyone, for joining us today. Look forward to reconnecting with you soon.
Operator: Ladies and gentlemen, thank you for standing by. My name is Crista, and I will be your conference operator today. At this time, I would like to welcome you to the Jacobs Solutions Inc. Fiscal First Quarter 2026 Earnings Conference Call and Webcast. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you would like to ask a question at that time, simply press star followed by the number one on your telephone keypad. And if you'd like to withdraw that question, again, press star 1. Thank you. I would now like to turn the call over to Bert Subin, Vice President, Investor Relations. Bert? You may begin. Bert Subin: Thank you, Krista, and welcome, everyone. Following market close, we issued our earnings announcement, filed our Form 10-Q, and we have posted a slide presentation on our website we'll reference during the call. I would like to refer you to slide two of the presentation for information about our forward-looking statements, non-GAAP financial measures, and operating metrics. Now let's turn to the agenda on Slide three. Speaking on today's call will be Jacobs Solutions Inc.'s chair and CEO, Bob Pragada, and CFO, Venkatesh R. Nathamuni. Bob will begin by providing comments on the business, as well as highlights from our first quarter results and a recap of notable awards. Venk will then provide a detailed review of our financial performance, including commentary on end market trends, cash flow, and balance sheet data. Finally, Bob will provide closing remarks, and then we'll open up the call for questions. With that, I'll turn it over to our chair and CEO, Bob Pragada. Bob Pragada: Good afternoon, everyone, and thank you for joining us to discuss our first quarter 2026 business performance. We delivered very strong results for Q1, exceeding our expectations across all key metrics and made incremental progress toward achieving our FY 2029 targets. I'll quickly highlight a few key takeaways. First, adjusted EPS grew 15% to $1.53, supported by robust 8% net revenue growth and solid underlying margin performance. Second, our backlog grew 21% to over $26 billion, setting a new record, with our trailing twelve-month book-to-bill rising to 1.4 times. And third, we announced an agreement with the shareholders of PA Consulting to acquire the remaining stake in the company. We see PA's core competencies in digital consulting, innovation, and AI advisory as a force multiplier for Jacobs Solutions Inc. and a key accelerant in our strategy to redefine the asset life cycle. In summary, we are exiting Q1 with momentum, and the strong start to the year gives us confidence to increase our FY 2026 outlook for net revenue, adjusted EPS, and free cash flow margin, which Venk will go through in detail shortly. Turning to slide four, we provide a detailed overview of our quarterly results. We are very pleased with Q1 results as a strong operating performance paired with our lower share count drove the fourth straight quarter of double-digit growth in adjusted EPS. We also reported a substantial increase in our quarterly book-to-bill during Q1, to 2.0 times, positioning us well for the rest of FY 2026 and beyond. Turning to Slide five, I'd like to highlight a few notable INAF project awards for the first quarter. Q1 included several marquee wins that reflect the breadth of our capabilities and the strength of our demand across our end markets. Starting with water and environmental, we were selected to lead the engineering design for the Bolivar Roads Gate System along the Texas Gulf Coast. Spanning the narrow strait connecting The Gulf to Galveston Bay, this project is expected to be among the largest storm surge barriers in the world. Once completed, it will help protect more than 6 million people while safeguarding businesses and maintaining operations along the Houston Ship Channel, a critical energy corridor. This major program underscores our leadership in delivering complex and high-impact water infrastructure focused on long-term resilience. In life sciences and advanced manufacturing, we were selected to provide engineering, procurement, and program management services for Hut 8 Riverbend data center in Louisiana, a flagship AI high-performance computing project. The facility is poised to be one of the largest of its kind in North America. The region's power-dense utility infrastructure enables the speed, reliability, and flexibility required for next-generation AI workloads. This project demonstrates how we're leveraging our deep domain expertise in data centers, power, water, and digital twin technology to deliver increasingly complex facilities. In critical infrastructure, we continue to secure high-value mission-critical programs that underscore the strength of our combined Jacobs Solutions Inc. and PA Consulting capabilities. Notably, in the UK, the health security agency selected PA, supported by Jacobs Solutions Inc., to act as a delivery partner in its trust program, an initiative focused on strengthening resilience and safeguarding critical health data and infrastructure. Through advisory, technical, and delivery support, we'll help the agency meet data security and cyber requirements, ensuring the systems that underpin public health and emergency response remain resilient and secure. This award reflects the growing demand for our integrated consulting and delivery approach and reinforces our role in supporting some of the UK government's most critical priorities. Also within critical infrastructure, we were selected to lead program and construction management services for the $1.6 billion modernization of Cleveland Hopkins International Airport. The program will modernize aging infrastructure and improve accessibility and passenger flow at Ohio's busiest airport. Jacobs Solutions Inc. is ranked as Engineering News Record's number one firm in aviation, a sector where we continue to see significant growth in demand for terminal upgrades, master planning for new builds, digital implementation, and AI advisory. In summary, we are deepening our relationship with key clients, which is driving multifaceted, multiyear program wins as demonstrated by our significant backlog growth in the quarter. Now I'll turn the call over to Venk to review our financial results in further detail. Venkatesh R. Nathamuni: Thank you, Bob, and good afternoon, everyone. I'd like to echo Bob's earlier comments on our announcement to acquire the remaining stake in PA Consulting. Our partnership over the last five years has truly differentiated our approach to our clients' business, and we look forward to accelerating the integration of our combined offering. A year ago at our Investor Day, we talked about the power of focus, and increasing our ownership in PA Consulting to 100% will support our goal to simplify our structure, execute on our strategy, and produce predictable high-quality earnings over the long term. Now please turn to slide number six where I'll walk through our results for Q1. In the first quarter, gross revenue increased 12% year over year, and adjusted net revenue, which excludes pass-through revenue, grew by more than 8%. Q1 adjusted EBITDA was $303 million, growing more than 7% with our margin coming in about 13.4%. We absorbed less PTO than anticipated last year during Q1, resulting in a margin tailwind that did not recur this year. Overall, adjusted EPS rose 15% year over year, a great start to fiscal year 2026. Consolidated backlog was up 21% year over year to a record $26.3 billion, with our trailing twelve-month book-to-bill rising to 1.4 times. Book-to-bill was particularly strong in Q1, driven in part by several large awards in the life sciences and advanced manufacturing end market. We expect these awards to contribute positively to net revenue growth through fiscal year 2026 and beyond, but do note that they carry higher than normal pass-through revenue. Importantly, gross profit in backlog, which would not be impacted by this pass-through dynamic, highlighting the underlying strength of our sales performance, increased 15% year over year during Q1. Regarding our performance by end market, and infrastructure and advanced facilities, let's now turn to slide number seven. At a high level, all of our end markets performed well during the quarter, with strong revenue growth in life sciences and advanced manufacturing and critical infrastructure within INAF, as well as a forecast for enterprise net revenue growth. Focusing in on life sciences and advanced manufacturing, net revenue grew 10% in Q1, a nice improvement from Q4 as programs in our advanced manufacturing vertical ramp up. As we have noted in past quarters, strong award activity in both the data center and semiconductor sectors is now helping drive higher growth. Additionally, we continue to see favorable trends in life sciences, and this combination positions us well for the remainder of the year. Our current expectation is that growth in this end market will lead INAF in fiscal year 2026 as programs ramp up during the second half of the year. Shifting now to critical infrastructure, net revenue increased 8% over Q1 2025. Critical infrastructure is performing well across the board, with robust growth in transportation, particularly in rail and aviation, driving strong overall growth for the end market. Net revenue growth in our water and environmental end market increased sequentially to 4%, driven by high single-digit growth in water and a modest easing of headwinds in environmental. We forecast year-on-year performance for environmental will improve as we move into the second half of the fiscal year. In summary, we performed well across our end markets during Q1, and we believe we are positioned nicely for the remainder of fiscal year 2026 and beyond. Now moving on to slide number eight, I'll provide a brief overview of our segment financials. In Q1, INAF operating profit increased modestly year on year, with similar constant currency performance. PA Consulting operating profit increased 27% on 16% revenue growth and a strong operating margin of 24%. On a constant currency basis, operating profit grew 22%. PA continues to benefit from rising demand for digital consulting and advisory services in the public, national security, and energy sectors. As we look ahead, expect PA's revenue growth to remain solid with fiscal year 2026 tracking in the high single-digit range year on year. Moving on to slide nine, we provide an overview of cash generation and our balance sheet. For Q1, free cash flow came in at $365 million, supported by solid working capital performance, as well as a favorable cash timing item at the end of the quarter. Excluding this timing item, that will reverse in Q2, underlying free cash flow performance was still very strong and gives us confidence to raise our full-year free cash flow outlook, which I'll discuss shortly. Focusing in on capital returns, we increased our share repurchase quantum during Q1 to take advantage of the dislocation in our shares in the second half of the quarter. As a result, we're starting the year well on our way to returning at least 60% of our free cash flow to shareholders. Bob Pragada: Additionally, Venkatesh R. Nathamuni: we announced last week that we will be raising our quarterly dividend from 32¢ to 36¢ a share, a 12.5% increase. We have now more than doubled our quarterly dividend per share since 2019. Additionally, our net leverage ratio currently stands just below 0.8 times on LTM adjusted EBITDA, which is well below our 1.0 to 1.5 times target range. Our balance sheet strength has enabled us to increase share repurchases, raise our quarterly dividend, and enter into an agreement to purchase the remaining stake in PA Consulting. The acquisition of the remaining stake in PA will raise our net leverage to slightly above the high end of our 1.0 to 1.5 times target range upon closing, but we expect to return to the target range within a year. Finally, please turn to slide number 10 for our updated fiscal year 2026 outlook. Increasing our forecast adjusted net revenue growth, adjusted EPS growth, Bert Subin: and free cash flow margin Venkatesh R. Nathamuni: relative to our guidance from last quarter. We're increasing our fiscal year 2026 net revenue range to 6.5% to 10% year over year, adjusted EPS range to $6.95 to $7.30, and free cash flow margin range to 7% to 8.5%. Our expectation remains unchanged for an adjusted EBITDA margin range of 14.4% to 14.7%. Notably, our outlook for fiscal year 2026 implies over 16% year-on-year growth in adjusted EPS at the midpoint. We provide relevant assumptions on the right side of the page to help with your modeling. Please note that our guidance does not reflect the announced acquisition of the remaining stake in PA Consulting, and we plan to update our outlook once the deal closes, likely with our Q2 results in May. Based on current assumptions, we expect the acquisition to be accretive to adjusted EPS in the first twelve months following closing. We anticipate the $16 million to $20 million projected cost synergies will begin to phase in during fiscal year 2026, with revenue synergies providing incremental upside. As it pertains to Q2, we expect our adjusted EBITDA margin to be in the range of 13.8% to 14% with year-over-year net revenue growth of approximately 6.5%. In summary, we're off to a great start in fiscal year 2026, and remain focused on strong execution, profitable growth, and continued capital returns. With that, I'll turn the call back over to Bob. Bob Pragada: Thank you, Venk. In closing, we're tracking very well to the start of the new fiscal year. We performed ahead of our expectations in Q1, enabling us to increase our full-year outlook across three key metrics after just one quarter. Our strong execution, secular growth tailwinds, and the announced acquisition of the remaining stake in PA Consulting position us extremely well to deliver on our FY 2029 targets. Operator, we will now open the call for questions. Operator: Thank you. We also ask that you limit yourself to one question and one follow-up. For any additional questions, please re-queue. And your first question comes from the line of Sabahat Khan with RBC Capital Markets. Please go ahead. Sabahat Khan: Great. Thanks, and good afternoon. Maybe just the higher-level question on sort of the outlook here. And obviously, this last calendar quarter to end the year had some concerns about a government shutdown. Doesn't seem to have flown into your numbers. Similarly, obviously, some puts and takes on the macro. If you can just walk us through kind of what's reflected in your guidance, what it would take to get to sort of closer to that higher end of the top line guide versus the lower end, and how you have sort of baked in some of the potential green shoots and potential sort of government-related considerations into this updated guidance? Just start off? Thanks. Bob Pragada: Yeah. Sure. Savi, just on your first one with regards to kinda how we position ourselves within that revenue range that we talked about. I'd say it would be the burn profile of the backlog. We had some really nice wins within our life sciences and advanced manufacturing group driven by data centers and chip manufacturing. Those tend to have pretty high velocity to them. And so, you know, if those continue to go at the pace that they are, that would be a driver. And we're also seeing a nice tick up across the international business. An international business that grew over 9% this year, and that was pretty broad-based. In Europe, Middle East, as well as in APAC. And so I think that balance of our business and, you know, not feeling the effects of the government shutdown has given us confidence in the range that we put out there. But, again, it'd be the velocity of that private sector work that would get us to the higher range. Sabahat Khan: Great. And then just for my follow-up, I think I was Venk's comment around the environmental services side of the business doing better in H2. That was a business that investors had some questions about last year just given some of the evolutions and sort of the backdrop. Nice to hear that's trending in the right direction. Can you maybe just talk about is it a specific end market that's driving that? Is it just maybe some, you know, catch up in that? We're just con kind of bigger picture demand drivers of the environmental services business because it's been a bit of a focus for investors. Thanks, and I'll pass the line. Bob Pragada: Yeah. Yep. So I kinda I would segregate it into three buckets of how it affected us over the course of calendar '25, and now we're starting to see a bit of an inflection point in our pipeline. That's why we're pointed to the second half as a recovery. The government component of that for us is very centric towards US Department of Defense. And now we're starting to see some larger programs specifically for the Navy and the Army Corps of Engineers come through with some optimism on where we're positioned, longtime clients of ours. And so that's kinda one piece. The second piece that and that was had some of the indirect effects of dose if you think back to 2025. So now we're seeing that flow through. The second is around this transfer around the disaster relief work from the federal government to state and local. That has taken a longer time to settle down. And so as that continues to play out, we're starting to see some early indications of that in our pipeline. And then the third is, in this we have seen a pickup in this component is the private sector, and this is kind of the diversity of how we apply our environmental practitioners across our private sector in whether it be industrial or in life sciences and advanced manufacturing those jobs have started to pick up. Now they're smaller in scale. So they're not having an effect right now. But as that continues to grow, and we're seeing it again in our pipeline, and that pipeline is up double digits, so that's where we're kinda pointing to the second half. Operator: Your next question comes from the line of Michael Dudas with Vertical Research Partners. Please go ahead. Michael Dudas: Good afternoon, gentlemen. Mike, good afternoon. Very impressive certainly on the book-to-bill. Sure. Seems like the projects are Operator: Pardon the interruption. Michael, we are having a hard time hearing you. Michael Dudas: Can you hear me now? Bert Subin: Yep. Got you now, Mike. Michael Dudas: Okay. Thank you very much. So my bad. Bob, on very impressive on the book-to-bill backlog growth in Q1. Maybe you could share on the it looks like the projects are getting larger, a little longer for gestation, but much more complex. And how that plays towards what your current pipeline looks, maybe that two-year pipeline outlook. And the ability to gain more, I guess, life cycle revenues or business out of the bidding that you're working on with the negotiation with these larger projects, which the clients that are certainly we've been reading about in the press that seem to be accelerating their cap spend in your especially in your important private sector markets. Bob Pragada: Yeah. Thanks, Mike. I'd say maybe one comment on the overall portfolio, and then I'll talk specifically about what we're seeing in the private sector accelerate at a faster pace. Overall, this is always in our strategy. We talked about it. You know, we talked about it at investor day with regards to redefining the asset life cycle and continuing to work across that. That is happening on a broad base. I'd say that gestation period of the work probably is going faster within water. Little longer in transportation and energy and power, but we're moving at pace. Private sector is happening in real time. And a lot of it is for just the demand cycle that's happening in those end markets, whether it be data centers, chip manufacturing, and life sciences. So for us, that business is in growth mode. We are seeing the pipeline grow at some significant rates. I'd say that two-year pipeline that you're referencing one year, it's greater than 50%. If I were to have a composite rate. And as you get past that period, private sector, we don't really get past eighteen months with any kind of high level of a surety and pipeline, but that twelve to eighteen months definitely greater than 50% on a composite rate. Michael Dudas: I appreciate that. Excellent, Bob. And my follow-up for Venk, you know, the very strong Q1 start on cash flow and the dynamics throughout the year, so given the financing that you're participating on PA and such, the 60% free cash off the company is still targeted towards, again, the share repurchase on a more ratable basis. You feel still comfortably to delever and add opportunistically when the market requires on your cap allocation in this year? Venkatesh R. Nathamuni: Yeah, Mike. Thanks for the question. And as you pointed out, you pretty strong start to the year in terms of free cash flow generation. And we feel pretty good about where we end the year, which is why we raised the guidance. So as it relates to our current position is in terms of repurchases, obviously, we to take advantage of the market dislocation as I mentioned in the script. Increased our repurchases in Q1. But we also increased our dividend. So we feel very good about our commitment to returning 60% plus of free cash flow to shareholders. At the same time, with a solid balance sheet and the good cash flow that we're generating, we also wanna quickly delever from the one to 1.5 x range. When we do the PA financing, we'll we have good line of sight to be able to get to that range within the first four quarters. So a solid cash position to start with, really good cash flow, and we have enough firepower to allocate our capital between repurchases as well as debt pay down. Michael Dudas: Thanks, gentlemen. Bob Pragada: Thank you. Operator: Your next question comes from the line of Sangita Jain with KeyBanc Capital Markets. Please go ahead. Thank you. Good afternoon. Thanks for taking my questions. Sangita Jain: If I can follow-up on the cash flow question, Venk, you said cash flow in the quarter was quite high, but some of it may reverse in the second quarter. Could you elaborate on what that reversal relates to? And, also, I was under the impression there was gonna be some cash tax payments that you would have to take care of in the first half. Has the timing of that changed? Venkatesh R. Nathamuni: Yeah. So, yeah, thanks for the question. So as you pointed out, you know, a really good cash flow in the first fiscal quarter, I would say the vast majority of that strong cash flow was driven by really fantastic working capital performance across the entirety of our customer base. So that was number one. We also had a onetime, you know, impact from a customer in the data center space, you know, where we collect the revenue and the cash during a particular quarter. And then we pay the subcontractor in subsequent quarters. So that's what's gonna drive the free cash flow performance in Q2. But we have a very good visibility that, you know, in the first half, we'll still be free cash flow positive. And the tax payment, as you mentioned, is gonna be a Q2 phenomenon. That'll impact Q2. But when you look at first half and first couple of quarters, in aggregate, we feel pretty good about our free cash flow being positive for the six months of the year and, obviously, continued strength in Q3 and Q4. Such that we're able to get to the seven to eight and a half percent range. Sangita Jain: Got it. Thank you. Appreciate that. And then as a follow-up, can I ask about the size of fee contract that you press released a while back in the UK? And if you can elaborate on the size of that and if there is further scope if there's a chance that the scope on that may increase over time. Bob Pragada: It could. We're doing just to clarify on that, Sangita, we're performing the enabling works and the program management around the enabling works. And so that has continued through '24 actually, it started even before '25. '24, '25, and we'll continue into '26. There is for continued scope growth on that, and our relationship there with sizable c is strong. So we would anticipate so. Sangita Jain: Got it. Thank you so much. Operator: Your next question comes from the line of Steven Fisher with UBS. Please go ahead. Steven Fisher: Just in light of the backlog growth, obviously, we know from some of the press releases, descriptions of what scope is on some of these projects, but just curious what some of the pass-through things are that are going through there. And maybe if you can give us maybe a sense of maybe looking at the profit increase in backlog might be more representative. I know you said 15% year over year. Curious if you can give us some measure of that sequentially. Bob Pragada: Yeah. Let me go I'll go back to the sequential gross profit in backlog. But I'd say that see, the majority of the pass-through is related to, as you know, in a data center, tremendous amount of electrical equipment and equipment purchase that will be and it was announced on who's gonna be providing that equipment in modular form. So the interconnects and how that equipment is arriving to site in modular form would all be around the envelope of a pass-through. We would do the design and not just that, but also the balance of plant to house as well as the interconnections of all the utilities. The trade contractors also end up making that pass-through too. And traditionally, we put a fee on both of those. On the gross profit sequentially, growth, say it's high single digits sequentially quarter to quarter, year on year, that 15% number is a strong number. Steven Fisher: Okay. Very helpful, Bob. And then just obviously, last quarter, and last few months, there's been lots of discussions and follow-ups about AI, and I'm just curious if there's been any change to either what you've observed in your own business, anything that has developed or your own thinking or message that you'd like to give on sort of the AI outlook and impact for the industry and the company? Bob Pragada: Yeah. Absolutely, Steve. Nothing has changed. We felt strongly about AI before the November event. That happened, and we feel equally and more strong about AI moving forward. Kinda the main things we've been about, not just in Q1, I'm sorry. For the Q4 call in Q1 and that we've been talking about since 09/02/2019. We are getting great data advantage in what we do. Our datasets and our information are continue to be strong, strong platforms for us to use as for insights as well as build the models that we're building for our clients. It is helping I say it, digital enablement and AI with the scarcity of resources that we are continuing to face. We are growing headcount while we're using digital enablement to continue to grow at the same time of that scarcity. And I'd say the biggest piece has really been around you know, what's happening in the AI ecosystem from chip manufacturing to power and water requirements all the way to the data center, you know, we're playing across that continuum. And seeing that we well, we're seeing it in the numbers. Right? So kind of the ultimate test of the power of AI is coming through in our bottom line results. Steven Fisher: Terrific. Thanks, Bob. Operator: Your next question comes from the line of Adam Bubes with Goldman Sachs. Please go ahead. Adam Bubes: Hi, good afternoon. Maybe just one follow-up on the AI point. So you've been talking about AI machine learning for a couple of years now. So, just wondering if you could expand on to what extent AI machine learning is impacting projects and productivity today and just how those conversations with clients have gone in terms of your ability to capture value from either improved productivity or high grading your offerings? Bob Pragada: Yeah. So a couple of things. One, as far as how we're talking to our clients about it and how we are driving it as a value differentiator for our clients, if you think about the speed right now that we are going at especially just in the private sector, but also in the water market as well. And transportation. The schedules and the delivery model for these can't be done without the use of the AI platforms. When I say AI, machine learning, the automation of tasks that we put into play. So it is driving backlog growth through differentiation in us in our award rates and the bookings. The other is that in the field, we're using some strong predictive analytics. It's a platform called Acuity in order to really get out in front of field level issues that are coming up in real time. And that's been a real game changer for us. We've got Acuity deployed across all of our end markets. In the field program management work that we do. And then the last thing and we've talked about this several times, but we're seeing more you know, we use replicas, our digital twinning. But now digital twinning not just in the water sector, but now in the manufacturing sector, and the data center sector is allowing for us to get to the data insights in the simulation technologies. Well, with the simulation technologies in a much faster rate in order to solve for some really, really complex issues that we're solving for our clients. So overall, it's coming through. We've got a whole slew and suite of platforms that we're using. Adam Bubes: And then a really strong PA consulting margin performance, I think 24% this quarter. Any outsized benefit to call out there, or what's the right way to think about sustainability of those margins in the balance of the year? Venkatesh R. Nathamuni: Yeah, Adam. Great questions. I would say, yeah, as you point out, really strong performance. I know most of it is driven by the fact that, you know, there's solid top line beat, and we had some operating leverage there as well. What we have stated all along is that we wanna balance, you know, really high single-digit growth for PA with margins that are, as you know, already industry best. So a 22% margin is kind of the way we think about the long-term model there, and we wanna make sure that we have a good balance between high revenue growth and high industry-leading margins. So the way to model the PA margins going forward is about 22%. But, clearly, we had a really strong performance there in the just concluded quarter. Adam Bubes: Great. Thanks so much. Venkatesh R. Nathamuni: Welcome. Operator: Your next question comes from the line of Jamie Cook with Truist Securities. Please go ahead. Jamie Cook: Hi. Congratulations on a nice quarter. I guess, sorry, Bob, another on AI. Just as you sit here today, and think about AI and the opportunity for Jacobs Solutions Inc. both on the revenue on the margin side, how do you balance the two know what I mean? I mean, over time, do you if you had to pick one versus the other, do you think there's an opportunity to grow the top line at a quicker rate and perhaps operating profit more so versus the margin, just sort of how you're thinking about that balance as AI impacts your business model. I guess it's my first question, and then I'll then I'll ask another one after that. Bob Pragada: Okay. Great. Jamie, if the world was plentiful with qualified resources for all the work that's out there, from, you know, filling the denominator of the TAMs that we play in. I think that, you know, we would probably be making choices between top line and bottom line. We're not. We are in a resource-constrained market that AI is enabling us to grow the top line, while we're operating with, you know, in a resource-constrained environment and driving efficiencies in the type of solution that we're delivering to our clients. So not a choice as well as not a pivot. We feel like we're well-positioned to do both. Jamie Cook: Okay. Thank you. And then, I guess, Venk, just on the margin performance in I and AF in the back half of the year. Obviously, we're expecting some margin improvement to achieve besides PA Consulting strong margins to help get to your full-year adjusted EBITDA margin forecast? Just what's driving that? Is it more mix? Is it self-help? Just trying to understand what's driving the margin improvement in I and AF in the back half of the year. Thank you. Venkatesh R. Nathamuni: Yes. Jamie, thanks for your question, and thanks for your comments as well about the quarter. I'd say, you know, lots of really positive trends for us from a margin perspective. You know, obviously, Q1, you know, we came in at 13.4%. And Q2, we're guiding for a 50 basis point sequential improvement. And then we see a linear progression in Q3 and Q4. So few things, you know, that drive that margin expansion for us. Number one, you know, continued operating leverage. So gonna maintain the discipline in terms of ensuring that our OpEx grows at a slower pace than revenue growth. And then, you know, clearly from the standpoint of some of the gross margin drivers that we talked about Investor Day, with the way we expect our global delivery to step up, which is already happening, and we see more of that coming in Q2, Q3, and Q4. And then also on the commercial model side. Right? So with the extent to the extent that we are engaging more with the life sciences and advanced manufacturing clients, that also helps, you know, from the standpoint of driving those commercial models. So I'd say it's not one thing. It's a combination of several things that we talked about in Investor Day, more of that coming to fruition in Q3 in Q2, Q3, and Q4, and we feel really good about our margin performance for the full year. Obviously, you know, just for context, you know, in fiscal 2025, we grew our margins by 110 basis points. And we're guiding for a range of 50 to 80 basis points increase in fiscal 2026. Bob Pragada: Maybe one add to that is that in the second half, is really where we're starting to see the advanced facilities or some of these bookings that we have from a mix perspective. Have contribution to that linear progression in our margins. Jamie Cook: And confidence. Operator: Thank you. That's very helpful. Your next question comes from the line of Andy Wittmann with Baird. Please go ahead. Andy Wittmann: Great. Thanks for taking my questions, guys. I wanted to ask about this very good backlog. Very exciting. Obviously, some of these really marquee projects, Bob, I thought maybe given that there's a little bit more mix here to some of this EPCM scope, I'd wanna ask about how you're managing the risk criteria here. Are these contracts are you basically able to offload any risk to these to the subcontractors that you are managing on this? Or do you bear any? I'm just wondering because obviously, some of these projects are pretty significant and you know, percent changes on large numbers can actually kinda matter in the future. So maybe I'll let you address that, please. Bob Pragada: Yeah. Absolutely. So our risk profile, Andy, has not changed. And so the same EPCM delivery model that we, you know, that we've been very focused in for the balance of twenty years. In life sciences. We do a lot in the water sector as well. Those are the same risk profiles we're taking now. And as you know, we've been pretty consistent on how we flow those to our supply chain. So the awards that we're getting right now, we have not inflected to a different risk profile. Utilizing the same risk profile we have for the balance of the twenty years in those sectors. Andy Wittmann: Okay. Great. And then I just wanted to get a clarification. On PA and the capital deployment that went along with that as well. You know, it's obviously a large capital deployment. So when I was looking at the press release, the EBITDA increase that you're getting from PA is because PA is already consolidated, the EBITDA that you're picking up is really only the reduction of the noncontrolling interest. Obviously, noncontrolling interest is after tax. You'd have to gross that $52.3 million up to a larger number. But even when you do that, against the $1.6 billion capital outlay, the math that I get here from the multiple is substantially larger than the 13 times. And so I know there's some kind of different accounting GAAP accounting that's maybe around this, and I just thought for to the benefit of everybody, you could address, how that works and why it works out that way. Please. Venkatesh R. Nathamuni: Yeah. Andy, thanks for the question. And I know that we know, obviously, you mentioned that in your report as well. So at a high level, as you rightly pointed out, there's a slight difference between the accounting and economic ownership. Just for everybody's benefit here, you know, the economic ownership was 65% and the accounting ownership was 70. But there's obviously some dilution from what we call c shares, which are basically shares that the employees own. So, to make a long story short, you know, that the delta. But in terms of the absolute valuation, as we mentioned in the press release, you know, it's a 13 x multiple on EBITDA. And then if take into account the synergies, it's a 12.3 multiple. So we feel really good about the valuation for this and the value creation. But, you know, happy to take additional questions and maybe Bert, you can add to it as well. Happy to be Yeah. Sure. Andy, Bert Subin: you know, what is actually what's happening here is when you take the accounting ownership, which was 70% you reduce it by the employee benefit trust, we get down to 60% ownership. And so we acquired 40% of the stake, which we highlighted. On the NCI, what we did is we reduced EBITDA by an after-tax number, and so it reduced the EBITDA by a smaller amount. So essentially, you know, we'll be adding back that NCI component to our EBITDA going forward. I think the important takeaway that we, like, highlighted in his prepared remarks is you know, we expect this to be accretive to earnings and we see a lot of opportunity from both the revenue and cost synergy with the collab with the combination of PA and Jacobs Solutions Inc. So we can take some of the more specifics offline, you know, when we talk later on. Andy Wittmann: Okay. Thanks for clarifying that, guys. Bob Pragada: Yep. Operator: Your next question comes from the line of Chad Dillard with Bernstein. Please go ahead. Chad Dillard: Hey. Good evening, guys. So I wanted to spend some time on the project pipeline. I think you talked about it being up double digits. Could you break that down by the core end markets? And then you can comment about fixed versus reimbursable. And then finally, just on the global delivery model, you know, how much of that is deployed using that method versus what's in your revenue today? Bob Pragada: Yeah. Maybe I'll simplify it, Chad. If you look at our three main verticals, water and environmental, up the pipeline is up when I say double digits, pretty much double digits that are 25% and above. In life sciences and advanced manufacturing, double-digit pipeline growth. Those are 50% and up. And then our transfer and our critical infrastructure, we're talking kinda high single digits and low double digits pipeline growth. That's not acutely focused on the US. That's a global number. And so, you know, the pipeline is strong, and that's a twelve to eighteen-month pipeline that we look at. That you know, then there's win rates and everything else. But the markets that we're serving are in a really strong state right now. Chad Dillard: Gotcha. That's helpful. Then just maybe circling back on the AI topic. So how are you communicating to your customers the value creation from deploying AI? Like, in a particular project? Are you having explicit conversations about sharing that? Maybe just, like, talk about, you know, if you can even give, like, a particular example. That'd be very helpful. Bob Pragada: Yep. Well, in order to do that, you think you gotta go back and our client's issues right now, we're not solving for issues that were around or even contemplated five years ago, ten years ago, twenty years ago. And so how we're articulating this to our clients is not in the form of bots or agents or people being replaced with AI figures. How we're discussing it is the use of data, to get greater data insights to solve for complex issues and deliver outcomes at a faster, and more predictable rate. That's how we're describing it to our clients. And our clients are cocreating with us in the platforms that we develop. Kind of part one. The second where we go to market is around AI advisory. But we have whether it be in the aviation space, or it be in the transportation space, we've got, you know, a lot of our clients that want to understand how AI can enable their business even more. And so now with PA, we've now doubled the size of our AI, not just on the development side, but also AI consultancy. Component as well. And this is an AI consultancy just driving business transformation. This is AI consultancy on how they can effectively serve their client base even greater. So we've you know, the investment thesis around increasing our investment in PA coupled with how PA is growing in that space across all the end and then us going to market together is really creating an exciting story going forward. Chad Dillard: K. Thanks, Bob. Operator: Your next question comes from the line of Andy Kaplowitz with Citigroup. Please go ahead. Andy Kaplowitz: Hey. Good afternoon, everyone. Bob Pragada: Hi. Good afternoon. Andy Kaplowitz: Bob, I just wanna dig in on a couple of areas. I think historically, you guys have been very strong at semicon, particularly on the side. So what are you seeing in terms of investment there? Could we actually be in acceleration mode again? Like, seems like we are, but maybe any more detail there would be helpful. Bob Pragada: Absolutely. Short answer is yes. Yes, Andy. We are in acceleration mode. You know, there are three main players around the world. One is American. And in the advances in high bandwidth memory that the American provider is going to market with. At record pace. You know, to twenty years during the traditional DRAM cycle to advance nodes. That twenty years is now being shortened into two to three. And so to get the plant ready and delivering on those chips is a big deal. So they've made some announcements. In Idaho and New York, and we're squarely in the middle of those. Andy Kaplowitz: And then, Bob, like, just following up on the water vertical. I mean, I think you answered a question earlier about environmental. Water has been strong for you guys for a while. I get some questions occasionally about municipal spending, what eventually happens as IIJ starts to run down. So maybe you can talk about I think you've had good bookings here in water, but maybe you can talk about the longevity of the water infrastructure cycle as you see it. Bob Pragada: Yeah. It's high single digits for us right now and how it's flowing through, Andy. And so maybe I'd kinda divide it between US and international. Maybe start with the real positive. You know, the result of the AMP eight cycle in the UK is driving kind of double-digit growth for us in the water market. There in Europe, but we're also seeing strong tailwinds in The Middle East and in Australia. Australia has been a real highlight for us both in water and in transportation. You know, the municipal spending and the tie to IJ never really was a strong one. IHA really was focused heavily on transportation. And so that has continued. And, again, the whole water scarcity aged assets and just the sheer effects of climate. These aren't I'm not saying they're completely delinked from funding opportunities that states and locales have. But definitely have risen up on the priority list just because of the severity. So we see kind of a long-term tail on that. And, Andy, if you could add to this what Rob said, you know, there's been tremendous Venkatesh R. Nathamuni: strength in bookings in water over the last several quarters. I know we've highlighted some marquee wins that typically take multiple years to play out. So we see that pipeline continue to grow, and the visibility for a multiyear period, so we feel really good about our water market overall. Andy Kaplowitz: Appreciate the color, guys. Operator: Your next question comes from the line of Jerry Revich with Wells Fargo. Please go ahead. Jerry Revich: Hi. Good afternoon and good evening. Can I ask on Critical Infrastructure, really impressive performance relative to the end markets that you folks are clearly gaining share? Could you just double click for us in terms of the drivers of the share gains? Is it just part of the market where you folks have higher concentration? Have you been on the right projects moving forward? Can you just expand on the drivers of what looks to be about five, six points of end market outgrowth that you're delivering? Bob Pragada: Well, maybe I'd most succinctly talk about it in two main areas. Jerry. One is that our international business in transportation not that it has been strong, very strong. And that's been highlighted by really key wins that we've had in Europe, in The Middle East, and in Australia. Australia it's been real, really nice growth there as well. Aviation and rail. Has really been the strong drivers there. We still do a lot of work on the highways work. But those two have been really strong drivers. And then The US, you know, with continued growth in the aviation sector there, coupled with now some high-speed opportunities as well as pass-through rail. In locations. We've been capturing share gain in that area as well. So strong internationally, driven by aviation and rail and highways, strong in The US. Driven by aviation and rail. Jerry Revich: And, you know, if we could just pull on that market share thread, you know, into the AI theme you folks on the semi plant side with the use of digital twins have been able to allow your customer to deliver projects really quickly. Just it sounds like based on your comments earlier on the call, Bob, you see yourselves as gaining share in that type of environment. What's the outlook for the broader industry structure as you see it? Five years down the line, ten years down the line? Do companies that look like Jacobs Solutions Inc. can share companies like Jacobs Solutions Inc. do more EPCM type work? For an integrated solution like you're doing here on the data center example that you gave us. Can you just talk about how you see this all playing out for the industry as a whole? Because you know, you folks have been ahead of the pocket terms of your digital twin investments, etcetera. Bob Pragada: Yeah. So maybe and just to clarify, Jerry, you were talking specifically about semi, or were you talking kind of broader base across the you know, kind of the tech landscape? Jerry Revich: Yeah. Thank you, Bob. I was just talking across the broader tech landscape. Right? So in other words, you folks have clearly used digital tools and let the market have gained share. And I'm just want your perspective on where you see the industry headed in five years now that the tools are getting better and better. Bob Pragada: Got it. Got it. So I kind of talk about it from with our participation across the ecosystem. Of call it the electron landscape, everything from the chip at the semi side through power and water whether it be at the grid level or eventually goes into the data center. Our participation across that ecosystem, I think, has been a big differentiator. And so when I look out five years from now, you know, the partnership that we have with NVIDIA and the kind of the tech relationship down to the chip design. And how that affects utilities for these plants whether it be with any of the high bandwidth memory players or other traditional logic players. That's what's driving that out year growth. Because as these plants no plant is the same. As these plants are continuing to become more and more complicated, we're out in front. Of those. And you back all that up with design automation, AI tools in order to get greater data insights, and we're continuing to really end that digital twins like you said in I'm sorry, Jerry? Then your you know, that protective I don't know if I'm allowed to call it a mode, but I will. That mode starts to develop, and we go from there. So we're excited about where we're positioned. This is something we've been in for the better part of forty years, and we see that going forward for another forty. Jerry Revich: Thank you. Operator: And that concludes our question and answer session. I will now turn the conference back over to Bob Pragada for closing comments. Bob Pragada: Thank you, Krista. Thank you, everyone, for joining the earnings call. Some great questions. Really excited about the performance last quarter. And our performance for the balance of the year, and we look forward to engaging with many of you over the coming days and weeks. Everyone. Operator: Ladies and gentlemen, this does conclude today's conference call. Thank you for your participation, and you may now disconnect.
Operator: Good day, and thank you for standing by. Welcome to Banca Mediolanum Full Year 2025 Results Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to Alessandra Lanzone, Head of Investor Relations. Please go ahead, madam. Alessandra Lanzone: Good morning -- good afternoon, actually, everyone, and thank you for joining us. We can certainly look back on 2025 as a year of strong momentum on our business and results that keep us very well positioned as we head into '26. Today, we'll walk you through our full year performance, what has driven it and the priorities we're taking into the year ahead. A quick note on Q&A. As usual, feel free to ask your questions in the language of the line you're calling from. We will answer in Italian with a real-time translation into English. With that, I'm pleased to hand this over to our CEO, Massimo Doris, joined by our CFO, Angelo Lietti. Massimo, over to you. Massimo Doris: Thank you, Alessandra, and good afternoon to all of you. After a record 2024, the question was whether it was a one hit wonder? 2025 answered that question. This wasn't a one-off. We raised the bar and went one step further. The results speak for themselves, but they also speak to something deeper than numbers, the quality of our growth and the strength of a model that delivers consistently. This trend translates into tangible value for our shareholders, and it is reflected in the strong dividend we are proposing for the year. But before we go into the figures, let me start with a quick word on the macro backdrop because it matters since it sets the context for what you're about to see. In 2025, 3 forces continued to pull in different directions: rates moving into a normalization phase, markets shifting mood quickly and geopolitics remaining a generator of volatility through international tensions, trade policy and uncertainty around energy and supply chains. And a regulatory and fiscal backdrop that keeps evolving, especially in Europe and discipline becomes the differentiator. Within that noise, there were also tailwinds. As rates began to ease and markets held up, households started looking beyond part liquidity again. And that's where the difference shows between a model that sells financial products and one that builds long-term relationships through advice. The real question we are going to -- into today is not how was 2025? That is now clear. But how repeatable is it in 2026? The market is looking for visibility on 3 things: continuity of net inflows even if volatility returns, the trajectory of NII in a lower rate environment and continued discipline on costs, including the network component, which is exactly why our guidance -- our read on 2026 matter as much as the numbers we are about to present. With that in mind, we'll be very clear today on what supported our 2025 performance. While we see a structural versus more context-driven and how we are positioning the business to keep growing with quality in 2026. Let's move into the numbers. I'll start with the economic and financial highlights in Slide 4. The headline news is that 2025 was another best ever year for Banca Mediolanum, surpassing last year's record and reaching new peaks across virtually all key indicators. At the group level, net income came in at an outstanding EUR 1.238 billion, up 11% over the previous record level in 2024. What matters most behind this bottom line number is not the one-off impact of tax refund nor the strong contribution from performance fees, but the same engine we've been building for years: customer relationships, smart solutions, sound and needs-based advice and a network that keeps converting engagement into long-term assets. In fact, our core profitability was exceptionally strong. Contribution margin exceeded EUR 2.1 billion, and operating margin was just shy of EUR 1.2 billion, improving 10% versus the prior record. Results were supported by net commission income growth, up 12% to EUR 1.3 billion and a truly exceptional commercial performance, especially the quality of net inflows into managed assets. We also managed the interest rate transition with discipline. Rates continue to normalize through the year and the tailwind to net interest income naturally softened. Even so, we protected profitability through mix and pricing actions to reduce the cost of funding by keeping the balance between growth initiatives and margin management. For sure, recurring fees increasingly carried the weight. Higher average managed assets in the year and strong net inflows supported management fees, which went up 10% to over EUR 1.4 billion. In other words, the revenue mix did what it was supposed to do in a shifting rate environment, less reliance on NII, more support from recurring fee income linked to customer assets. Below the revenue line, we stayed cost conscious, in line with our guidance of a cost-to-income ratio below 40%, while continuing to invest in the levers that matter, namely technology, network productivity, including NEXT and the customer experience, cost-to-income ratio resulted at 37.6%. Slide 8 provides more detail on the other income statement lines. Let me flag a few highlights. Banking service fees climbed 38% to nearly EUR 259 million, driven by strong certificate sales, solid in Q2 and even stronger in Q4. As you know, certificate fees are recognized upfront in the P&L. Net income on other investments was around EUR 22 million, down 35% year-on-year, entirely explained by the different perimeter. We sold our Mediobanca stake in July, so dividend income was limited to Q2. From the second half award, that contribution is simply no longer part of the run rate. Provisions for risks and charges increased by 21%, reflecting the same dynamic we saw in H1. As for risk provisions, last year's favorable legal outcomes led to one-off partial releases that did not recur this year. And for network indemnities, the increase remains volume driven. Higher commissions naturally require higher provisioning. Provisions also increased because we started to build the reserves for the growing Prexta unsecured lending business. It's a prudent forward-looking approach in line with expected loss models as volumes grow. Contributions to banking and insurance industries were down 36% year-on-year, as banking sector contributions did not recur this year. The only notable movement came in Q4, driven by a one-off supplementary extraordinary levy from the banking scheme. Below the operating margin, market effects were definitely positive, thanks to favorable market performance and effective investment management in 2025. The contribution of performance fees for the year was considerable, although 32% lower than in 2024 to the tune of EUR 257 million gross, boosting our bottom line. Remember that performance fees for us are a bonus, not a pillar. They are certainly welcome when they come, but never something we rely on or plan for. Of course, it's the health and consistency of the underlying business that matters. Fair value improved significantly to EUR 28 million from EUR 17 million last year. We fully disposed of our stake in Next in Q2, resulting in a substantial uplift compared with the negative mark-to-market recorded last year. We also saw a positive contribution from treasury trading. Now let's look at extraordinary items. Following a specific ruling by the European Court of Justice last August, we received a refund of EUR 140 million relating to IRAP regional tax we overpaid for the years 2012 to 2024. For completeness, the same ruling also brings a benefit on the tax line, around EUR 17 million of lower IRAP in 2025. Although this benefit is expected to be largely offset in the coming years as IRAP increases. One important clarification on this line, the EUR 140 million refund is partially offset by the financial effects of the required advanced payment of the stamp duty on unit-linked policies as well as by the commissions related to the Mediobanca sale, but especially by a one-off recognition bonus we have decided to award across the group for a total impact of nearly EUR 23 million. I'll come back to the rationale behind this in a bit. Taken together, the nonrecurring items in our P&L were broadly in line with last year, around 4% higher, and this doesn't change the overall picture. Now let's launch into an overview of the business results for the year. Turning to Slide 5. Commercial momentum score new all-time highs across the all-net inflows metrics versus an already very strong 2024, accelerating in the last quarter and taking total net inflows up 11% to EUR 11.64 billion. These results were fueled by the success of our time deposit campaigns, where flows were supported by both new and existing customers, confirming the reach of our marketing and acquisitions engines. If there is one number to call out, it's managed assets. Flows reached EUR 9.06 billion beating our 2024 record by 18% and ahead of our guidance of EUR 8 billion to EUR 8.5 billion. And this is the most meaningful mix for us because it reinforces the quality and durability of our revenue base and supports predictable earnings over time. So driven by these inflows and deposit growth, total assets ended 2025 at EUR 155.8 billion, increasing 12% year-on-year. Keep in mind that positive market performance overall more than offset the weaker U.S. dollar. The credit book also expanded, ending the year just shy of EUR 19 billion, while asset quality stays strong with a cost of risk of 16 bps. The growth of the credit book was supported by higher loan origination with loans granted increasing 28% year-on-year to a total of nearly EUR 4 billion. General Insurance also delivered a strong uplift. Gross premiums rose 20% to EUR 246 million, protecting customers' wealth and earning capacity remains a core priority for us. Growth was supported by stand-alone policies and even more by the renewed momentum of loan protection cover, consistent with the expansion in mortgages. Turning to Slide 6. Our customer franchise continued to grow strongly. We ended 2025 with well over 2 million customers, expanding the base by 6% year-on-year after acquiring 199,500 new customers. Our group family banker network kept step with this growth, also up 6% to 6,798. Intelligent investment strategy has gathered real momentum. Over EUR 5 billion is currently in money market funds with a planned gradual switch into equities over an average 3.5-year horizon. Since the beginning of the year, some EUR 2.2 billion of new money has been invested through this strategy, taking the total up by an impressive 76%. In addition, close to EUR 3 billion is in the pipeline to move into mutual funds over the next 12 months, as highlighted in the last 2 lines of Slide 6, including EUR 840 million from double chance deposits and more than EUR 2.1 billion from installment plans flows, which are building progressively. Our model continues to do what it was designed to do, make it easy for customers to invest regularly while giving the bank a more predictable flow of fee income and a more resilient revenue base. Let's move on to another key pillar of our model. Balance sheet ratios shown on Slide 7. It's a picture of strength and discipline and of continued value delivered to shareholders. Capital and liquidity remain strong and comfortably above requirements, and we further broadened and diversified our funding profile, while keeping our risk stance unchanged. Starting with profitability. ROE came in at a best-in-class 29.1%, a clear proof point of our model at work. Our CET1 ratio remained extremely robust at 23%, even after our solid shareholder distribution. In fact, at the shareholder meeting, we will propose a EUR 1.25 dividend per share, increasing 25% versus 2024. Having already paid an interim dividend of EUR 0.60 in November, this leaves a balance of EUR 0.65 to be paid in April. Let me be super clear. The EUR 1.25 we are now proposing is entirely an ordinary dividend. It comprises a base dividend of EUR 0.80 per share and an additional EUR 0.45 attributable to the exceptional contribution from nonrecurring items as well as the one-off benefit from the Mediobanca sale we executed in July. But value creation for us is not only about shareholders, it is also about the people who make these results possible every day. So alongside the shareholder distribution, every employee and every family banker across the group around 11,000 people, we received a EUR 2,000 bonus, a simple concrete way to say thank you for an outstanding year. Let's take a moment to focus on our family banker network in Italy that reached 5,148 financial advisers at the end of 2025. During the year, on top of the many new colleagues who have joined us with strong background as branch managers or customer relationship managers in other sectors, we also welcome a strong pool of young talent through the project NEXT. As you all know by now, our banking consultants are high caliber graduates. They start with a 6-month executive master at our Corporate University, earn the FAA certification and then move straight into the field, working alongside a senior private banker or wealth adviser, with their remuneration totally covered by the senior. The numbers in Slide 37, reflect the success of the project. At year-end, 590 banker consultants were already active in the network, with an additional 213 currently in training. We expect to overcome 800 by the end of 2026. This strategic initiative is already delivering. Among the 726 senior bankers who have worked with a banker consultant for at least 12 months, productivity has increased materially. They were already ahead of their peers and the lead has widened further. The advantage in managed asset inflows has increased more than ninefold from 4% to 37%. It's up around 1.3x in loans from 31% increase compared to their peers to 40% and up close to 1.8x, both in protection policies from 32% to plus 57%; and in customer acquisitions, from plus 46% to plus 81%. The trajectory is encouraging, and it's getting stronger. The network is accelerating, and we see further upside in productivity. With that in mind, let's turn to Slide 30. It tracks 5 years of productivity for the top tier of our network. 1,074 private bankers and wealth advisers measured by average assets per banker. As Slide 30 shows, average asset per banker stand at EUR 64.2 million, almost twice the industry average of EUR 34 million. And the gap has stood still. It has widened year after year not by accident. It reflects the investment and discipline we've put into upgrading our network quality and the stronger recurring revenues per banker that follow. This is an edge we build, and we see it continuing to improve. Now let's turn our attention to Spain by commenting on Slide #32. As we've seen quarter after quarter, Spain's strong volume momentum gave us the confidence to commit to a meaningful step change in scale. This came with a higher cost base, mainly due to the expansion of our platform, increased activity across the country and additional marketing spend. So the P&L impact reflects a deliberate investment to support growth and build long-term value. One important dynamic to keep in mind: net interest income was down 18% year-on-year and at the current scale of our Spain operations, higher net commission income there couldn't fully close the gap. Keep in mind that stronger commercial momentum in managed assets translated into higher incentives for our network, a natural consequence of delivering more and better business. On top of this, performance fees were materially lower than last year. Operating margin reached EUR 56.4 million, reflecting a 26% decrease compared to 2024. And net income stood at EUR 57.7 million, 29% lower, mainly due to the factors we just mentioned. As a clear sign of Spain's commercial momentum, total assets grew by 18% year-on-year approaching EUR 15.5 billion, with managed assets rising 23% to EUR 11.9 billion. Indeed, Spain delivered another strong year on net inflows, EUR 1.95 billion, jumping 30%, but the real highlight is the quality behind the number. All of it came from managed assets, with flows up an impressive 35%. That's exactly the kind of growth we want to carry forward. Turning to lending. The credit book continued to grow, reaching EUR 1.74 billion, up 17% versus 2024. Meanwhile, the number of family bankers hedged up by 2% to a total of 1,650. The key point here is the step-up in productivity over the past 5 years, mirroring what we've delivered in Italy. Average assets rose from EUR 5.5 million in 2020 to EUR 9.4 million today. Finally, our customer base in Spain expanded to 285,760 marking a meaningful 12% increase versus the previous year. Now I'd like to shift your attention to one initiative that deserves a quick spotlight. Because it's a priority, we are pushing hard. The strength of our brand, combined with the caliber of the top tier of our network, gives us a real advantage in serving the top end of the market. It allows us to focus with increasing confidence on a high wealth segment that is growing rapidly across the industry and expanding just as clearly within our own customer base, those with assets above EUR 2 million. Over time, we've been steadily strengthening our position in this space from private banking customers with EUR 500,000 to EUR 2 million of investable assets to even more so high net worth customers above EUR 2 million. And as you may recall, a few months ago, we launched our Grandi Patrimoni program, introducing a new service model built to raise the service standard where it matters most, meaning customers above EUR 2 million. In practical terms, it's built around 4 pillars: fee-based advisory models, the so-called enhanced advisory including fee over administered assets and fee-only solutions; a dedicated product set, spanning lending and wealth management; a tailored investment banking and fiduciary proposition alongside highly specialized wealth services; an enhanced coverage approach, including wealth adviser teams to bring broader expertise to customers. This is how we intend to earn more share of wallet at the top end with a service model that matches the complexity of their needs. Even though the program only launched midyear, we've already seen encouraging results in 2025. The number of high-end customers with more than EUR 2 million assets grew by 20% versus the previous year, reaching close to 4,000, and they hold a total of EUR 19.4 billion in assets, up 22%. In 2026, we will keep building on this and further scale the model. Well, to wrap up, 2025 was a year of extraordinary milestones for us. We faced challenges. We delivered and showed what excellence looks like. And we did it with the same engine we've been building for years, 45 years to be exact actually yesterday. Looking ahead, it's important to be clear of what we are aiming for in 2026. Our 2026 guidance is as follows: We expect net inflows into managed assets to be around EUR 9 billion assuming normal market conditions. We see net interest income up approximately 10% versus 2025. We are targeting a cost-to-income ratio of around 38%. We expect cost of risk to be around 20 bps. We intend to increase dividend per share versus the EUR 0.80 base dividend. The road map for the year is targeted and built around our main priorities: growth, productivity, durability and sharing the value we create. Our goal is to make it look routine even though it never is. Thank you for your time. And as always, we appreciate your continued support. Alessandra, over to you. Alessandra Lanzone: Thank you, Massimo, and we can now open the Q&A section. Operator: [Interpreted] [Operator Instructions] We'll now have the first question from Mr. Enrico Bolzoni JPMorgan. Enrico Bolzoni: [Interpreted] First question on banking fees. You had a very good print for the quarter. So I would like to understand whether you can give some more color. I believe this is due to the sale of certificates and what do you expect for the coming quarters? Maybe you can give us some color as to how they fared and they performed in January? Second question it's on fee-on-top that is, so-called unbundled model. I was reading the Assoreti reports. And apparently, they are harvesting a lot of interest. If I calculate and examine your margins, net of the commissions that are going to be remitted to consultants, your margins are quite hefty above 1%. Do you think that in a world where advisory will be more and more based on the fee-on-top top model, will be able to retain these margins because basically, you will have 1%, 1.1%, 1.2% fee that will have to be added on it. It seems rather high compared to a market like that in U.K. where commissions are already fee-only -- based on a fee-only model. Unknown Executive: Right. As far as banking service fees are concerned, in 2025, markets have performed very well. And setting aside the certificate we sold in the past upon maturity, there were many calls as well, that is certificates had already met the targets and there, they were redeemed earlier. This -- I mean, certificate that had to last 4 to 5 years, lasted 1 year, reaping an excellent result for our clients, and therefore, clients reinvested in new certificates. Enrico Bolzoni: What can we expect for 2026? Unknown Executive: It really depends on how markets will perform. If markets will keep rising, many certificates will be redeemed earlier and therefore, we are going to see reinvestments. If markets will instead remain flat or trend down, there will be no early redemptions, there are going to be the normal maturities and the normal operations and trades. But we don't have only certificates in this figure, we have [ monetics ], we have bank account fees. There are many, many items under this line item. So if the markets are fair, well, we can expect this item to grow next year. If markets sort of slug around, probably this line item will remain flat. Other fees and commissions will increase and maybe fees and commissions generated by certificates remain flat or slightly dip. Having said this, if I don't sell certificates, I'm going to sell funds or unit-linked. Yes, there's an impact on the P&L because the certificates are upfront, whereas the others are ongoing in terms of recognition. But what is important is to have managed assets. As far as the fee on top issue is concerned, this advisory model most likely is going to be rolled over on high net worth individuals, as we can see on the market. On high net worth individuals already today, we obtained lower commissions because on high net worth individuals, we have a higher number of third-party funds, and therefore, this means a lower margin for Banca Mediolanum. Talk about my life policies, the unit-linked policies that then as an underlying have a number of own funds or third-party funds that family bankers can enter in the -- as an underlying. A normal my life have safeguard and monitoring fee equal to 1.75%. If the investment is above EUR 1 million, the commission goes down to 1.25%. If it's more than EUR 5 million being invested, it goes down to 1%. And the mix and the underlying mix changes because we go from a higher percentage of own funds to a higher percentage of third-party funds, and therefore, margins change accordingly for us and for family bankers as a consequence. So if we take the average sort of rule of thumb calculation, this commission payment model devoted to high net worth individuals is going to weigh on the commission average we receive. But we have to really take another view. If I don't introduce this type of commission model, I may lose some market share. So my margins will remain higher, but on a much lower asset volume, a much smaller asset volume. Having said so, not only will we acquire top clients with lower margins, thanks to the Grandi Patrimoni program. But we will keep on acquiring upper mass and affluent clients who are going to invest in classical managed assets with the product we know. We will keep on working on both the fronts trying to constantly growing our masses, providing the right service at the right price to the different client segments. Operator: The next question comes from the line of Luigi De Bellis, Equita SIM. Luigi De Bellis: [Interpreted] The first is on the 2026 guidance on the managed asset -- well, net inflows into managed assets. What other volumes did you expect to have in the next 12 months and that will be turned into managed assets? And what is the trend in this January of net inflows into managed assets? And then the NII growing about 10%. Can you remind us of the assumptions, Euribor assumptions, growth of value deposit and growth of the banking portfolio -- or sorry, the loan portfolio? Massimo Doris: As to the first question, we have about EUR 3 million between installment -- EUR 3 billion between installment plans and double chance. And in the next 12 months, over 2026, they will go from deposits or bank accounts to managed assets. So we already have EUR 3 billion worth of gross managed inflows so to say, but EUR 3 billion, nonetheless. And the IIS, we have EUR 5 billion in monetary funds that are tied in with the Intelligent Investment Strategy service are already part of the net managed inflow. So the shift of transfer of about EUR 1.5 billion with market markets being as they are now because, of course, if markets go down, there's a shift between money funds to equity funds. So with things standing still, we would have EUR 1.5 billion going from money funds to equity-based funds. But from the point of view of managed assets, the impact is 0 because the money funds, the money market fund is already considered to be managed assets. So -- and we would go from 1 to 1.25 recurring fees. So that would be a very limited impact. As to the NII, the Euribor assumptions, let me get it for you. The average Euribor assumption is 1.95 at a steady state, 3 months Euribor as well. And then why do we foresee assume growth volumes first and foremost, because we assume there will be growing volumes where the inflows that goes to bank accounts at 0 cost. And this 10% growth implies and includes 2 initiatives. One is ongoing already at 3% today. And the next initiative will be in the second half of this year with propositions where the cost of inflow will have -- of funding, sorry, the cost of funding will have a major impact. So there should be an increase in volumes in bank accounts where we have 0 interest applied. And then, of course, there will be increase in volumes also in loans as well and mortgages. And then the cost of funding comparing 2026 to 2025. In 2026, we expect a lower cost of funding because in 2025, for instance, in the first half or first part of 2025, we had the offering on 6-month deposits that have been launched in September, October in Q4 2025, where we were granting 5%. So in the first part of 2025, we paid 5% interest on time deposits, now we are paying 3% on time deposits. So -- and then it went down to 4%, et cetera. So low cost of funding, as I was saying, and higher volumes. That's our assumption to get to the plus 10% that we are assuming. Operator: Next question comes from Alberto Villa, Intermonte SIM. Alberto Villa: [Interpreted] Congratulations for your results. I really would like to talk about the competitive scenario. Yesterday, we heard the presentation of Intesa's presentation. This bank has been focusing for a long time on distribution and asset management, they're also trying to grow through Banca de territory, converting their distribution network also from this point of view. So generally speaking, is this focus that all banks are showing on asset management, something that can somehow affect more specialized players as you rightly are? And do you believe that the growth opportunities will still remain significant considering that Intesa is quite aggressive also in terms of recruiting. Do you think that you might have a stronger churn rate in the future or are you quite carefree? Back to the net interest income. Can you give an idea of volumes, a guidance with respect to volumes are concerned to concerning loans. Loans have been growing above average. Do you think that you still have a significant growth opportunity ahead from this point of view? Unknown Executive: You're talking about loans alone? or are you talking about loans, mortgages, you mean the entire lending volume? Alberto Villa: Yes, total figure. Unknown Executive: Let me answer to your first question first regarding networks. Now first of all, large banks, creditor talked about this, Massimo said this as well. In Italy, they already have Fideuram. If I got it right it was really more focused on international banks. But really, this is not that important. But if everybody wants to develop their networks, it means they are working well and they have a future because otherwise, they would not be investing in their network development. They probably acknowledge the fact that this trend is keeping up that is traditional banks based on [indiscernible] statistics. Traditional banks in 2010 had a market share of 72% with respect to Italian financial assets. Networks had 9% -- held a 9%. At the end of 2025, traditional bank went from 72% to 59% give or take and networks went from 9% to 21%. The difference is made by Poste and insurance companies, Poste Italiane 14%; and insurance companies around 5%. So this constant trend from 72% to 59% decrease from traditional banks. And the increase from 9% to 21% by networks, the fact that traditional banks want to invest on networks is rather comprehensible. I said 14% for Poste, it's 15% and then we don't see the insurance companies, but it's 5%. So it's quite natural and -- that they want to invest. What I'm worried about -- I mean, am I worried? Honestly, no, I'm not. It's not that I don't care or I don't pay attention. Of course, I do track what my peers do. They are managed by smart people, I'm not going to underestimate that. But I also take into consideration our capability of acquiring new clients of growing our network and managing our network. We've been doing that for 44 years, as Banca Mediolanum. My father did that even before that for a longer time. So let me say we've been piling up quite a long experience. As far as loans are concerned, we believe that loans granted could increase by 5% and then you see the trend. Alberto Villa: If I may ask a question. In the next 5 years, the percentages you illustrated, how may they change between banks and networks? Is there still room for growth? Unknown Executive: Yes, I saw a projection where the movement is 1% per year. 1% shared by traditional banks and taken over by networks. But take into consideration that, that is the total figure in your -- when you ask your questions, you mentioned Intesa. Intesa is part of the 59.2%. The 1% they are going to shed -- also Intesa might shed a little bit of that 1% or maybe Intesa is going to grow that number, and that will be eroded from some other bank. But the same goes for networks as well. Some will lose and some will earn market shares. Second thing is that these are percentages. But take a look at the bar chart below. These are Italian's financial assets that are on an upward trend. 59.2% out of 4,000 billion is more than 73% of 2,700. So in absolute terms, assets have increased with respect to inflows that have been reaped by banks. But the pie is getting larger. And, I mean, the mix changes, but the pie is growing. Operator: The next question comes from the line of Elena Perini with Intesa Sanpaolo. Elena Perini: [Interpreted] As far as I'm concerned, I would like to ask the following. I have questions on admin expenses. You were heading for cost-to-income lending at 38%. But as far as year-on-year growth is concerned, I'm talking about costs, of course, what is your assumption? And then the second question is on loans, you are granting and then you will be granting going forward for artificial intelligence, how does artificial intelligence come into play in your business proposition going forward? And then another question on your dividend. You always refer back to your base dividend, and this year, you stated it's EUR 0.80. I would say that right now, we're just thinking of a growth trend, taking this line item as a reference, considering your CET1 ratio, which is very, very sound, by the way, I think market expectations are for growth on this base dividend, a major or a material growth in your base dividend now and in the coming years. I know that you want to be above 22% in your CET1 ratio. Could you elaborate on that? Well, capital and dividends? Unknown Executive: [Interpreted] Well, as far as cost -- the cost income ratio is concerned, we gave around 38% as guidance. So that means well, general costs, overhead cost is 8% to 9%, should be around 8% to 9% higher. And please correct me if I'm wrong, I'm speaking to my coworkers, of course, as far as artificial intelligence is concerned, we are investing in it. And we, too, of course, are. And we are doing so for our back office, for instance, in managing mortgages, for instance. When we look into the full documentation being provided for the granting of a mortgage, of course, you need people reading papers, documents, making sure all the documents are being provided. And sometimes, depending on what the document states, more information is requested. So there are many people working on that and a lot of time being allotted to that process to, of course, process the individual sites. We are testing artificial intelligence for that. Just to give you an example, there are many of them. And time is really cut because artificial intelligence looks into documents much faster and with the level of accuracy which is quite high, by the way. And right now, we are in a test phase because these documents are then also still edited and revised by people. But by year-end, I think it will be used most extensively, more extensively at least. We are using AI for that, and we are also using that in the tools that are made available to our family bankers because they have a huge amount of info that they have to process. But of course, first and foremost, we have to retrieve info, be aware that the info is available and then use info in the correct way, use data in the right way. And there too, artificial intelligence can really help our family bankers not only to have data, more accurate data available in a faster way, but also to have and get suggestions and prompts from the system telling them you did this for this type of customer, why don't you do the same for this other cluster of customers that might need the same things. And so we are investing heavily along those lines. Let me say, dividend -- base dividend. I am the first to hope, of course, as I'm a shareholder, there's conflict of interest they are telling me here. Other times, we have mentioned this. Elena, you mentioned that we have a CET1 that is very, very sound. And I'm confirming that. But let me remind you that a bank has a lot of obligations. So it's not just CET1, that's the ratio we have to bear in mind. There are a number of other things that have to be taken into account. MREL ratio, for instance, the request made by the Single Resolution Board, and we are around 22% as far as the request from that regulator is concerned. And then the capital bank holds is also has an impact on other ratios. It could be interest rate risk of a possible change or delta in the NII. CET1 -- focusing on CET1 alone may lead to drawing maybe the wrong conclusions. Having said that, the EUR 0.80 we are currently offering it's about EUR 600 million of distributed dividend or paid out dividend. So when we suggest that going forward for next year, we're thinking of paying out slightly more than EUR 0.80, we always refer to a performance that does not include one-off effects if we consider performance fees and tax refunds, our profit was very close to EUR 1 billion so already paying out 60%, 70% of one's profit every year and still growing at a constant rate at a steady state with all the objectives and goals we have to grow and as your colleague said before with your question, also lending wise, we expect a 5% growth on stock and another 5% on the granted loans. So we think we are providing the right information by taking into account all of these factors. And as the CEO said, if results, if the performance during the year, as we had last year, we had a base of EUR 0.75, and we distributed EUR 1, thanks to performance fees. And so we had one-offs to be taken into account also on the EUR 0.80 we're paying out now. So it's EUR 1.25 -- EUR 1.25 that we're paying out. We want to be sound in our positions when it comes to the capital ratios as well. And let me remind you that in 2022, we had about EUR 0.50 of base dividends. And in 2023, we moved to EUR 0.70. So it was a major leap. And then we went from EUR 0.70 to EUR 0.80. Next year, what will it be? We'll see. Let's wait and see depending on how we perform over the year, and we'll make a decision on it, but it might be another good leap. It's according to me, it's useless to have a leap in our base dividend of another EUR 0.10 per share to then, of course, the following year and then go from EUR 0.80 to EUR 0.90, then the following year do EUR 0.91 because we are still getting very close to the limit, so to say. So the base dividend according to us must be something where we are really confident we're not going back on the contrary that we can move forward upon. And as we said this year and for last year as well and a few years before, but let's say, let's focus on this year and last year. If there are special situations and the markets are helping us, and we get one-off revenues, so to say, we will pay them out, distribute them as we have done in the past. Alessandra Lanzone: We'll now take the next question from Mr. Giovanni Razzoli, Deutsche Bank. Giovanni Razzoli: [Interpreted] I have 3 questions. Can you give us an indication of the Grandi Patrimoni program scope? How many clients have already been included in this initiative? In the third quarter, you talked about BTPs that were going to expire in 2025 in the second half of the year, and they would have been renewed at higher rates. Can you tell us how many BTPs are going to expire in 2026 and if you're going to have the same effect? Last question, do you still have funds that are under the high watermark? And if you can give us a percentage because this would give us a greater visibility on performance fees considering the market performance. Massimo Doris: [Interpreted] The current -- the customers that could be interested in Grandi Patrimoni are more or less 4,000 clients and it is more than 2 million invested with us right now. This is what we already have, but the objective is not so much that of asking these clients to invest even more, which we'll be willing to accept if they are investing also with other peers. But the main target is to acquire more clients. But we already have 4,000 potential clients. As far as BTPs are concerned, in 2026, we have EUR 3.8 billion maturing, but BTP is only EUR 150 million. So the BTP maturity is really very limited, EUR 1.5 billion worth of CCTs and the rest is securities from other countries that were purchased. These are fixed rate securities that were purchased in previous years in terms of diversification. Giovanni Razzoli: [Interpreted] What is the yield of these maturing securities? Angelo Lietti: [Interpreted] The yield goes from 2.7% to 2.9%. This is more or less the yield from 2.7% to 2.9%. I'm talking about the bonds that are going to expire in 2026 because most of these government bonds were purchased a couple of years ago when we started to diversify between Italy and Europe. So yields are still more or less the same. As to maturities and the renewal, once they mature, I believe that we will get close to these yields. There will -- we will see no true upgrade, but we'll maintain the yield, the return we get from these securities stable. As to funds, on December 31, we had 5 funds that were below the high watermark with a total NAV of EUR 4 billion. Alessandra Lanzone: Next question from the line, Gian Luca Ferrari with Mediobanca. Gian Ferrari: [Interpreted] I have 3 questions. The first one is about the backdrop. We read about -- we've seen that there are trends to transfer wealth from one generation to another, EUR 100 billion from now to 2023. Do you think your advisory will change its nature to follow that trend? Will you adjust that to keep up with the trend? And second question on the ETFs. There's a lot of impact of passive managers. Have you changed your approach? Or are you going to have ETFs with active management, active ETFs? Are you going to create your own? And as another question, the introduction of value for money in your retail investment strategy bundle. Can you give us an update on that? Massimo Doris: [Interpreted] As to the first question, well, generational shifts, there will be a change in generations indeed. But I don't think there'll be any radical changes, so to say, any deep-rooted changes. But savers will -- well, they will have to find a banker, a consultant that will speak the very same language. We have our next project. Project Next enables us to be very well positioned to keep up with that generation shift. By year-end, we expect to have 800 of these banker consultants. They are aged between 25 and 26 on average. And when they join the network, they are even 24, 25. Some of them have been in the network in the Next program for a few years now. So maybe they are older than 25 or 26. But out of the 600 we already have, they are not older than 26 years of age on average. So if these are the people who will get in touch with the next generation, the sons and daughters of our own clients. So they will grow together. So we think this is one of the keys so that when money -- when the wealth goes from one generation to another, we are still -- we are already there with the client, and we already have a relationship with the person receiving the wealth and not starting the relationship at that very moment that is when they receive the wealth ETFs. They are more and more used. Yes, that's true indeed. Let us remember that one thing is looking at figures or data in absolute terms and something totally different is looking at things from a relative perspective, looking at percentages rather than individual data. ETFs does not necessarily imply lower commissions or fees. ETFs are not sold directly, but they are -- indeed, we are also selling them directly. But normally, they are included in asset management products. As of last year, we have a line for wealth management that can be done exclusively in ETFs. Of course, it is devoted to our top-tier clients, but it's not -- we're not focusing on the margin that we would get by selling an ETF. It's much -- something much more material. Do I think there'll be more use? Yes, I think there'll be more use, but that won't mean that's the end of investment funds. Are we going to create and issue our own ETFs? It's -- we're not planning it yet, but I'm not ruling it out. It's something that we are thinking about. We are focusing on if and when we'll do that remains to be seen, but it's not something we are ruling out as such. And as far as value for money, there are -- we started from MiFID I, then MiFID II and all the different interpretations of the different regulations that are being applied. Sometimes interpretations are different from country to country. They could be more or less restrictive. Sometimes, they start from ideas and concepts that may seem meaningful, but then in practice, they could not be, they cannot be applied. Having said that, let me say that at the end of the day, if you provide a good service to your clients, and by service to one client, it's not just a matter of money, what they can earn with the service or we can earn with the service. Let me quote a survey we did quite a few years ago. We looked into customer satisfaction. And we tried to understand if customer satisfaction was more tied in with the actual performance of the investment or something else as well. And what we had realized and noticed is that the most satisfied customers were the ones that had a higher frequency of contact or being in touch with a family banker. If the market is not faring well, clients that have a high frequency in getting in touch with family bankers and are therefore aware of what is happening in the market. They've discussed -- they've looked into asset allocation and possible modifications of it. So the client is fully aware of what is happening. That equals a satisfied customers, say, growing markets, markets that are improving, that are -- but they're not seeing their family bankers. There's a performance, but the client has no idea if something has to be changed in the portfolio, they have to sell, they have to buy something more. And that equals an unsatisfied or dissatisfied customer. And -- but this regulation or the trend only looks at returns, but there's a missing chunk that has to be taken into account, too. And I'm sure that if we work well with our clients, no matter or regardless what regulations impose or provide, they will not have an impact on the customer satisfaction because this regulation does not only apply to Banca Mediolanum, but to the full -- the entire market. And if we're going uphill, we're all going uphill. It's enough for you to run a little faster than the others and you're running first, even though you're being -- even though it's a slower run because of the market conditions. Alessandra Lanzone: The next question comes from Adele Palama Hama, UBS. Adele Palama: [Interpreted] I have 3 questions. First one on NII and the NII guidance, in particular, the lending stock increase. You talked about a 5% increase in loan stock being the assumption. If I actually make a calculation, the loan book increased by 8%. So the 5% refers to the retail loan book. And if so, why do you expect to have a lower growth rate than the one you reported this year? I don't know whether this is a matter of mix. Then second question, again, has to do with NII. Can you clarify your customer interest income or loan yield. This quarter, it went up to 3.36% from 2.20%. How is it you had this increase in gross yield? Because the cost of funding declined with respect to deposit promotions, but I don't understand how you got to this yield increase quarter-on-quarter. Then guidance with respect to inflows how much more for maneuver do you have to improve from the EUR 9 billion amount that you reported? Because actually, there is an 8% compared to the initial stock compared to the one you reported this year, which was 9%. Massimo Doris: [Interpreted] If you can show the chart with the bars -- I mean, the bar chart to make it simple. I will answer to the first question on NII guidance and loans. Between 2024 and 2025, we have reported a significant increase. That was actually an important leap because rates had gone down, and therefore, there was a higher demand. Rates are going to remain stable, most likely. So this jolt, if you want, if we take a look at the trend in -- I mean, if you compare 2023 to 2022, there is a EUR 0.5 billion increase. 2024 over 2023, again, EUR 0.5 billion, more or less EUR 600 million. 2025 compared to 2024, it increased by EUR 1.3 billion basically, EUR 1.4 billion almost. So there has been a strong acceleration that was driven by interest rate decline, which according to projections is not going to take place in 2026. Should they decline by 1%, we would see an even greater momentum, an even greater boost. But since interest rates are possibly are going to remain stable, growth is going to be standard. Really, 2025 was a sort of one-off because it was really pushed by interest rate performance. Angelo Lietti: [Interpreted] I was not clear. Granted loans of the year compared to the previous year increased by 10%. So you have to see the growth comparison in terms of granted loans. If the stock increases, also the repayment and the actual mass increases. So it's obvious that you will have this type of dynamic. I'm not saying that we are not going to see an increase in loans granted. It's going to be plus 10%. Loans granted '25 over '23 grew even more from EUR 3 billion, it went up to EUR 4 billion, driven by interest rates and it reflects on total amount. And then as far as NII is concerned, in the last quarter, Euribor on mortgages increased. And this is why we had this increase on -- referring to the spread. This is why we reported this increase. Massimo Doris: [Interpreted] And then, of course, there is an additional effect clients entering -- taking mortgages with us can skip a certain number of payments at no cost. When interest rates were high, many clients decided to take advantage of this option, and they would skip and defer certain payments. If the client does not pay a given payment, we are not going to earn the interest, and this is an impact on NII. Since rates have stabilized, many clients opted in and especially in the last quarter, and this had a good positive impact on interest income for the bank. And then EUR 9 billion in terms of managed assets, will it be possible to improve this? First of all, this was a blockbuster result. Can we do even better? Yes, if the market goes up 20%, most likely, we might even improve and exceed the EUR 9 billion, which I hope will be so. If the market were to remain flat, keeping the EUR 9 billion will be a hefty battle. If the market is going to go down 20%, we will never make it up to EUR 9 billion because it will be more difficult to retain the assets of our clients and to acquire new clients. This holds true not only for Banca Mediolanum, but for the market at large. For example, on this slide, you see that in 2022, we reached more or less EUR 6 billion worth of net inflows in assets under management. 2025 was a difficult year because both fixed income and equity markets went down. All asset classes went down. And in 2023 -- sorry, I was talking about 2023 and not 2025. All clients were looking at their results, and they were reporting losses. So 2023 was a very, very tough year for the entire sector. I remember that back then, Assogestioni, when analyzing the retail market, they reported net outflows of EUR 22 billion. If I remember correctly, Assoreti reported EUR 6 billion worth of net inflows, 5% of which were retail Banca Mediolanum. Now you saw 4 there. I talked about 3 because Assoreti does not include Spain on the one hand and then also because certain products such as certificates are being classified under different line items, not only for us, but for everybody. This means that we went from EUR 6 billion to EUR 4 billion because of the rough market, but those 4 accounted for half of the entire market inflows, plus EUR 4 billion net inflows compared to EUR 22 billion worth of outflows for the entire market. So was that a bad year? From my point of view, that was a great year because we have increased our market share quite a lot, even though we slowed down because it was really, really uphill. The slope was steep. Alessandra Lanzone: There are no more questions. Let me now turn the conference to the English channel. Operator: [Operator Instructions] There are no questions on the English line at this time. I would like to hand back over to the Italian line. We have no more questions in the Italian conference. Let me hand it over to Mrs. Lanzone for the closing of the conference call. Alessandra Lanzone: Thank you very much. I'd like to thank all of you for joining us. [Statements in English on this transcript were spoken by an interpreter present on the live call.]
Operator: Greetings, and welcome to the Varonis Systems, Inc. Fourth Quarter 2025 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce Tim Perz, Investor Relations. Please go ahead. Tim Perz: Thank you, operator. Good afternoon. Thank you for joining us today to review Varonis Systems, Inc.'s fourth quarter and full year 2025 financial results. With me on the call today are Yakov Faitelson, Chief Executive Officer, and Guy Melamed, Chief Financial Officer and Chief Operating Officer of Varonis Systems, Inc. After preliminary remarks, we will open the call to a question and answer session. During this call, we may make statements related to our business that would be considered forward-looking statements under federal securities laws, including projections of future operating results for our first quarter and full year ending December 31, 2026. Due to a number of factors, actual results may differ materially from those set forth in such statements. These factors are set forth in the earnings press release that we issued today under the section captioned Forward-Looking Statements, and these and other important risk factors are described more fully in our reports filed with the Securities and Exchange Commission. We encourage all investors to read our SEC filings. These statements reflect our views only as of today and should not be relied upon as representing our views as of any subsequent date. Varonis Systems, Inc. expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements made herein. Additionally, non-GAAP financial measures will be discussed on this conference call. The reconciliation for the most directly comparable GAAP financial measures is also available in our fourth quarter 2025 earnings press release and our investor presentation, which can be found at varonis.com in the Investor Relations section. Lastly, please note that a webcast of today's call is available on our website in the Investor Relations section. With that, I'd like to turn the call over to our Chief Executive Officer, Yakov Faitelson. Yakov? Yakov Faitelson: Thanks, Tim, and good afternoon, everyone. We appreciate you joining us to discuss our fourth quarter and full year 2025 results. Over the past year, we have talked about Varonis Systems, Inc. as a story of two companies. The first is our strong SaaS business, which reflects the present and future of our company, and the second is a legacy on-prem business, which is serving as a headwind to our total company ARR growth. In Q3, the headwind was especially pronounced. As a result, we are now disclosing additional metrics. The purpose of this is to allow investors to understand all the drivers of our business. Guy will expand upon this later. In the fourth quarter, our SaaS business continued its momentum, and our decision to end-of-life our self-hosted platform, combined with the lessons we learned in Q3, led to a record number of conversions. In Q4, SaaS ARR was $638.5 million or 86% of total ARR. Q4 SaaS ARR increased 32% year over year, excluding the impact of conversion, and total ARR increased 16% year over year to $745.4 million. Now I would like to give you some additional color on last quarter's decision to announce the end-of-life for our self-hosted deployment model and the decision to transition our business to be 100% SaaS by the end of 2026. Prior to the introduction of Varonis SaaS, we believed self-hosted software was the best way to secure data, but the downside of this software was that it required significantly more resources to do so. Our SaaS product is fully automated. It is different from our self-hosted solution, like a self-driving car to a bicycle. You can get to the same destination in either method, but with one, you do the majority of the work yourself, and with the other, it gets you there automatically and with minimal effort. We can do this because we built our SaaS platform using world-class architecture, the newest technologies, and the lessons we learned with securing data in large, complex, dynamic environments for thousands of customers. This allows us to protect our SaaS customers in ways that were not possible with our self-hosted solution. For instance, we can only provide MDDR to our SaaS customers because of the automation and centralized visibility within our platform. It is important to understand that for most other companies that underwent SaaS transition, the technological gap between their self-hosted and SaaS products was not as large as it is with our platform. This provides our SaaS customers with much higher satisfaction, which leads to higher renewal rates when compared to our remaining self-hosted customers, many of which are what we call single-threaded customers. This means they only use Varonis Systems, Inc.'s self-hosted platform for a single use case on one data store, and because they do not use the full data security platform, they began to show a greater resistance toward paying a premium to move to Varonis SaaS in Q3. In order to move quickly and maximize customer retention, we are focusing less on uplift or conversions of our remaining on-prem customers. We believe we can show even more value to SaaS to these customers and then have opportunities to upsell them in the future. In the fourth quarter, our decision to end-of-life our self-hosted platform was a catalyst that caused many of our remaining self-hosted customers to convert to SaaS. We converted approximately $65 million or one-third of our remaining non-SaaS ARR in the quarter and believe that between $50 to $75 million of the remaining self-hosted customers will convert by the end of the year. At the same time, we continue to see strong demand from both new and existing customers because they can secure data with minimal effort because of our automation. Other DSPM tools may be able to identify a portion of sensitive data, but no other tool can find sensitive data in the complete way, fix misconfigurations at scale automatically, and alert and respond to threats, delivering automated outcomes like Varonis Systems, Inc. does. Within our SaaS portfolio, MDDR and CoPilot continue to show strong adoption trends, and Varonis for cloud environments continued its momentum, which was driven by the investment we have made in our platform to expand our use cases and protect many more data platforms. We are seeing this demand because customers are realizing that visibility alone is not enough and classification without protection is a liability. Automation is necessary to achieve real outcomes. Early conversations with customers on our database activity monitoring and email security products underscore our belief that these are a strong fit for our portfolio in 2026. We expect our reps to put significantly more focus on new business and SaaS customers. Over time, we believe this focus will help us unlock the potential of this market. Now, I would like to step back from our near-term results and discuss why we believe we are best positioned to help companies safely adapt AI and prevent data breaches. Varonis Systems, Inc. was founded on the belief that managing and protecting data would be impossible without automation. Over time, our goals have been fueled by the constant balance between productivity and security. Today, the emergence of AI is accelerating both the volume and complexity of data at an unprecedented rate. The scale of data growth is matched only by the AI's ability to increase the sophistication of modern cyber threats. Cybercriminals are leveraging AI agents to infiltrate organizations with minimal human involvement. Recent incidents, such as Chinese state actors using cloud code to breach major corporations, highlight the sensitivity and ease of these attacks. Most of these AI-powered attacks start with social engineering. Attackers are not hacking computers; they are hacking trust, and users cannot tell what is real or fake anymore. Cybercriminals are using AI without Companies want to adapt AI as quickly but struggle to due to concerns over data security. The deployment of AI agents raises critical compliance questions: What data does the agent have access to? Is that data sensitive? Is the agent behaving as expected? Most organizations struggle to answer these questions for human users, and the challenge is amplified as they must now secure exponentially more AI agents. Agents are nothing without data. The more data agents can access, the more useful and more risky they become. They operate faster than humans, collaborate autonomously, and maximize their privilege by design. AI security depends on data security. In addition, companies will need guardrails and controls around their AI agents and toolsets. To accelerate our ability to help companies safely adapt AI, Varonis Systems, Inc. announced today that it has acquired Altu, an AI security company. The acquisition strengthens Varonis Systems, Inc.'s ability to protect enterprises from emerging AI risks by combining Altu's end-to-end visibility and guardrails for AI tools with Varonis Systems, Inc.'s ability to protect the underlying data and identities using my AI agent. Altu adds end-to-end visibility and control across the AI lifecycle. It inventories AI components and infrastructure, locks it down, monitors AI tools, and automates compliance. The acquisition reinforces our data-first strategy and extends our platform to secure all AI systems and the data powering them. Our SaaS platform allows for much faster organic innovation and integration of tuck-in acquisitions, which enhance our customers' ability to stay ahead of bad actors. Since launching SaaS, we have gone wider and deeper with our customers, stopped breaches everywhere, and we can now tap into more budgets than ever, including data and AI security, database activity monitoring, and email security. We have unified unstructured, semi-structured, and structured data security into a single platform, which is essential in an age of AI because AI uses all data types. When you combine Interceptor, which is our image security offering, with our SaaS platform and MDDR, it becomes a force multiplier. It stops threats even faster and keeps threat actors even farther from data. With that, I would like to briefly discuss a couple of key customer wins from Q4. We continue to see strong demand from new customers. One example of this was a healthcare service organization that was performing a risk assessment during a multi-cloud migration and realized that the native tools were insufficient to lock down their data. As a result, they launched a DSPM RFP process and ultimately chose Varonis Systems, Inc. after we immediately uncovered several hundred physical misconfigurations, many of which were automatically fixed. We also identified over 900,000 exposed PII records and executive strategy materials. Varonis Systems, Inc.'s simplicity, advanced threat detection, unified interface, and automatic remediation were decisive against competitors, and they ultimately purchased Varonis SaaS with MDDR for hybrid environments, CoPilot, AWS, Azure, and Google Cloud Platform, as well as Unix and Linux, and the Universal Database Connector. In addition to strong new customer momentum, we continue to see existing customers realizing the benefits of SaaS. One example was a hospital system of 45,000 employees that originally bought Varonis Systems, Inc. to remediate overexposure of on-prem HIPAA data. As they began a cloud migration process, they noticed gaps in the ability of native tools to remediate overexposure and label data at scale. During our cloud risk assessment, we discovered over half a million instances of HIPAA and PII data open to everyone in the organization. Our ability to identify and remediate these exposures led this customer to convert to Varonis SaaS with MDDR for hybrid environments, CoPilot, and data lifecycle automation for Windows SaaS. In summary, we are excited by the performance of our SaaS business, which is being driven by the automated value proposition that we deliver to our customers on top of our scalable architecture. We look forward to continuing our momentum and ending the year as a fully SaaS company, which will unlock many more benefits as we capture our growing market opportunity, and we believe in the path to achieving our 2027 financial targets. With that, let me turn the call over to Guy. Guy? Guy Melamed: Thanks, Yakov. Good afternoon, everyone. Thank you for joining us today. We are excited by the momentum we are seeing in our SaaS business, which now accounts for the vast majority of our ARR. SaaS is both the present and the future of our business, and the new disclosures we are making today are intended to enable investors to evaluate the progress of both our SaaS business and the end-of-life of our self-hosted business. We plan to disclose these additional metrics for the duration of 2026, after which we will be 100% SaaS, and we will revert to more traditional metrics. You can find more on this in our investor deck. In 2026, we will provide guidance for SaaS ARR excluding conversions on a quarterly basis. Specifically, we will report the following on a quarterly basis: one, SaaS ARR; two, SaaS ARR excluding conversion; three, conversions ARR; and four, non-SaaS ARR to help you understand how much conversion opportunity remains available. On an annual basis, we will disclose and also provide guidance for one, SaaS ARR, and two, SaaS ARR excluding conversion. We will also continue to report subscription customer count and SaaS dollar-based net retention on an annual basis. Our intention is to provide you with the tools to understand the various drivers of our business and to illustrate how we believe our SaaS business can continue to grow at very healthy levels in 2026 and beyond. In the fourth quarter, SaaS ARR was $638.5 million or 86% of total ARR, and SaaS ARR increased 32% year over year when excluding the impact of conversion. We are proud of our record number of ARR conversions in Q4, which totaled approximately $65 million, including the uplift. We believe that this result was driven by our lessons learned in Q3 and our decision to end-of-life our self-hosted platform. At the end of Q4, we had approximately $105 million of non-SaaS ARR remaining. In 2025, ARR from new customers was approximately $80 million. We ended the year with approximately 6,400 subscription customers, which grew 14% year over year. Our dollar-based net retention rate for SaaS customers was 110% at the end of 2025. To be clear, this metric only includes customers that were SaaS customers in the prior year and therefore is reflective of the organic expansion of ARR within our SaaS customer base. We believe that this metric can trend higher over time as we put more focus on the upsell motion with our SaaS customers. Our renewal rate for the year ending December 31, 2025, continued to be over 90%. Although our renewal activity from our non-SaaS customers was slightly below our historical level, it was better than what we experienced in the third quarter. Our renewal rate disclosure going forward will be the SaaS renewal rate. This metric aligns with our new business model and how we view the business. Now I'd like to recap our Q4 results in more detail. In the fourth quarter, ARR was $745.4 million, increasing 16% year over year. In 2025, we generated $131.9 million of free cash flow, up from $108.5 million in the same period last year. In the fourth quarter, total revenues were $173.4 million, up 9% year over year. SaaS revenues were $142.3 million. Term license subscription revenues were $21 million, and maintenance and services revenues were $10.1 million. Moving down to the income statement, I'll be discussing non-GAAP results going forward. Gross profit for the fourth quarter was $138.7 million, representing a gross margin of 80%, compared to 84.4% in 2024. Our gross margin continues to be healthy and in line with our long-term target set at our Investor Day. Operating expenses in the fourth quarter totaled $134.1 million. As a result, fourth-quarter operating income was $4.6 million or an operating margin of 2.6%. This compares to an operating income of $15.3 million for an operating margin of 9.7% in the same period last year. Fourth-quarter ARR contribution margin was 15.9%, down from 16.6% last year. If our non-SaaS business would have renewed at historical levels this year, our contribution margin would have shown a significant improvement versus 2024. In 2026, we expect a lower ARR contribution margin and lower free cash flow due to the impact of the end-of-life announcement. While this announcement negatively impacts 2026 ARR contribution margin and free cash flow by $30 to $50 million based on our guidance, we believe it will allow us to show a healthier financial profile beginning in 2027 due to the removal of our lower renewal self-hosted customer base. During the quarter, we had financial income of approximately $9.6 million, driven primarily by interest income on our cash, deposits, and investments in marketable securities. Net income for 2025 was $11.1 million or net income of 8¢ per diluted share, compared to net income of $23.9 million or net income of 18¢ per diluted share for 2024. This is based on 133.3 million diluted shares outstanding and 135.1 million diluted shares outstanding for Q4 2025 and Q4 2024, respectively. As of December 31, 2025, we had $1.1 billion in cash, cash equivalents, short-term deposits, and marketable securities. For the twelve months ended December 31, 2025, we generated $147.4 million of cash from operations, compared to $115.2 million generated in the same period last year. And CapEx was $15.5 million, compared to $6.7 million in the same period last year. During the fourth quarter, we repurchased 448,439 shares at an average purchase price of $33.45 for a total of $15 million. I will now briefly recap our full-year 2025 results. Total revenues increased 13% to $623.5 million. Our full-year operating margin was negative 0.6%, compared to 2.9% for 2024. Turning now to our initial 2026 guidance. Apart from conversions, which we included a wide range to account for a pessimistic and optimistic scenario, our guidance was set using the same philosophy that we have used historically. As a reminder, our new KPI for this year is SaaS ARR growth excluding conversions, which reflects our ability to add new SaaS customers and also expand with existing ones, as this will be the primary growth driver of our business in the years ahead. In 2026, we will provide quarterly SaaS ARR including conversion guidance, for this year only. We are doing this because of the difficulty in modeling the year-over-year growth rates due to the impact of conversions in 2025 and 2026. We will also provide a bridge to quarterly total SaaS ARR in our investor deck, which assumes zero conversions for the upcoming quarter. For the full year 2026, we will provide annual guidance for both SaaS ARR excluding conversions and total SaaS ARR. We have provided a wide range of outcomes for the conversions of our non-SaaS ARR to SaaS ARR within our guidance framework in order to bridge SaaS ARR excluding conversion to SaaS ARR for modeling purposes. We believe this range of conversion captures a pessimistic and optimistic scenario, with a midpoint representing our base case for 2026. From a modeling perspective, we have assumed no uplift for these conversions. The largest cohort of customers that we do not expect to convert to SaaS are federal and state government customers. As a reminder, we expect this to have a $30 million to $50 million headwind on free cash flow and ARR contribution margin in 2026. For more information, please see our earnings deck on our Investor Relations website, which includes a more detailed breakdown of our financial guidance. For 2026, we expect SaaS ARR growth of 27% to 28%, excluding conversions, total revenues of $164 million to $166 million, representing growth of 20% to 22%, non-GAAP operating loss of negative $11 million to negative $10 million, and non-GAAP net loss per basic and diluted share in the range of 6¢ to 5¢. This assumes 118 million basic and diluted shares outstanding. For the full year 2026, we expect total SaaS ARR of $805 million to $840 million, representing growth of 26% to 32%. This represents SaaS ARR growth of 18% to 20% excluding conversion. Free cash flow of $100 million to $105 million, total revenues of $722 million to $730 million, representing growth of 16% to 17%. Non-GAAP operating income of breakeven to $4 million, non-GAAP net income per diluted share in the range of 6¢ to 10¢. This assumes 134.2 million diluted shares outstanding. In summary, we are continuing to see momentum across our SaaS business. This demand is coming from both new customers and existing SaaS customers looking to secure more of their data footprint with Varonis Systems, Inc. We remain focused on executing on the many tailwinds we see ahead. With that, we would be happy to take questions. Operator? Operator: We will now be conducting a question and answer session. If you'd like to ask a question, please press 1 on your telephone keypad. One moment, please, while we poll for questions. The first question is from Matthew Hedberg with RBC Capital Markets. Matthew Hedberg: Guys, thanks for taking my question. Thanks for all the additional disclosures. I think it will be really helpful when we think about the standalone SaaS business on a go-forward basis. I think we're getting some inbound from some investors, and I think some of the confusion is around kind of the growth rate assumptions from this year. You're guiding for 18% to 20% SaaS ARR growth excluding conversions. Yet, you know, if you look at sort of just, like, your exit rate SaaS ARR for '26 relative to kind of like the $745 million that you ended 2025 with, it looks like closer to 10% growth. So I know there's some headwinds to conversions here and some churn, but maybe could you just help sort of like again, sort of like square off like the 10% kind of total ARR guide with, you know, how optimistic you are on the SaaS side of the house. Guy Melamed: Thanks, Matt, for the question. I think we had many conversations with investors throughout the last several months, and they've all asked for the SaaS growth excluding conversion to really understand the true growth of the business. And, really, what we want to try and help everyone understand all of this better. So we're providing today more disclosures around our business to help you understand what drives our business in the present and in the future. Now the SaaS ARR excluding conversions is really the most important KPI, which we're going to focus on the ability to sign new customers and expand existing SaaS customers. And that's what's going to drive the business in 2026, 2027, and beyond. When we sit here today, we feel very good about guiding this growth rate of 18% to 20%, which really calls for $120 million of net new organic SaaS ARR versus the $109.5 million that we had in 2025. And that's our starting point. So we're still keeping the same philosophy of guidance. This is our starting point. And we know what we need to do in order to continue throughout the year and increase that number going forward. So as a starting point, looking at the ARR would be extremely misleading because it takes into account the conversions, which are really the rearview mirror of this company. If you want to focus on the present and the future, the right thing to look at is SaaS ARR, excluding conversion, and as a starting point with this with the same guidance philosophy, we're at $120 million versus $109.5 million in 2025. Matthew Hedberg: And, Matt, you also believe Move to the next one. Thank you. Our next question is from Saket Kalia with Barclays. Saket Kalia: Great. Guys, thanks for taking my questions here. And echo the point earlier just on appreciate the additional disclosure. I think it's really helpful. And to your point, really focuses on kind of what the future of the business will look like. Right? That SaaS part. And so for that reason, I just want to dig into that 18% to 20% growth excluding conversions. Guy, maybe the question is for you. Can we just talk about how much of that you think comes from new customers versus existing? And, again, SaaS is the future, but just to make sure we're all squared away, can you touch on whether there's going to be any remnants of on-prem ARR at the end of '26 as well? Guy Melamed: So I'll start with the last part of your question. Our assumption is that we won't have any non-SaaS ARR at the end of the year. So, basically, 2026 is going to be equal ARR. So for this year, if you want to focus on what is right for the business, what is driving the business, in the present and in the future, the right metric to look at is SaaS ARR excluding conversion. Now when you look at the performance in 2025, we had SaaS NRR of 110%, and we had approximately $18 million of new customers ARR. When you look at our expectation going forward, we believe that with the fact that reps won't have to focus on the conversion the way they focused on conversions in 2025, they can go back to selling to new customers and selling to existing customers. And we have so much more to sell, so our expectation is that the SaaS NRR can increase. And, obviously, with the offering that we have, we can increase our sales to new customers. So as a starting point, I'm going back to that 18% to 20%. It's a good starting point that we feel very confident with where we sit here today. Obviously, we believe that we can increase that throughout the year. Brian Essex: Our next question is from Brian Essex with JPMorgan. Brian Essex: Hi, good afternoon. Thank you for taking the question. Thank you for me as well for all the additional color. I guess, Guy, I wanted to dig in a little bit to current period results. 110% net dollar retention, how does that compare with prior periods? And then maybe you can also help us understand how much has Copilot and, you know, AI driven some of the demand? Do you have maybe an attach or an exposure rate you can provide for the SaaS business attributable to that demand in the quarter? Thank you. Guy Melamed: So I'll take the first part of the question. When we look at the SaaS, you have to remember that this only takes SaaS customers last year and compares what their ARR is a year later. So, obviously, it's on a much larger base, and it's at 110, and we absolutely think that it was impacted with some headwind because reps had to focus their time on the conversions. Keep in mind that we had close to $190 million of conversions in 2025 alone. So that doesn't happen in itself. The reps had to focus on those conversions. And when we think about NRR, when you only take SaaS customers and look at the progression, that is actually an indication of how we can grow within our SaaS customer base going forward. We actually believe that that number can improve. So, again, when you look at kind of the mix between existing and new customers, I think that going forward, as we kind of went through the transition and there's not much of a non-SaaS ARR left, the reps can actually focus on acquiring new customers in a better way and can actually go back to the base and sell them additional products going forward. Yakov Faitelson: My definitely was, you know, just a big driver, but AI in general is a big driver because everything that's related to AI, these agents are as good as as risky as the data they can access. And, definitely, the AI train left the station, and the ability to understand the identity and the data that it can access is everything. So it's not just the conversion and Copilot. The other thing that we saw in the fourth quarter is this a lot of success with everything that related to other cloud repositories in, you know, AWS, and Azure and also the database activity monitoring with pipeline is starting to sell the product and everything that is happening with the acquisition of Fleishnex. Important to understand that AI, just from the agency, is a big problem, but also from bad actors. So everything that's related to a compromise to get compromised from trusted sources is something that the Fleishnex acquisition, the product called Interceptor, is doing extremely well. So definitely in terms of the platform, we hit on all cylinders and also have a very good understanding of the cohort of customers, as we explained before, that will not go to SaaS. And with the 86% SaaS business, it's just the end of it, and the SaaS KPIs are extremely strong. And we are very, very happy with where the platform is and how it will perform. And primarily, we believe that the whole AI revolution is a big tailwind to everything we want. Our next question is from Rob Owens with Piper Sandler. Rob Owens: Great. Good afternoon. Thanks for taking my question. I wanted to focus a little bit on go-to-market. I know there were some changes to the federal team back in Q3. Just curious, as you enter the new fiscal year, any broader changes overall, where you are from a sales capacity perspective, and how you're feeling from a sales maturity perspective relative to the folks you have in those seats? Thank you. Guy Melamed: So there are two elements to that question that I want to address. One is in terms of the federal business, we're still focused on trying to sell. As you remember, our federal business is approximately 5% of total ARR. But we still see an opportunity there. We did make some adjustments in terms of our investments there. I will say that the second component that I want to address is the conversion. The non-SaaS ARR we're actually baking a good portion of that federal business that will not convert. And that's why we gave a range of more of a bare case and an optimistic range, which is a really wide range, that $50 million to $75 million that will convert in 2026. So when you look at the element and what is impacting kind of the conversion number, the assumption that we have had is that many of the federal and state and government customers might not convert, and that was baked in that number. And the expectation is that we can go and sell to new customers in that federal space, but some of them will not move to SaaS with us. But in terms of the coverage and capacity, you believe we, you know, the new product's now building a good pipeline. And that will kick in, and we can have a we believe that we can have strong productivity gain. We have now these sales motions that are attaching to, you know, the budget and everything that's related to social engineering and business email compromise, the in the email space, and we have some other in the API and the browser extension. Very good assets there. Database activity monitoring. You know, most of the install base of the incumbent wants to replace them. This is another one for us. Everything, the expansion of the data security, including the MDR, and now the Altu acquisition that really just finalizing the whole vision to be end-to-end in the AI world. So when the we believe and we're starting to see that we see a lot of budgets that are related to AI from security and AI, and we really believe that we can be the foundation for acceleration and adoption of SecureAI within organizations. So we're really happy with where we are. And the way that the pipeline is developing, and we think that, you know, in the next few quarters, we are going to reverse. Joshua Tilton: Alright. Thank you. Our next question is from Joshua Tilton with Wolfe Research. Joshua Tilton: Thanks for sneaking me in here. I have two. One is a follow-up. One is not. I'll start with the non-follow-up one, and that's when we look at kind of the benefits of SaaS from converting the on-premise base relative to kind of, you know, the dollars that you lost in on-premise business last year. It kind of feels that you the uplift that you were getting was below that 26% to 25% ish blended rate that you've been communicating to us. Is there any way to help us understand, like, what you are actually getting from a conversion at Uplift? Or what you're getting on Uplift at a conversion and, you know, what we should expect that rate to be if you can, you know, sustain that for next year. And then I have a follow-up. Guy Melamed: So I want to focus the analysts and the investors on what's important. And what's important is SaaS growth excluding conversion. We've been asked many times by investors recently to try and break it out and show what would be the growth rate. Because if you think about it, by the end of 2026, the assumption is that there will be no non-SaaS ARR left. So the question that you're asking actually relates to 2026 only. Our assumption for 2026 is that from a modeling perspective, is that the conversions will come in flat. The intention is to break down on a quarterly basis what is the SaaS growth excluding conversion, so every single investor can understand how the business is performing, present, and what is the driver for the business going forward. To us, the conversions are obviously an important factor, but they're not the driver. They are the rearview mirror that every investor obviously, we care about getting as many customers over to SaaS as we can. But that's not the driver of the business. The driver of the business is SaaS ARR excluding conversions. And that's why we spent a lot of time in order to break it out in what we hope is a very simplistic way for investors to be able to understand what is the growth rate of SaaS ARR excluding conversion. We gave a range of what the expectation of the conversion is. And remember, at the end of Q3, we got asked every single investor asked us what is the expectation to get the conversions over? We talked about approximately $180 million of non-SaaS ARR that are up for renewal, and we said that about a third of them. And we were able to get in Q4, including the uplift, were up for renewal in Q4, approximately $65 million. So the non-SaaS ARR left has come down significantly. It's now approximately $105 million going into 2026. We're giving this range of $50 million to $75 million, but our desire and the way management is focused in terms of the forward-looking health of the business is SaaS ARR excluding conversions. Yakov Faitelson: It's also critical to understand that this massive expansion we did in the platform, this is what will grow the business, the new licenses. This is not the uplift. It's selling new licenses and adding more value, covering more data, securing our customers end-to-end from a data breach, making sure that they can use AI in the right way, making sure that they don't have a compliance fine, and doing everything on an architecture with tremendous scale. You need to understand that the amount of data that we need to crunch in order to provide this value is massive. And this is the whole growth is driven by the just the new license. Our next question is from Jason Ader with William Blair. Jason Ader: Yes, thanks. Hi, guys. Guy, can you help us understand the $30 million to $50 million headwind to contribution margin and free cash flow in 2026? I'm not sure I quite get that. Guy Melamed: Yeah. So first of all, I want to say that there's really no change from a philosophy perspective of how we are trying to run the business. We believe the business should grow on the top line at healthy levels, but also generate better margins and more meaningful cash flow over time. I think that's been the way we ran the business for many, many years, and there's really no change in the way we're thinking about that going forward. We're facing that $30 million to $50 million headwind from the end-of-life announcement in 2026, but what's important to note is that, one, the announcement of end-of-life actually generated a sense of urgency for customers to move. The second thing that's important to note is that we would have had a headwind, and we did see that in Q4, from the remaining self-hosted customers having a lower renewal rate that would have really masked the strength of our SaaS business. And you can see that in the H2 2025 results and also in the 2026 guidance. And the third thing to keep in mind is that if we didn't have the end-of-life announcement, the cost of maintaining the same set of customers would have increased exponentially over time. So when we look at this $30 million to $50 million headwind, that's really with a lower expected renewal rate for the non-SaaS business, but I think we've proven over time our ability to show better margins and cash flow, and we believe in our ability to continue to do that going forward. So when we think about the 2027 target, we really completed the transition two years ahead of schedule. But as we sit here today, we see a path to achieving the 2027 targets laid out in the investor day. So we feel confident with that. Shaul Eyal: Our next question is from Shaul Eyal with TD Cowen. Shaul Eyal: Thank you. Good afternoon, Yakov and Guy. Thanks for the new disclosures. Yakov, I know you might have touched on that earlier, but I want to go back to that topic du jour in recent weeks. AI eating software. Maybe not so much in the security category, but definitely we're seeing a guilt by association, you know, cyber-related names in recent days. If I have to look at today's performance, can you offer us and investors your viewpoint as to whether AI is augmenting security or whether there's room for concerns based on potential market disruption? And maybe also just a word about your current relations with Microsoft over the past quarter. Thank you. Yakov Faitelson: Yeah. I think that in terms of the market, it's what we and primarily our market, as I said before, AI is as good as as risky as the data that it can access. And you are going to see velocity that we have never seen before and also for bad actors, the ability just to get in to do, you know, everything that related to the initial port to get identity, session token, and so forth is going to grow. The ability to build very sophisticated advanced persistent threats that don't need to, you know, to call home, can talk with local LLMs and agents talking to agents. And, also, the just the human mistake. I think that definitely AI is tremendous impact on development cycles, but we believe that still complicated architecture and deep tech would need a lot of expertise, and this is what we have. And believe that even in this environment, we have a very strong moat. And we also believe that in order for organizations to adapt AI, they need to make sure that they understand what it the data can access and if it's behaving correctly. This is the core competency of Varonis Systems, Inc., and you need to do it at a tremendous scale. And the second thing, Shaul, that it needs to do, and this is related to the Altu acquisition, is you need to understand the actual agents of stemming from which tool. The intent of what they plan to do, and also the pipelines, what data they are going to access. So in terms of AI, Altu starts from the beginning. To make sure, okay. This is the tool. This is the intent. And the pipeline. Then massive force multiplier with Varonis Systems, Inc. is what is the identity and the data that they can access. And, also, then back from Altu, how agents talk to each other. So, you know, maybe an agent can ask another agent that has the permission to do something on his behalf. And this is a big issue. Regarding Microsoft, you know, we have just a lot of synergy with them, and, you know, we're building a pipeline together and feel comfortable about the partnership. So we feel comfortable about the partnership, but the one thing that we are very excited about is just where the platform is. If you look at the year ago, you know, starting from where ataxo starting with Interceptor with Fleishnex, taking the database activity market with classification, the user behavior analytics, we have a lot of success on the cloud data stores, and these data stores have tremendous scale and, you know, and Varonis Systems, Inc. is doing the Varonis platform extremely well there. And now everything that we are doing today AgenTiKi and we combine it with our cost. Thanks. So we are very excited where the platform is. Where the platform is, and the value that you can provide in the marketplace. Our next question is from Meta Marshall with Morgan Stanley. Meta Marshall: Great, thanks. Maybe building on that last answer that you gave, just as you guys look at products that you can now with more focus on kind of the core SaaS business, whether it's MDR or identity or database activity monitoring, or, you know, the acquisition that you just announced, like, what do you see as the biggest driver of upsells over the next year? Thanks. Yakov Faitelson: I think that all of them. I think that all of them, and it's also, you know, we created this data security market. Now it was very natural expansion to go to other places. So, you know, the database activity monitoring is, you know, big market with just incumbents that we can replace. Everything that's related to social engineering, business email compromise, this is a type of product that every organization needs, and we're attacked are starting today. And we believe that in terms of multimodality, the problem starting with trusted sources, and we have the best solution for that. And every organization in this stage trying to use AI in order to survive and thrive. And we Altu together with what we have is a big force multiplier. So we are really excited about everything, and we're also excited about everything is integrated with everything else. Great. Thank you. Our next question is from Roger Boyd. Roger Boyd: Great. Thanks for the question. Guy, I know this is not the focus point going forward, but I wonder if you could just unpack the rebound you saw in 4Q conversion rates. And as you look forward, you said $105 million of remaining on-premise software with the expectation that $50 to $75 million of that converts with zero uplift. When I back out Fed and SLED, my gut reaction is that's a pretty optimistic view on conversions going forward. So maybe just talk about kind of your confidence over the remaining commercial customer base there and in terms of timing, just any sense of how quickly you could get in front of this or if you expect to be maybe more back-half weighted? Thanks. Guy Melamed: So let's start with the fact that we converted in Q4 approximately $65 million. That's a really large number. You can see that in comparison to any of the other quarters. It's 50% higher than Q2. It's close to 60% higher than Q3. I think part of it was absolutely driven by the fact that we had the end-of-life announcement. That generated a sense of urgency with our customers and actually helped us get customers to convert. In terms of 2026, we put a bare case and an optimistic case, and those are the two ranges. I would say that in terms of guidance, the $50 to $75 million is not expected to our expectation is to be within that range. Our base case is kind of that midpoint. We do expect some of the customers from the federal and state government to convert. So it's not like we're writing off every single customer. But I would say that the focus from a kind of a perspective of a vertical that would convert at lower rates is that federal business. But it's not an expectation that none of them will convert. So we feel very good with that $50 to $75 million range. And as you can see, that range is wide because there are a lot of uncertainties, but we do feel confident with that range itself. So our base case scenario is that midpoint. And I think we can do a really good job of getting those customers over. Keep in mind, we got questions about the $180 million of non-SaaS ARR at the end of Q3. And so many of the investors wanted to get a number and wanted to get a range. And many of the investors that we talked to had an expectation that we won't get any, which we thought was not reasonable either. So I think when you look at the actual performance of Q4, the fact that we were able to convert such a large portion had to do with the end-of-life announcement and the urgency that that generated within our customer base. And the expectation for 2026 is within those ranges of $50 to $75 million. Yakov Faitelson: It's also critical to understand that in most other companies that they are doing the SaaS transition, there is not a big discrepancy in features between the on-prem and the cloud. For us, it's something that is completely different in our cloud moving extremely fast, and we integrate the new acquisitions there. And these customers, as Guy said, these federal customers and some just local government customers and some customers that have hesitation and don't want to go to SaaS, I was just it's a huge, huge difference. And then when you have this growth business that is strong and profitable, and as Guy said, you know, we believe that we can get to the 2027 goals with these customers that will not convert to the 2027 goals that we in the investor day. Very important to understand that it's just it's something that is completely different. And not only that, with the way that we move and release features, the SaaS platform works, the discrepancy is growing and growing. And what will happen is that you will have a small cohort of customers that will take this a lot of operational resources to do something that is just not relevant. So this is what you see from us. We just, you know, we are now 86% there, and we just want to be 100% there and make sure that we, you know, we have this SaaS platform. We have high-quality SaaS metrics, and this is where we invest. This is how we move forward. And we just want to make sure that, you know, the last leg of conversion, anybody that we can convert will convert and fight for it. But folks who will not go to the cloud, we need to end the cloud. And partway with them. Fatima Boolani: Our next question is from Fatima Boolani with Citi. Fatima Boolani: Good afternoon. Thank you for taking my question. Guy, I wanted to just zero in on the OpEx and free cash flow expectations. You've been very clear about a number of different factors that are impacting that trajectory. But I was hoping you could sort of recrystallize some of what you shared with respect to the end-of-life headwind, the ARR contribution compression as it relates to some of the nonrenewal assumptions, as well as maybe some organic investments that you are making in growing your sales capacity and then also in the context of the Altu acquisition. So hoping you can stack rank the level of impact from an operating expense and free cash flow headwind perspective between the organic inputs and inorganic inputs, especially kind of given the number of acquisitions that you're absorbing into the cost base? Thank you. Guy Melamed: Absolutely. I'll start by the fact that when you look at the free cash flow progression, I think we've done a good job of increasing kind of the free cash flow number over the last couple of years. And when you look at the ARR contribution margin, we've actually increased it to levels that are just below the 2027 model that we laid out in our 2023 investor day. So I think from a profitability perspective, we have proven to investors that we have the path, and we know how to improve and increase the top-line growth with bringing some of it to the bottom line. When you look at the 2026 numbers, especially when you look at some of the lower renewal rates for the non-SaaS business, that have been below our historical levels, obviously, when you think about renewals, they go directly to the bottom line. That's your pure profitability component, and they are way more profitable than the acquisition of new customers that have a higher cost. So when you think about kind of the non-SaaS ARR that is not going to renew, that obviously has that headwind, and we talked about the $30 to $50 million of headwind from that end-of-life announcement. But I think what's important to note is that if we didn't call that end-of-life, the impact would have been much higher. So if I have to break down kind of that headwind, I would say that for the most part, it relates to the lower renewal rate for that non-SaaS business. Obviously, the acquisitions have a cost. And when you think about the guidance, we didn't bake in any upside from those acquisitions. We saw very good momentum in Q4 with Interceptor. But we need to see how that progresses from 2026. So I think there's upside there for us. And the acquisition that we announced today, we feel good about our ability to capitalize on that as well. So from an expense perspective, we baked in those expenses as part of that guidance, obviously. We didn't fully bake in any real upside for 2026. And we do believe that we can get there. So if you had to break down that headwind, I would say that for the most part, it comes from the renewals, but, obviously, some of it is from the acquisitions themselves. Mike Cikos: Our next question is from Mike Cikos with Needham. Mike Cikos: Great. Thanks for taking the questions here, guys. And just, Guy, to be perfectly clear on the M&A assumptions. So you're not assuming any revenue or ARR contribution from Cyril or Slashneck even though both those products launched last year? And then I guess the follow-up, given some of the changes that were announced following Q3 with the 5% headcount reduction, and the downsized federal team, can you just help us think about your go-to-market organization today? What is the typical tenure of your sales rep? Have there been any changes to incentives as we enter the new year? Thank you. Guy Melamed: Absolutely. So, yeah, when you think about kind of the assumptions that we had for guidance for 2026, we didn't bake in any real top-line contribution from any of the acquisitions. That doesn't mean that we don't think we can generate activity and top-line growth from them. But our starting point assumed a real modest contribution from them and nothing major, but we do feel that there's a path there, and we're seeing good momentum in conversation with customers. Keep in mind, the INTERCEPT acquisition only closed in September. So it's a really short runway when we sit here today for a company that didn't have any material ARR, but we definitely see significant opportunity going forward. In terms of kind of the rep profile, I think that one of the things that is interesting going into 2026 is that with those acquisitions, we actually do have a near-marked budget that we can go and replace. Which does change and simplify some of the go-to-market for the sale of those Interceptor and the viral acquisition. And it's definitely something that we need to see how that progresses, but we feel very good with that path. And when you think about the comp plan for 2026, and I want to touch on the 2025 comp plan. I know many of the investors asked us a lot about it throughout the year. But in 2025, reps had a lot of ways to make money. They could sell to new customers. They sell to existing customers. And they could make money from the conversion. In 2026, they cannot retire quota on the conversions themselves. So their way to make money is by selling to new customers and by selling to existing customers. And I want to put another caveat in. They can make money by selling to both. But they have absolutely no way of making big money if they don't sell to new customers. So there is a threshold from a new customer perspective for them to sell. And we believe that as we have gone through the non-SaaS ARR and got to 86% and can go back to focusing on new customers and existing customer sales and don't need to have the reps cannibalize their time by focusing on the conversion, that actually opens up their ability to increase their productivity levels. And that's the way the comp plan was structured. With no ability for them to make money towards their quarter retirement on the conversion side. Rudy Kessinger: Our next question is from Rudy Kessinger with D. A. Davidson. Rudy Kessinger: Hey. Great. Thanks for sneaking in here. So, Guy, actually, I again, as everybody on this call said, appreciate the new disclosure here. I actually want to dig into the SaaS net new ARR guidance, excluding the conversions midpoint of about $121.5 million. I certainly hear your comments about, you know, reps were really bogged down and tied up with conversions last year, and yet you still did about $110 million of net new SaaS ARR excluding those conversions. And so if I consider the reps being much more freed up to really focus on SaaS expansion, new logos this year, $121.5 million actually to me seems, you know, pretty conservative and or lower than it should be if I assume you maintain at least a 110% SaaS net retention rate. So could you just maybe take it a step further? Like, what are the assumptions in that $121 million figure around new logo contribution, net retention rate, etcetera? And just how conservative are those assumptions? Guy Melamed: So you're absolutely right. We are guiding in a conservative way as a starting point for the year. And you're absolutely right that if you look at the net new SaaS ARR excluding conversions being at $109.5 million, but also accounting for approximately $190 million of conversion ARR, when you don't have that component, the conversion side, then you can go and sell to new customers and existing customers in a better way. So I agree with your statements, and I think that we fully understand what we need to do in order to execute and grow this business in the way that we believe we can grow the business. Sitting here today, we feel very comfortable with the guidance that we provided. And know what we need to do in order to execute and improve it throughout the year. But the assumptions from an NRR perspective is that we actually can do better. There's a lot for us to sell. Going back to the base. And we think that we're selling to new customers, freeing that time that was cannibalized by our reps, they can actually go to many more new customers and sell to them as well. So I agree with your statement. And that is our starting point for 2026. Yakov Faitelson: If you look at the offering today versus just a year ago, we, you know, doubled the platform in terms of value. The focus needs to be not on the conversions to create value and make sure that the data of our customers is protected in an automated way. This is our mission, and this is what we are going to do. Joseph Gallo: Our next question is from Joseph Gallo with Jefferies. Joseph Gallo: Hey, Really appreciate the question and thanks for all the extra disclosures. Guy, can you just help me understand a little bit more the end-of-life headwind to free cash flow? I mean, your billings and ARR were really strong in 4Q. You're still guiding for ARR to grow in calendar '26. So I'd imagine billings and bookings are growing. So just is there something different with the cash collections? And then just any more that you can kind of quantify on, you know, what the benefit for not having to support on-premise can be? Is that a few points to margin? And is that a '26 story or '27? Thank you. Guy Melamed: So, Joe, I actually think that the free cash flow headwind is a much simpler story than anything else, honestly. When you think if you took the renewal rate, the historical renewal rate of the business, and baked it into the non-SaaS ARR, that is the delta. That is the headwind. And we're obviously not getting the same oh, at least the assumption is that we won't be getting the non-SaaS ARR at the same renewal rate historical level, a, because we didn't see that in Q3, and, b, although Q4 renewal rates they were still below historical levels for the non-SaaS business were better than Q3. And I think the end-of-life actually helped us get a lot of the customers converted, and the expectation is that the end-of-life announcement will actually help us get a lot of our customers converted in 2026. But as you can see, that $50 to $75 million range from approximately $105 million denominator is not over 90% renewal. And I think it's a much simpler math, and I know we're getting a lot of questions on it. But to me, it's a pretty straightforward calculation in terms of the headwind itself. So when I look at the actual kind of profitability profile for us as an organization, nothing really has changed. We're not changing kind of the philosophy of investment. We're not trying to invest more in order to generate a lower top-line growth rate. If you look at the trajectory from an ARR contribution margin perspective, and you bake in the additional kind of loss on the headwind from the non-SaaS component, you would see that we would continue to grow at the same historical level. But the announcement of the end-of-life and I said this before, and I probably want to reemphasize this. The announcement of the end-of-life actually helped us in three ways. One is generating that sense of urgency for customers to convert. The second one and I think this is actually important to note, if we would have kept the on-prem subscription going forward, and we would have had a renewal rate that is historically lower than or lower than our historical levels, then the growth rate would have been masked. The total growth rate would have been masked by that component versus a really strong SaaS business. And that's why we spent so much time on breaking out the SaaS excluding conversions and putting the conversions as a separate bucket. Because that allows investors and analysts to actually see the two companies that Varonis Systems, Inc. is right now, the forward-looking and the rearview mirror, which is that conversion component. And, yes, we believe that announcing that end-of-life going to 2027 and beyond can actually generate benefits on the bottom line on savings, and that's why we feel confident with our 2027 model. Junaid Siddiqui: Our next question is from Junaid Siddiqui with Truist. Junaid Siddiqui: Great. Thank you for taking my question. You've talked about MDDR having software-like gross margins over time. As it becomes a material contributor to your business, how do you envision gross margins? Do you anticipate any changes from the range that in that high seventies, low eighties? Guy Melamed: No. We don't expect any material change there. The MDDR has been very well received by both our customers and our sales force. And has been adopted very well. Keep in mind, we only introduced it in 2024, and it's been in a very positive way. We still believe that every single customer should have MDDR. It's going to take time, but we're definitely feeling very good about the path that we have taken so far and what is lying ahead with MDDR as well. Yakov Faitelson: But, also, it's very important to understand that the MDDR is really an AI-based offering. It's just a genetic offering in most of the alerts are being reviewed and closed by the AI agents, the robot. And this is the beauty of it. Operator: Thank you. There are no more questions at this time. I'd like to turn the floor back over to Tim Perz for any closing remarks. Tim Perz: Thanks, everybody, for the interest in Varonis Systems, Inc. We look forward to meeting with you all later this quarter. Goodbye. Operator: This concludes today's conference. You may disconnect your lines at this time. Thank you again for your participation.
Operator: Good day, and thank you for standing by. Welcome to Banca Mediolanum Full Year 2025 Results Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to Alessandra Lanzone, Head of Investor Relations. Please go ahead, madam. Alessandra Lanzone: Good morning -- good afternoon, actually, everyone, and thank you for joining us. We can certainly look back on 2025 as a year of strong momentum on our business and results that keep us very well positioned as we head into '26. Today, we'll walk you through our full year performance, what has driven it and the priorities we're taking into the year ahead. A quick note on Q&A. As usual, feel free to ask your questions in the language of the line you're calling from. We will answer in Italian with a real-time translation into English. With that, I'm pleased to hand this over to our CEO, Massimo Doris, joined by our CFO, Angelo Lietti. Massimo, over to you. Massimo Doris: Thank you, Alessandra, and good afternoon to all of you. After a record 2024, the question was whether it was a one hit wonder? 2025 answered that question. This wasn't a one-off. We raised the bar and went one step further. The results speak for themselves, but they also speak to something deeper than numbers, the quality of our growth and the strength of a model that delivers consistently. This trend translates into tangible value for our shareholders, and it is reflected in the strong dividend we are proposing for the year. But before we go into the figures, let me start with a quick word on the macro backdrop because it matters since it sets the context for what you're about to see. In 2025, 3 forces continued to pull in different directions: rates moving into a normalization phase, markets shifting mood quickly and geopolitics remaining a generator of volatility through international tensions, trade policy and uncertainty around energy and supply chains. And a regulatory and fiscal backdrop that keeps evolving, especially in Europe and discipline becomes the differentiator. Within that noise, there were also tailwinds. As rates began to ease and markets held up, households started looking beyond part liquidity again. And that's where the difference shows between a model that sells financial products and one that builds long-term relationships through advice. The real question we are going to -- into today is not how was 2025? That is now clear. But how repeatable is it in 2026? The market is looking for visibility on 3 things: continuity of net inflows even if volatility returns, the trajectory of NII in a lower rate environment and continued discipline on costs, including the network component, which is exactly why our guidance -- our read on 2026 matter as much as the numbers we are about to present. With that in mind, we'll be very clear today on what supported our 2025 performance. While we see a structural versus more context-driven and how we are positioning the business to keep growing with quality in 2026. Let's move into the numbers. I'll start with the economic and financial highlights in Slide 4. The headline news is that 2025 was another best ever year for Banca Mediolanum, surpassing last year's record and reaching new peaks across virtually all key indicators. At the group level, net income came in at an outstanding EUR 1.238 billion, up 11% over the previous record level in 2024. What matters most behind this bottom line number is not the one-off impact of tax refund nor the strong contribution from performance fees, but the same engine we've been building for years: customer relationships, smart solutions, sound and needs-based advice and a network that keeps converting engagement into long-term assets. In fact, our core profitability was exceptionally strong. Contribution margin exceeded EUR 2.1 billion, and operating margin was just shy of EUR 1.2 billion, improving 10% versus the prior record. Results were supported by net commission income growth, up 12% to EUR 1.3 billion and a truly exceptional commercial performance, especially the quality of net inflows into managed assets. We also managed the interest rate transition with discipline. Rates continue to normalize through the year and the tailwind to net interest income naturally softened. Even so, we protected profitability through mix and pricing actions to reduce the cost of funding by keeping the balance between growth initiatives and margin management. For sure, recurring fees increasingly carried the weight. Higher average managed assets in the year and strong net inflows supported management fees, which went up 10% to over EUR 1.4 billion. In other words, the revenue mix did what it was supposed to do in a shifting rate environment, less reliance on NII, more support from recurring fee income linked to customer assets. Below the revenue line, we stayed cost conscious, in line with our guidance of a cost-to-income ratio below 40%, while continuing to invest in the levers that matter, namely technology, network productivity, including NEXT and the customer experience, cost-to-income ratio resulted at 37.6%. Slide 8 provides more detail on the other income statement lines. Let me flag a few highlights. Banking service fees climbed 38% to nearly EUR 259 million, driven by strong certificate sales, solid in Q2 and even stronger in Q4. As you know, certificate fees are recognized upfront in the P&L. Net income on other investments was around EUR 22 million, down 35% year-on-year, entirely explained by the different perimeter. We sold our Mediobanca stake in July, so dividend income was limited to Q2. From the second half award, that contribution is simply no longer part of the run rate. Provisions for risks and charges increased by 21%, reflecting the same dynamic we saw in H1. As for risk provisions, last year's favorable legal outcomes led to one-off partial releases that did not recur this year. And for network indemnities, the increase remains volume driven. Higher commissions naturally require higher provisioning. Provisions also increased because we started to build the reserves for the growing Prexta unsecured lending business. It's a prudent forward-looking approach in line with expected loss models as volumes grow. Contributions to banking and insurance industries were down 36% year-on-year, as banking sector contributions did not recur this year. The only notable movement came in Q4, driven by a one-off supplementary extraordinary levy from the banking scheme. Below the operating margin, market effects were definitely positive, thanks to favorable market performance and effective investment management in 2025. The contribution of performance fees for the year was considerable, although 32% lower than in 2024 to the tune of EUR 257 million gross, boosting our bottom line. Remember that performance fees for us are a bonus, not a pillar. They are certainly welcome when they come, but never something we rely on or plan for. Of course, it's the health and consistency of the underlying business that matters. Fair value improved significantly to EUR 28 million from EUR 17 million last year. We fully disposed of our stake in Next in Q2, resulting in a substantial uplift compared with the negative mark-to-market recorded last year. We also saw a positive contribution from treasury trading. Now let's look at extraordinary items. Following a specific ruling by the European Court of Justice last August, we received a refund of EUR 140 million relating to IRAP regional tax we overpaid for the years 2012 to 2024. For completeness, the same ruling also brings a benefit on the tax line, around EUR 17 million of lower IRAP in 2025. Although this benefit is expected to be largely offset in the coming years as IRAP increases. One important clarification on this line, the EUR 140 million refund is partially offset by the financial effects of the required advanced payment of the stamp duty on unit-linked policies as well as by the commissions related to the Mediobanca sale, but especially by a one-off recognition bonus we have decided to award across the group for a total impact of nearly EUR 23 million. I'll come back to the rationale behind this in a bit. Taken together, the nonrecurring items in our P&L were broadly in line with last year, around 4% higher, and this doesn't change the overall picture. Now let's launch into an overview of the business results for the year. Turning to Slide 5. Commercial momentum score new all-time highs across the all-net inflows metrics versus an already very strong 2024, accelerating in the last quarter and taking total net inflows up 11% to EUR 11.64 billion. These results were fueled by the success of our time deposit campaigns, where flows were supported by both new and existing customers, confirming the reach of our marketing and acquisitions engines. If there is one number to call out, it's managed assets. Flows reached EUR 9.06 billion beating our 2024 record by 18% and ahead of our guidance of EUR 8 billion to EUR 8.5 billion. And this is the most meaningful mix for us because it reinforces the quality and durability of our revenue base and supports predictable earnings over time. So driven by these inflows and deposit growth, total assets ended 2025 at EUR 155.8 billion, increasing 12% year-on-year. Keep in mind that positive market performance overall more than offset the weaker U.S. dollar. The credit book also expanded, ending the year just shy of EUR 19 billion, while asset quality stays strong with a cost of risk of 16 bps. The growth of the credit book was supported by higher loan origination with loans granted increasing 28% year-on-year to a total of nearly EUR 4 billion. General Insurance also delivered a strong uplift. Gross premiums rose 20% to EUR 246 million, protecting customers' wealth and earning capacity remains a core priority for us. Growth was supported by stand-alone policies and even more by the renewed momentum of loan protection cover, consistent with the expansion in mortgages. Turning to Slide 6. Our customer franchise continued to grow strongly. We ended 2025 with well over 2 million customers, expanding the base by 6% year-on-year after acquiring 199,500 new customers. Our group family banker network kept step with this growth, also up 6% to 6,798. Intelligent investment strategy has gathered real momentum. Over EUR 5 billion is currently in money market funds with a planned gradual switch into equities over an average 3.5-year horizon. Since the beginning of the year, some EUR 2.2 billion of new money has been invested through this strategy, taking the total up by an impressive 76%. In addition, close to EUR 3 billion is in the pipeline to move into mutual funds over the next 12 months, as highlighted in the last 2 lines of Slide 6, including EUR 840 million from double chance deposits and more than EUR 2.1 billion from installment plans flows, which are building progressively. Our model continues to do what it was designed to do, make it easy for customers to invest regularly while giving the bank a more predictable flow of fee income and a more resilient revenue base. Let's move on to another key pillar of our model. Balance sheet ratios shown on Slide 7. It's a picture of strength and discipline and of continued value delivered to shareholders. Capital and liquidity remain strong and comfortably above requirements, and we further broadened and diversified our funding profile, while keeping our risk stance unchanged. Starting with profitability. ROE came in at a best-in-class 29.1%, a clear proof point of our model at work. Our CET1 ratio remained extremely robust at 23%, even after our solid shareholder distribution. In fact, at the shareholder meeting, we will propose a EUR 1.25 dividend per share, increasing 25% versus 2024. Having already paid an interim dividend of EUR 0.60 in November, this leaves a balance of EUR 0.65 to be paid in April. Let me be super clear. The EUR 1.25 we are now proposing is entirely an ordinary dividend. It comprises a base dividend of EUR 0.80 per share and an additional EUR 0.45 attributable to the exceptional contribution from nonrecurring items as well as the one-off benefit from the Mediobanca sale we executed in July. But value creation for us is not only about shareholders, it is also about the people who make these results possible every day. So alongside the shareholder distribution, every employee and every family banker across the group around 11,000 people, we received a EUR 2,000 bonus, a simple concrete way to say thank you for an outstanding year. Let's take a moment to focus on our family banker network in Italy that reached 5,148 financial advisers at the end of 2025. During the year, on top of the many new colleagues who have joined us with strong background as branch managers or customer relationship managers in other sectors, we also welcome a strong pool of young talent through the project NEXT. As you all know by now, our banking consultants are high caliber graduates. They start with a 6-month executive master at our Corporate University, earn the FAA certification and then move straight into the field, working alongside a senior private banker or wealth adviser, with their remuneration totally covered by the senior. The numbers in Slide 37, reflect the success of the project. At year-end, 590 banker consultants were already active in the network, with an additional 213 currently in training. We expect to overcome 800 by the end of 2026. This strategic initiative is already delivering. Among the 726 senior bankers who have worked with a banker consultant for at least 12 months, productivity has increased materially. They were already ahead of their peers and the lead has widened further. The advantage in managed asset inflows has increased more than ninefold from 4% to 37%. It's up around 1.3x in loans from 31% increase compared to their peers to 40% and up close to 1.8x, both in protection policies from 32% to plus 57%; and in customer acquisitions, from plus 46% to plus 81%. The trajectory is encouraging, and it's getting stronger. The network is accelerating, and we see further upside in productivity. With that in mind, let's turn to Slide 30. It tracks 5 years of productivity for the top tier of our network. 1,074 private bankers and wealth advisers measured by average assets per banker. As Slide 30 shows, average asset per banker stand at EUR 64.2 million, almost twice the industry average of EUR 34 million. And the gap has stood still. It has widened year after year not by accident. It reflects the investment and discipline we've put into upgrading our network quality and the stronger recurring revenues per banker that follow. This is an edge we build, and we see it continuing to improve. Now let's turn our attention to Spain by commenting on Slide #32. As we've seen quarter after quarter, Spain's strong volume momentum gave us the confidence to commit to a meaningful step change in scale. This came with a higher cost base, mainly due to the expansion of our platform, increased activity across the country and additional marketing spend. So the P&L impact reflects a deliberate investment to support growth and build long-term value. One important dynamic to keep in mind: net interest income was down 18% year-on-year and at the current scale of our Spain operations, higher net commission income there couldn't fully close the gap. Keep in mind that stronger commercial momentum in managed assets translated into higher incentives for our network, a natural consequence of delivering more and better business. On top of this, performance fees were materially lower than last year. Operating margin reached EUR 56.4 million, reflecting a 26% decrease compared to 2024. And net income stood at EUR 57.7 million, 29% lower, mainly due to the factors we just mentioned. As a clear sign of Spain's commercial momentum, total assets grew by 18% year-on-year approaching EUR 15.5 billion, with managed assets rising 23% to EUR 11.9 billion. Indeed, Spain delivered another strong year on net inflows, EUR 1.95 billion, jumping 30%, but the real highlight is the quality behind the number. All of it came from managed assets, with flows up an impressive 35%. That's exactly the kind of growth we want to carry forward. Turning to lending. The credit book continued to grow, reaching EUR 1.74 billion, up 17% versus 2024. Meanwhile, the number of family bankers hedged up by 2% to a total of 1,650. The key point here is the step-up in productivity over the past 5 years, mirroring what we've delivered in Italy. Average assets rose from EUR 5.5 million in 2020 to EUR 9.4 million today. Finally, our customer base in Spain expanded to 285,760 marking a meaningful 12% increase versus the previous year. Now I'd like to shift your attention to one initiative that deserves a quick spotlight. Because it's a priority, we are pushing hard. The strength of our brand, combined with the caliber of the top tier of our network, gives us a real advantage in serving the top end of the market. It allows us to focus with increasing confidence on a high wealth segment that is growing rapidly across the industry and expanding just as clearly within our own customer base, those with assets above EUR 2 million. Over time, we've been steadily strengthening our position in this space from private banking customers with EUR 500,000 to EUR 2 million of investable assets to even more so high net worth customers above EUR 2 million. And as you may recall, a few months ago, we launched our Grandi Patrimoni program, introducing a new service model built to raise the service standard where it matters most, meaning customers above EUR 2 million. In practical terms, it's built around 4 pillars: fee-based advisory models, the so-called enhanced advisory including fee over administered assets and fee-only solutions; a dedicated product set, spanning lending and wealth management; a tailored investment banking and fiduciary proposition alongside highly specialized wealth services; an enhanced coverage approach, including wealth adviser teams to bring broader expertise to customers. This is how we intend to earn more share of wallet at the top end with a service model that matches the complexity of their needs. Even though the program only launched midyear, we've already seen encouraging results in 2025. The number of high-end customers with more than EUR 2 million assets grew by 20% versus the previous year, reaching close to 4,000, and they hold a total of EUR 19.4 billion in assets, up 22%. In 2026, we will keep building on this and further scale the model. Well, to wrap up, 2025 was a year of extraordinary milestones for us. We faced challenges. We delivered and showed what excellence looks like. And we did it with the same engine we've been building for years, 45 years to be exact actually yesterday. Looking ahead, it's important to be clear of what we are aiming for in 2026. Our 2026 guidance is as follows: We expect net inflows into managed assets to be around EUR 9 billion assuming normal market conditions. We see net interest income up approximately 10% versus 2025. We are targeting a cost-to-income ratio of around 38%. We expect cost of risk to be around 20 bps. We intend to increase dividend per share versus the EUR 0.80 base dividend. The road map for the year is targeted and built around our main priorities: growth, productivity, durability and sharing the value we create. Our goal is to make it look routine even though it never is. Thank you for your time. And as always, we appreciate your continued support. Alessandra, over to you. Alessandra Lanzone: Thank you, Massimo, and we can now open the Q&A section. Operator: [Interpreted] [Operator Instructions] We'll now have the first question from Mr. Enrico Bolzoni JPMorgan. Enrico Bolzoni: [Interpreted] First question on banking fees. You had a very good print for the quarter. So I would like to understand whether you can give some more color. I believe this is due to the sale of certificates and what do you expect for the coming quarters? Maybe you can give us some color as to how they fared and they performed in January? Second question it's on fee-on-top that is, so-called unbundled model. I was reading the Assoreti reports. And apparently, they are harvesting a lot of interest. If I calculate and examine your margins, net of the commissions that are going to be remitted to consultants, your margins are quite hefty above 1%. Do you think that in a world where advisory will be more and more based on the fee-on-top top model, will be able to retain these margins because basically, you will have 1%, 1.1%, 1.2% fee that will have to be added on it. It seems rather high compared to a market like that in U.K. where commissions are already fee-only -- based on a fee-only model. Unknown Executive: Right. As far as banking service fees are concerned, in 2025, markets have performed very well. And setting aside the certificate we sold in the past upon maturity, there were many calls as well, that is certificates had already met the targets and there, they were redeemed earlier. This -- I mean, certificate that had to last 4 to 5 years, lasted 1 year, reaping an excellent result for our clients, and therefore, clients reinvested in new certificates. Enrico Bolzoni: What can we expect for 2026? Unknown Executive: It really depends on how markets will perform. If markets will keep rising, many certificates will be redeemed earlier and therefore, we are going to see reinvestments. If markets will instead remain flat or trend down, there will be no early redemptions, there are going to be the normal maturities and the normal operations and trades. But we don't have only certificates in this figure, we have [ monetics ], we have bank account fees. There are many, many items under this line item. So if the markets are fair, well, we can expect this item to grow next year. If markets sort of slug around, probably this line item will remain flat. Other fees and commissions will increase and maybe fees and commissions generated by certificates remain flat or slightly dip. Having said this, if I don't sell certificates, I'm going to sell funds or unit-linked. Yes, there's an impact on the P&L because the certificates are upfront, whereas the others are ongoing in terms of recognition. But what is important is to have managed assets. As far as the fee on top issue is concerned, this advisory model most likely is going to be rolled over on high net worth individuals, as we can see on the market. On high net worth individuals already today, we obtained lower commissions because on high net worth individuals, we have a higher number of third-party funds, and therefore, this means a lower margin for Banca Mediolanum. Talk about my life policies, the unit-linked policies that then as an underlying have a number of own funds or third-party funds that family bankers can enter in the -- as an underlying. A normal my life have safeguard and monitoring fee equal to 1.75%. If the investment is above EUR 1 million, the commission goes down to 1.25%. If it's more than EUR 5 million being invested, it goes down to 1%. And the mix and the underlying mix changes because we go from a higher percentage of own funds to a higher percentage of third-party funds, and therefore, margins change accordingly for us and for family bankers as a consequence. So if we take the average sort of rule of thumb calculation, this commission payment model devoted to high net worth individuals is going to weigh on the commission average we receive. But we have to really take another view. If I don't introduce this type of commission model, I may lose some market share. So my margins will remain higher, but on a much lower asset volume, a much smaller asset volume. Having said so, not only will we acquire top clients with lower margins, thanks to the Grandi Patrimoni program. But we will keep on acquiring upper mass and affluent clients who are going to invest in classical managed assets with the product we know. We will keep on working on both the fronts trying to constantly growing our masses, providing the right service at the right price to the different client segments. Operator: The next question comes from the line of Luigi De Bellis, Equita SIM. Luigi De Bellis: [Interpreted] The first is on the 2026 guidance on the managed asset -- well, net inflows into managed assets. What other volumes did you expect to have in the next 12 months and that will be turned into managed assets? And what is the trend in this January of net inflows into managed assets? And then the NII growing about 10%. Can you remind us of the assumptions, Euribor assumptions, growth of value deposit and growth of the banking portfolio -- or sorry, the loan portfolio? Massimo Doris: As to the first question, we have about EUR 3 million between installment -- EUR 3 billion between installment plans and double chance. And in the next 12 months, over 2026, they will go from deposits or bank accounts to managed assets. So we already have EUR 3 billion worth of gross managed inflows so to say, but EUR 3 billion, nonetheless. And the IIS, we have EUR 5 billion in monetary funds that are tied in with the Intelligent Investment Strategy service are already part of the net managed inflow. So the shift of transfer of about EUR 1.5 billion with market markets being as they are now because, of course, if markets go down, there's a shift between money funds to equity funds. So with things standing still, we would have EUR 1.5 billion going from money funds to equity-based funds. But from the point of view of managed assets, the impact is 0 because the money funds, the money market fund is already considered to be managed assets. So -- and we would go from 1 to 1.25 recurring fees. So that would be a very limited impact. As to the NII, the Euribor assumptions, let me get it for you. The average Euribor assumption is 1.95 at a steady state, 3 months Euribor as well. And then why do we foresee assume growth volumes first and foremost, because we assume there will be growing volumes where the inflows that goes to bank accounts at 0 cost. And this 10% growth implies and includes 2 initiatives. One is ongoing already at 3% today. And the next initiative will be in the second half of this year with propositions where the cost of inflow will have -- of funding, sorry, the cost of funding will have a major impact. So there should be an increase in volumes in bank accounts where we have 0 interest applied. And then, of course, there will be increase in volumes also in loans as well and mortgages. And then the cost of funding comparing 2026 to 2025. In 2026, we expect a lower cost of funding because in 2025, for instance, in the first half or first part of 2025, we had the offering on 6-month deposits that have been launched in September, October in Q4 2025, where we were granting 5%. So in the first part of 2025, we paid 5% interest on time deposits, now we are paying 3% on time deposits. So -- and then it went down to 4%, et cetera. So low cost of funding, as I was saying, and higher volumes. That's our assumption to get to the plus 10% that we are assuming. Operator: Next question comes from Alberto Villa, Intermonte SIM. Alberto Villa: [Interpreted] Congratulations for your results. I really would like to talk about the competitive scenario. Yesterday, we heard the presentation of Intesa's presentation. This bank has been focusing for a long time on distribution and asset management, they're also trying to grow through Banca de territory, converting their distribution network also from this point of view. So generally speaking, is this focus that all banks are showing on asset management, something that can somehow affect more specialized players as you rightly are? And do you believe that the growth opportunities will still remain significant considering that Intesa is quite aggressive also in terms of recruiting. Do you think that you might have a stronger churn rate in the future or are you quite carefree? Back to the net interest income. Can you give an idea of volumes, a guidance with respect to volumes are concerned to concerning loans. Loans have been growing above average. Do you think that you still have a significant growth opportunity ahead from this point of view? Unknown Executive: You're talking about loans alone? or are you talking about loans, mortgages, you mean the entire lending volume? Alberto Villa: Yes, total figure. Unknown Executive: Let me answer to your first question first regarding networks. Now first of all, large banks, creditor talked about this, Massimo said this as well. In Italy, they already have Fideuram. If I got it right it was really more focused on international banks. But really, this is not that important. But if everybody wants to develop their networks, it means they are working well and they have a future because otherwise, they would not be investing in their network development. They probably acknowledge the fact that this trend is keeping up that is traditional banks based on [indiscernible] statistics. Traditional banks in 2010 had a market share of 72% with respect to Italian financial assets. Networks had 9% -- held a 9%. At the end of 2025, traditional bank went from 72% to 59% give or take and networks went from 9% to 21%. The difference is made by Poste and insurance companies, Poste Italiane 14%; and insurance companies around 5%. So this constant trend from 72% to 59% decrease from traditional banks. And the increase from 9% to 21% by networks, the fact that traditional banks want to invest on networks is rather comprehensible. I said 14% for Poste, it's 15% and then we don't see the insurance companies, but it's 5%. So it's quite natural and -- that they want to invest. What I'm worried about -- I mean, am I worried? Honestly, no, I'm not. It's not that I don't care or I don't pay attention. Of course, I do track what my peers do. They are managed by smart people, I'm not going to underestimate that. But I also take into consideration our capability of acquiring new clients of growing our network and managing our network. We've been doing that for 44 years, as Banca Mediolanum. My father did that even before that for a longer time. So let me say we've been piling up quite a long experience. As far as loans are concerned, we believe that loans granted could increase by 5% and then you see the trend. Alberto Villa: If I may ask a question. In the next 5 years, the percentages you illustrated, how may they change between banks and networks? Is there still room for growth? Unknown Executive: Yes, I saw a projection where the movement is 1% per year. 1% shared by traditional banks and taken over by networks. But take into consideration that, that is the total figure in your -- when you ask your questions, you mentioned Intesa. Intesa is part of the 59.2%. The 1% they are going to shed -- also Intesa might shed a little bit of that 1% or maybe Intesa is going to grow that number, and that will be eroded from some other bank. But the same goes for networks as well. Some will lose and some will earn market shares. Second thing is that these are percentages. But take a look at the bar chart below. These are Italian's financial assets that are on an upward trend. 59.2% out of 4,000 billion is more than 73% of 2,700. So in absolute terms, assets have increased with respect to inflows that have been reaped by banks. But the pie is getting larger. And, I mean, the mix changes, but the pie is growing. Operator: The next question comes from the line of Elena Perini with Intesa Sanpaolo. Elena Perini: [Interpreted] As far as I'm concerned, I would like to ask the following. I have questions on admin expenses. You were heading for cost-to-income lending at 38%. But as far as year-on-year growth is concerned, I'm talking about costs, of course, what is your assumption? And then the second question is on loans, you are granting and then you will be granting going forward for artificial intelligence, how does artificial intelligence come into play in your business proposition going forward? And then another question on your dividend. You always refer back to your base dividend, and this year, you stated it's EUR 0.80. I would say that right now, we're just thinking of a growth trend, taking this line item as a reference, considering your CET1 ratio, which is very, very sound, by the way, I think market expectations are for growth on this base dividend, a major or a material growth in your base dividend now and in the coming years. I know that you want to be above 22% in your CET1 ratio. Could you elaborate on that? Well, capital and dividends? Unknown Executive: [Interpreted] Well, as far as cost -- the cost income ratio is concerned, we gave around 38% as guidance. So that means well, general costs, overhead cost is 8% to 9%, should be around 8% to 9% higher. And please correct me if I'm wrong, I'm speaking to my coworkers, of course, as far as artificial intelligence is concerned, we are investing in it. And we, too, of course, are. And we are doing so for our back office, for instance, in managing mortgages, for instance. When we look into the full documentation being provided for the granting of a mortgage, of course, you need people reading papers, documents, making sure all the documents are being provided. And sometimes, depending on what the document states, more information is requested. So there are many people working on that and a lot of time being allotted to that process to, of course, process the individual sites. We are testing artificial intelligence for that. Just to give you an example, there are many of them. And time is really cut because artificial intelligence looks into documents much faster and with the level of accuracy which is quite high, by the way. And right now, we are in a test phase because these documents are then also still edited and revised by people. But by year-end, I think it will be used most extensively, more extensively at least. We are using AI for that, and we are also using that in the tools that are made available to our family bankers because they have a huge amount of info that they have to process. But of course, first and foremost, we have to retrieve info, be aware that the info is available and then use info in the correct way, use data in the right way. And there too, artificial intelligence can really help our family bankers not only to have data, more accurate data available in a faster way, but also to have and get suggestions and prompts from the system telling them you did this for this type of customer, why don't you do the same for this other cluster of customers that might need the same things. And so we are investing heavily along those lines. Let me say, dividend -- base dividend. I am the first to hope, of course, as I'm a shareholder, there's conflict of interest they are telling me here. Other times, we have mentioned this. Elena, you mentioned that we have a CET1 that is very, very sound. And I'm confirming that. But let me remind you that a bank has a lot of obligations. So it's not just CET1, that's the ratio we have to bear in mind. There are a number of other things that have to be taken into account. MREL ratio, for instance, the request made by the Single Resolution Board, and we are around 22% as far as the request from that regulator is concerned. And then the capital bank holds is also has an impact on other ratios. It could be interest rate risk of a possible change or delta in the NII. CET1 -- focusing on CET1 alone may lead to drawing maybe the wrong conclusions. Having said that, the EUR 0.80 we are currently offering it's about EUR 600 million of distributed dividend or paid out dividend. So when we suggest that going forward for next year, we're thinking of paying out slightly more than EUR 0.80, we always refer to a performance that does not include one-off effects if we consider performance fees and tax refunds, our profit was very close to EUR 1 billion so already paying out 60%, 70% of one's profit every year and still growing at a constant rate at a steady state with all the objectives and goals we have to grow and as your colleague said before with your question, also lending wise, we expect a 5% growth on stock and another 5% on the granted loans. So we think we are providing the right information by taking into account all of these factors. And as the CEO said, if results, if the performance during the year, as we had last year, we had a base of EUR 0.75, and we distributed EUR 1, thanks to performance fees. And so we had one-offs to be taken into account also on the EUR 0.80 we're paying out now. So it's EUR 1.25 -- EUR 1.25 that we're paying out. We want to be sound in our positions when it comes to the capital ratios as well. And let me remind you that in 2022, we had about EUR 0.50 of base dividends. And in 2023, we moved to EUR 0.70. So it was a major leap. And then we went from EUR 0.70 to EUR 0.80. Next year, what will it be? We'll see. Let's wait and see depending on how we perform over the year, and we'll make a decision on it, but it might be another good leap. It's according to me, it's useless to have a leap in our base dividend of another EUR 0.10 per share to then, of course, the following year and then go from EUR 0.80 to EUR 0.90, then the following year do EUR 0.91 because we are still getting very close to the limit, so to say. So the base dividend according to us must be something where we are really confident we're not going back on the contrary that we can move forward upon. And as we said this year and for last year as well and a few years before, but let's say, let's focus on this year and last year. If there are special situations and the markets are helping us, and we get one-off revenues, so to say, we will pay them out, distribute them as we have done in the past. Alessandra Lanzone: We'll now take the next question from Mr. Giovanni Razzoli, Deutsche Bank. Giovanni Razzoli: [Interpreted] I have 3 questions. Can you give us an indication of the Grandi Patrimoni program scope? How many clients have already been included in this initiative? In the third quarter, you talked about BTPs that were going to expire in 2025 in the second half of the year, and they would have been renewed at higher rates. Can you tell us how many BTPs are going to expire in 2026 and if you're going to have the same effect? Last question, do you still have funds that are under the high watermark? And if you can give us a percentage because this would give us a greater visibility on performance fees considering the market performance. Massimo Doris: [Interpreted] The current -- the customers that could be interested in Grandi Patrimoni are more or less 4,000 clients and it is more than 2 million invested with us right now. This is what we already have, but the objective is not so much that of asking these clients to invest even more, which we'll be willing to accept if they are investing also with other peers. But the main target is to acquire more clients. But we already have 4,000 potential clients. As far as BTPs are concerned, in 2026, we have EUR 3.8 billion maturing, but BTP is only EUR 150 million. So the BTP maturity is really very limited, EUR 1.5 billion worth of CCTs and the rest is securities from other countries that were purchased. These are fixed rate securities that were purchased in previous years in terms of diversification. Giovanni Razzoli: [Interpreted] What is the yield of these maturing securities? Angelo Lietti: [Interpreted] The yield goes from 2.7% to 2.9%. This is more or less the yield from 2.7% to 2.9%. I'm talking about the bonds that are going to expire in 2026 because most of these government bonds were purchased a couple of years ago when we started to diversify between Italy and Europe. So yields are still more or less the same. As to maturities and the renewal, once they mature, I believe that we will get close to these yields. There will -- we will see no true upgrade, but we'll maintain the yield, the return we get from these securities stable. As to funds, on December 31, we had 5 funds that were below the high watermark with a total NAV of EUR 4 billion. Alessandra Lanzone: Next question from the line, Gian Luca Ferrari with Mediobanca. Gian Ferrari: [Interpreted] I have 3 questions. The first one is about the backdrop. We read about -- we've seen that there are trends to transfer wealth from one generation to another, EUR 100 billion from now to 2023. Do you think your advisory will change its nature to follow that trend? Will you adjust that to keep up with the trend? And second question on the ETFs. There's a lot of impact of passive managers. Have you changed your approach? Or are you going to have ETFs with active management, active ETFs? Are you going to create your own? And as another question, the introduction of value for money in your retail investment strategy bundle. Can you give us an update on that? Massimo Doris: [Interpreted] As to the first question, well, generational shifts, there will be a change in generations indeed. But I don't think there'll be any radical changes, so to say, any deep-rooted changes. But savers will -- well, they will have to find a banker, a consultant that will speak the very same language. We have our next project. Project Next enables us to be very well positioned to keep up with that generation shift. By year-end, we expect to have 800 of these banker consultants. They are aged between 25 and 26 on average. And when they join the network, they are even 24, 25. Some of them have been in the network in the Next program for a few years now. So maybe they are older than 25 or 26. But out of the 600 we already have, they are not older than 26 years of age on average. So if these are the people who will get in touch with the next generation, the sons and daughters of our own clients. So they will grow together. So we think this is one of the keys so that when money -- when the wealth goes from one generation to another, we are still -- we are already there with the client, and we already have a relationship with the person receiving the wealth and not starting the relationship at that very moment that is when they receive the wealth ETFs. They are more and more used. Yes, that's true indeed. Let us remember that one thing is looking at figures or data in absolute terms and something totally different is looking at things from a relative perspective, looking at percentages rather than individual data. ETFs does not necessarily imply lower commissions or fees. ETFs are not sold directly, but they are -- indeed, we are also selling them directly. But normally, they are included in asset management products. As of last year, we have a line for wealth management that can be done exclusively in ETFs. Of course, it is devoted to our top-tier clients, but it's not -- we're not focusing on the margin that we would get by selling an ETF. It's much -- something much more material. Do I think there'll be more use? Yes, I think there'll be more use, but that won't mean that's the end of investment funds. Are we going to create and issue our own ETFs? It's -- we're not planning it yet, but I'm not ruling it out. It's something that we are thinking about. We are focusing on if and when we'll do that remains to be seen, but it's not something we are ruling out as such. And as far as value for money, there are -- we started from MiFID I, then MiFID II and all the different interpretations of the different regulations that are being applied. Sometimes interpretations are different from country to country. They could be more or less restrictive. Sometimes, they start from ideas and concepts that may seem meaningful, but then in practice, they could not be, they cannot be applied. Having said that, let me say that at the end of the day, if you provide a good service to your clients, and by service to one client, it's not just a matter of money, what they can earn with the service or we can earn with the service. Let me quote a survey we did quite a few years ago. We looked into customer satisfaction. And we tried to understand if customer satisfaction was more tied in with the actual performance of the investment or something else as well. And what we had realized and noticed is that the most satisfied customers were the ones that had a higher frequency of contact or being in touch with a family banker. If the market is not faring well, clients that have a high frequency in getting in touch with family bankers and are therefore aware of what is happening in the market. They've discussed -- they've looked into asset allocation and possible modifications of it. So the client is fully aware of what is happening. That equals a satisfied customers, say, growing markets, markets that are improving, that are -- but they're not seeing their family bankers. There's a performance, but the client has no idea if something has to be changed in the portfolio, they have to sell, they have to buy something more. And that equals an unsatisfied or dissatisfied customer. And -- but this regulation or the trend only looks at returns, but there's a missing chunk that has to be taken into account, too. And I'm sure that if we work well with our clients, no matter or regardless what regulations impose or provide, they will not have an impact on the customer satisfaction because this regulation does not only apply to Banca Mediolanum, but to the full -- the entire market. And if we're going uphill, we're all going uphill. It's enough for you to run a little faster than the others and you're running first, even though you're being -- even though it's a slower run because of the market conditions. Alessandra Lanzone: The next question comes from Adele Palama Hama, UBS. Adele Palama: [Interpreted] I have 3 questions. First one on NII and the NII guidance, in particular, the lending stock increase. You talked about a 5% increase in loan stock being the assumption. If I actually make a calculation, the loan book increased by 8%. So the 5% refers to the retail loan book. And if so, why do you expect to have a lower growth rate than the one you reported this year? I don't know whether this is a matter of mix. Then second question, again, has to do with NII. Can you clarify your customer interest income or loan yield. This quarter, it went up to 3.36% from 2.20%. How is it you had this increase in gross yield? Because the cost of funding declined with respect to deposit promotions, but I don't understand how you got to this yield increase quarter-on-quarter. Then guidance with respect to inflows how much more for maneuver do you have to improve from the EUR 9 billion amount that you reported? Because actually, there is an 8% compared to the initial stock compared to the one you reported this year, which was 9%. Massimo Doris: [Interpreted] If you can show the chart with the bars -- I mean, the bar chart to make it simple. I will answer to the first question on NII guidance and loans. Between 2024 and 2025, we have reported a significant increase. That was actually an important leap because rates had gone down, and therefore, there was a higher demand. Rates are going to remain stable, most likely. So this jolt, if you want, if we take a look at the trend in -- I mean, if you compare 2023 to 2022, there is a EUR 0.5 billion increase. 2024 over 2023, again, EUR 0.5 billion, more or less EUR 600 million. 2025 compared to 2024, it increased by EUR 1.3 billion basically, EUR 1.4 billion almost. So there has been a strong acceleration that was driven by interest rate decline, which according to projections is not going to take place in 2026. Should they decline by 1%, we would see an even greater momentum, an even greater boost. But since interest rates are possibly are going to remain stable, growth is going to be standard. Really, 2025 was a sort of one-off because it was really pushed by interest rate performance. Angelo Lietti: [Interpreted] I was not clear. Granted loans of the year compared to the previous year increased by 10%. So you have to see the growth comparison in terms of granted loans. If the stock increases, also the repayment and the actual mass increases. So it's obvious that you will have this type of dynamic. I'm not saying that we are not going to see an increase in loans granted. It's going to be plus 10%. Loans granted '25 over '23 grew even more from EUR 3 billion, it went up to EUR 4 billion, driven by interest rates and it reflects on total amount. And then as far as NII is concerned, in the last quarter, Euribor on mortgages increased. And this is why we had this increase on -- referring to the spread. This is why we reported this increase. Massimo Doris: [Interpreted] And then, of course, there is an additional effect clients entering -- taking mortgages with us can skip a certain number of payments at no cost. When interest rates were high, many clients decided to take advantage of this option, and they would skip and defer certain payments. If the client does not pay a given payment, we are not going to earn the interest, and this is an impact on NII. Since rates have stabilized, many clients opted in and especially in the last quarter, and this had a good positive impact on interest income for the bank. And then EUR 9 billion in terms of managed assets, will it be possible to improve this? First of all, this was a blockbuster result. Can we do even better? Yes, if the market goes up 20%, most likely, we might even improve and exceed the EUR 9 billion, which I hope will be so. If the market were to remain flat, keeping the EUR 9 billion will be a hefty battle. If the market is going to go down 20%, we will never make it up to EUR 9 billion because it will be more difficult to retain the assets of our clients and to acquire new clients. This holds true not only for Banca Mediolanum, but for the market at large. For example, on this slide, you see that in 2022, we reached more or less EUR 6 billion worth of net inflows in assets under management. 2025 was a difficult year because both fixed income and equity markets went down. All asset classes went down. And in 2023 -- sorry, I was talking about 2023 and not 2025. All clients were looking at their results, and they were reporting losses. So 2023 was a very, very tough year for the entire sector. I remember that back then, Assogestioni, when analyzing the retail market, they reported net outflows of EUR 22 billion. If I remember correctly, Assoreti reported EUR 6 billion worth of net inflows, 5% of which were retail Banca Mediolanum. Now you saw 4 there. I talked about 3 because Assoreti does not include Spain on the one hand and then also because certain products such as certificates are being classified under different line items, not only for us, but for everybody. This means that we went from EUR 6 billion to EUR 4 billion because of the rough market, but those 4 accounted for half of the entire market inflows, plus EUR 4 billion net inflows compared to EUR 22 billion worth of outflows for the entire market. So was that a bad year? From my point of view, that was a great year because we have increased our market share quite a lot, even though we slowed down because it was really, really uphill. The slope was steep. Alessandra Lanzone: There are no more questions. Let me now turn the conference to the English channel. Operator: [Operator Instructions] There are no questions on the English line at this time. I would like to hand back over to the Italian line. We have no more questions in the Italian conference. Let me hand it over to Mrs. Lanzone for the closing of the conference call. Alessandra Lanzone: Thank you very much. I'd like to thank all of you for joining us. [Statements in English on this transcript were spoken by an interpreter present on the live call.]
Operator: Greetings, and welcome to the Emerson Electric Co. First Quarter 2026 Earnings Conference Call. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Doug Ashby, Director of Investor Relations. Thank you. You may begin. Doug Ashby: Good afternoon, and thank you for joining Emerson Electric Co.'s first quarter 2026 Earnings Conference Call. For those who do not know me, my name is Doug Ashby, and I am the Director of Investor Relations for Emerson Electric Co. Today, I am joined by Emerson Electric Co.'s President and Chief Executive Officer, Surendralal Karsanbhai, Chief Financial Officer, Michael Baughman, and Chief Operating Officer, Ram Krishnan. As always, I encourage everyone to follow along with the slide presentation, which is available on our website. Please turn to Slide two. The presentation may include forward-looking statements, which contain a degree of business risk and uncertainty. Please take time to read the Safe Harbor statement and note on the non-GAAP measures. I will now pass the call over to Emerson Electric Co.'s President and CEO, Surendralal Karsanbhai, for his opening remarks. Surendralal Karsanbhai: Thank you, Doug, and good afternoon, everyone. Thursday, February 5, marks my fifth anniversary as Chief Executive of Emerson Electric Co. Over the five years, I have found the work challenging, motivating, and rewarding. The execution of our vision to transform Emerson Electric Co. into the world's leading automation company has been incredibly gratifying. We aligned the company to important secular drivers, which will experience outsized growth well into the future. Our customer engagement teams now deliver an unequaled software-enabled technology stack to solve the industry's biggest challenges. I am surrounded by the best management team in industrial tech and by 70,000 talented, engaged colleagues all around the world. The Emerson Electric Co. management system will enable best-in-class execution led by growth, earnings, cash, and resulting in differentiated value creation. I remain ever grateful to Emerson Electric Co.'s Board of Directors, employees, and investors for their trust and support. Please turn to Slide three. In November, we hosted our first investor conference since completing our transformation. It was energizing to present Emerson Electric Co. as the global automation leader, executing on our vision to engineer the autonomous future. In addition to highlighting our technology advancements and innovation, we introduced our value creation framework, which guides how we operate the company. Beginning with organic growth, Emerson Electric Co.'s automation portfolio is aligned to powerful secular tailwinds: electrification, energy security, near-shoring, and sovereign self-sufficiency. We expect these to drive growth over the next three years and beyond. We are also delivering innovation that enables customers to unlock significant value from automation. Operational excellence is a hallmark of Emerson Electric Co., and we have plans to further expand adjusted segment EBITDA margins by 240 basis points by 2028. Importantly, we plan to return $10 billion or 70% of cumulative cash to shareholders through $6 billion of share repurchase and $4 billion of dividend payout. We remain confident in achieving our 2028 targets: the $21 billion top line, 40% incrementals that delivered a 30% adjusted segment EBITDA margin, $8 of adjusted EPS, and a 20% free cash flow margin. We believe this is a highly differentiated value creation framework, and we are excited for the future of Emerson Electric Co. Please turn to Slide four. 2026 marks the fiftieth anniversary of National Instruments, which was founded in Austin, Texas, in 1976 by James Truchard, Jeff Kodowski, and Bill Nolan. The trio was frustrated by the inefficient tools they encountered while working in a test lab at the University of Texas and believed connecting instruments to a computer could revolutionize electronic test and measurement. They developed LabVIEW while working out of Truchard's garage, and since its release in 1986, LabVIEW has redefined productivity and engineering workflows through software-defined test. Today, Emerson Electric Co.'s NI is the leader in test automation systems, and two recent developments demonstrate how Emerson Electric Co. is still driving tests forward through software. In January, our Nigel AI advisor was one of 13 products recognized as a 2025 product of the year by electronic product design and test. This UK-based trade publication focuses on electronic test validation and manufacturing, and their annual list highlights products that use innovation to achieve even greater levels of performance. Nigel provides intelligent workflows with AI-driven test design and orchestration to accelerate troubleshooting, optimize lab performance, and enhance decision-making. This award demonstrates Emerson Electric Co.'s leadership in AI-enabled test automation and reflects continued momentum as we move the industry towards autonomous test operations. Nigel.ai is purpose-built to support specific tasks engineers face throughout the different stages of the product life cycle. Today, Emerson Electric Co. released the next generation of Nigel.ai, strengthening our capabilities in AI-enabled test. These upgrades deliver step-changing performance by moving Nigel.ai from an AI assistant to an AI author, accelerating code development to make engineering workflows more efficient from design and validation through production. Processes that previously took hours can now be completed in minutes. For our customers, this means engineers spend less time navigating tasks and more time focused on improving test outcomes. This evolution marks a clear step along our roadmap towards AgenTeq AI, software increasingly enhances productivity, and we are seeing accelerated user adoption of LabVIEW since the first launch of Nigel in 2025. Please turn to Slide five. Robust demand continued in the first quarter, with underlying orders growth of 9%. Customers are deploying capital in longer cycle projects in our growth verticals, with momentum building in North America, India, and The Middle East and Africa. I will discuss more details on demand on the next slide. Emerson Electric Co.'s first quarter results reflect disciplined execution. Underlying sales met expectations and were up 2% year over year. Momentum continued in Test and Measurement, up 11% year over year, and our 20%, driven by the secular demand for power. Profitability exceeded expectations with an adjusted segment EBITDA margin of 27.7% and adjusted earnings per share of $1.46. Annual contract value of our software grew 9% year over year and ended the quarter at $1.6 billion. We remain confident in our plans for 2026, supported by a good start to the year and our proven track record of operational excellence. We are reiterating our guidance of 5.5% sales growth, 4% underlying sales growth, and an adjusted segment EBITDA margin of approximately 28%. We are also raising the bottom and midpoint of our adjusted EPS guide and now expect $6.4 to $6.55 per share. Emerson Electric Co. completed $250 million of share repurchase in the first quarter, and we are committed to our plans to return approximately $2.2 billion of capital to shareholders. Finally, I want to highlight multiple key developments in technology and innovation at Emerson Electric Co. In January, Emerson Electric Co. was named the 2026 Industrial IoT Company of the Year by IoT Breakthrough, marking the fourth time in the past five years we have received this recognition. Over 4,000 companies were nominated globally for the 2026 competition, and Emerson Electric Co. was selected for having the most complete industrial IoT technology stack. Additionally, we released DeltaV version 16, which advances our software-defined automation vision and is an integral piece of our enterprise operations platform. With flexible architecture and enterprise integration, DeltaV version 16 empowers customers to make smarter decisions by improving access and providing context to operational data to facilitate advanced analytics and AI optimization. Lastly, we strengthened our leadership position in life sciences through a strategic collaboration with Roche, underscoring how Emerson Electric Co. software dramatically improves and shortens the technology transfer process. The new DeltaV modality library enables life science customers to efficiently design, scale, and deploy new production processes with prebuilt and proven solutions that save months of development. Please turn to Slide six. Underlying orders were up 9%, marking four consecutive quarters of strong order growth. Breaking twelve-month orders are up 6%, providing the backlog to support sales in 2026 and into 2027. North America, India, and The Middle East and Africa continue to show robust demand, while we are seeing ongoing softness in Europe and China. Orders growth was most pronounced in our Software and Systems group, which was up 23% year over year. Broad-based strength in Test and Measurement drove orders growth of 20%, led by semiconductor, aerospace and defense, and the portfolio business. AI and digital transformation of manufacturing are leading customers to deploy significant capital towards greenfield and modernization projects for power generation, especially in The U.S. Orders in our Ovation business were up 74%, driven by large project wins, including behind-the-meter data centers and fleet modernizations for major utility customers. We expect growth in the mid-teens for the year. We are also seeing healthy investments in grid digitization with ACB and AspenTech's digital grid management suite up 25% year over year. Secular tailwinds are driving substantial long-cycle project activity, and Emerson Electric Co. won approximately $450 million of automation content from our project funnel in the quarter. 80% of these wins came from our growth verticals, led by power and LNG. Our funnel remains at $11.1 billion, replenished by new opportunities in our growth verticals, and I want to highlight a few projects that support our confidence in continuing to win at high rates. First, Emerson Electric Co. was chosen to automate on-site power generation for a new 1.7 gigawatt AI data center in The United States, helping to meet accelerated deployment timelines and mission-critical reliability. The project will leverage proven behind-the-meter power generation management software as part of the Ovation platform, enabling faster time to market for the customer. Emerson Electric Co.'s recently announced strategic collaboration with Prevalon Energy played an instrumental role in our selection for this project, as the collaboration brings together Emerson Electric Co.'s automation and control expertise with advanced energy storage to help data center operators improve reliance, resilience, reliability, and efficiency in increasingly power-constrained environments. Next, Emerson Electric Co. was selected for Sempra Infrastructure's Port Arthur LNG Phase two project, which will add 13 million tonnes per annum in capacity to The U.S. Gulf Coast facility. Emerson Electric Co.'s DeltaV control system and severe service control valves were chosen based upon our reputation for strong operational performance in LNG applications and our local presence and support. Lastly, Emerson Electric Co. won projects at multiple large new space customers. It will help develop, test, and validate complex communication links for their satellite-based programs to provide reliable, high-speed Internet around the world. The customers will use NI's leading test and PXI platform, which were selected due to their superior performance in reducing test times while providing best-in-class measurement accuracy. I will now turn the call over to Michael Baughman to discuss our results and 2026 guidance in more detail. Michael Baughman: Thanks, Surendralal. Please turn to Slide seven for a more in-depth look at our Q1 financial results. As a reminder, our first half financial results are adversely affected by a software contract renewal dynamic that we detailed in our November earnings call. This impacted our Q1 year-over-year sales growth by approximately one percentage point, adjusted segment EBITDA margin expansion by 70 basis points, and earnings per share growth by $0.06. For Q1, and including the one-point drag, underlying sales growth was 2% with all segments reporting growth. Growth was led by software and systems, which was up 36% without the software contract renewal dynamic, while Intelligent Devices grew 2% and Safety and Productivity was up 1%. I will provide more details on geographic and group performance on the next two slides. Price contributed three points to growth as expected. MRO for the company represented 65% of sales. Our backlog ended the quarter at $7.9 billion, up 9% year over year, and our book-to-bill was 1.13. Adjusted segment EBITDA margin of 27.7% came in above expectations. Favorable price cost and cost reductions, including synergies, outpaced inflation to benefit margin. Excluding the 70 basis point impact from the software dynamic, adjusted segment EBITDA margin was up 40 basis points. Adjusted earnings per share came in at $1.46, a 6% increase year over year. Q1 free cash flow of $202 million with a margin of 14% came in slightly better than expected, positioning us well for our expected full-year growth of approximately 10% at greater than 18% margin. Overall, Q1 was a very good start to 2026. Please turn to Slide eight for details on Q1 underlying sales by region. As expected, underlying sales were strongest in The U.S. and The Middle East and Africa, while China remained soft. The Americas were up 3%, and The U.S. remained strong, up 6% with sustained momentum in power and LNG while also benefiting from near-shoring with expansions in life sciences and semiconductor. North America's pace of business remained healthy with resilient MRO spend. Europe was up 3%, benefiting from the timing of projects in Eastern Europe, although the overall pace of business was subdued. 9% growth in The Middle East and Africa was driven by greenfield project activity. We are seeing broad-based momentum in our growth verticals, which collectively were up 14%. Power led the strength, up 17% with elevated activity across lifetime extensions, upgrades, and greenfield projects to support the unprecedented increase in electricity demand. Life Sciences also provided significant growth driven by GLP-one demand with greenfield and modernization products to support near-shoring and self-sufficiency in multiple regions. Ongoing strength in North America and The Middle East, as well as our growth verticals and sustained demand for automation, give us confidence in our full-year outlook. Please turn to Slide nine for details on sales and margin performance for our three business groups. Software and Systems underlying sales growth of 3% was led by broad-based strength in Test and Measurement, which was up 11% and helped offset a three-point drag from the software contract renewal dynamic in Q1. We saw significant growth in power, life sciences, semiconductor, and aerospace and defense. Software and Systems margin of 31.3% increased 20 basis points year over year, driven by strong profitability from Test and Measurement and the benefit of synergies offsetting a two-point headwind from the software contract renewal dynamic. Intelligent Devices underlying sales growth of 2% was led by Power, LNG, and North America MRO, offset by weakness in China. The pace of business in Europe and China was light, although Q1 growth in Europe benefited from the timing of projects. Intelligent Devices margin of 26.9% decreased by 70 basis points year over year, driven primarily by mix and headwinds from FX due to a favorable impact last year. Safety and Productivity was up 1% underlying, driven by electrical products and stable project activity in North America, while European markets remain soft. Safety and Productivity's margin of 20.9% was down 40 basis points year over year due to lower volume offset by benefits from price and cost reductions. Please turn to Slide 10, where I will bridge Q1 adjusted EPS from the prior year. Excluding the $0.06 impact of software renewals, operations delivered $0.10 of incremental EPS in Q1. Software and Systems contributed $0.08, reflecting strong operational execution, and Intelligent Devices added $0.02. Non-operating items added $0.04 from share count and tax rate benefits. Overall, adjusted EPS grew 6% year on year to $1.46. Please turn to Slide 11 for an overview of our Q2 and full-year 2026 guidance. We are reiterating our full-year guidance for sales, adjusted segment EBITDA margin, and free cash flow. We are raising the bottom and midpoint of our 2026 adjusted EPS guide and now expect $6.4 to $6.55. We still expect to return approximately $2.2 billion to shareholders through $1.2 billion in dividends and $1 billion of share repurchase, of which we completed $250 million in Q1. Turning to the second quarter, sales growth is expected to be 3% to 4% with underlying sales growth of 1% to 2%. We expect adjusted segment EBITDA margin of approximately 27% and adjusted EPS of $1.5 to $1.55. I will provide additional details on guidance in the following two slides. Please turn to Slide 12 for our 2026 group underlying sales guidance. We expect Software and Systems to be flat in Q2 and up 4% for the full year. Test and Measurement is planned to have high single-digit growth in both Q2 and the full year, while the Control Systems and Software segment is expected to be down low single digits in Q2 due to a $65 million headwind from the timing of software contract renewals. As a reminder, this accounting dynamic adversely affects GAAP revenues by $110 million in the first half and $120 million for the full year. We continue to see robust adoption of our software and expect ACV to grow 10% plus in 2026. Intelligent Devices is projected to grow 2% to 3% in Q2 and 4% for the full year, with stable MRO led by strength in North America. Second-half growth is supported by backlog phasing and the timing of project shipments. Safety and Productivity is expected to grow 1% to 2% in Q2 and 2% to 3% for the full year. Growth is driven by North American markets and electric and utility strength, but offset by continuing weakness in European markets. Overall, Emerson Electric Co. expects to grow 1% to 2% in Q2 and approximately 4% for the full year. The second-half growth acceleration to approximately 6% is supported by our strong orders momentum and lapping of the software contract renewal dynamic. Excluding the impact of software contract renewals, Emerson Electric Co.'s growth rate is expected to be 3% to 4% for Q2 and 5% for the full year. Please turn to Slide 13 for additional detail on adjusted segment EBITDA margin and EPS guidance. For Q2 2026, we expect operations to contribute around $0.05 to EPS with another $0.09 from non-operating items, primarily off FX, to offset a $0.09 impact from the software contract renewal dynamic. As a reminder, Q2 2025 adjusted EPS of $1.48 benefited from about $0.04 from the Total Energy's project that we discussed in our Q2 2025 earnings call. The lower volume from renewals in the Total Energy Energies deal impacts Emerson Electric Co.'s adjusted segment EBITDA margin by approximately 150 basis points compared to Q2 2025. We are guiding our Q2 2026 adjusted EPS at $1.5 to $1.55. For the full year, we are raising the bottom of our EPS guide by $0.05, reflecting the good performance in Q1. The renewal dynamic reduces adjusted EPS by approximately $0.05 and adjusted segment EBITDA margin by approximately 40 basis points. We still expect operations to generate about $0.50 of incremental EPS with approximately 80 basis points of margin expansion from positive price cost and the continued benefit of synergy realization from AspenTech and Test and Measurement. With that, I would like to turn the call back to the operator. Operator: Thank you. We will now be conducting a question and answer session. We also ask each person in the queue to limit themselves to only one question and one follow-up to allow everyone a chance. Our first question comes from the line of Andrew Kaplowitz with Citigroup. Please proceed with your question. Andrew Kaplowitz: Good afternoon, everyone. Hi, Andrew. Surendralal, could you break down a bit more your 9% order growth in Q1 between process and hybrid? I think you said 74% Ovation growth, which was impressive. And I think you said the mid-teens growth in Power is expected this year. But could that higher level behind-the-meter power opportunities lead to a more extended run rate of power? And then generally, would you say your process in hybrid markets settling into sort of this mid-single-digit order growth rate despite some of the concerns that we hear out there? Surendralal Karsanbhai: Yes. No, look, we were very let me start with Power, very energized with what we saw in the marketplace. It's, as you know, started to develop in 2025. But we saw certainly an acceleration in orders in the first quarter. And it's predominantly driven by two areas today, but there'll be a third that think starts to pick up steam as we go forward into the year. And the two areas are modernization of existing facilities and behind-the-meter power generated capacity of data centers. That's generally what drove the investment in the power generating capacity. Of course, on the same line, we saw modernizations of the grid and investments in our and we saw that reflected in the ACV of our DGM business. Michael Baughman: At Aspen. What we'll see I think, develop a little bit more further longer cycle, Andrew, will be new generating capacity coming in. Surendralal Karsanbhai: We see plans being put forward. We're really, right now, evergreen modernizations and behind-the-meter work. I'll also highlight in terms of the order drivers, the activity at test and measurement. Orders were up 20% in the Q And Andrew, it was broad-based. Portfolio business, semiconductor and ADT all up between twenty percent and thirty plus percent. The one offset there continues to be the Transportation segment. Which which is relatively challenged. But overall, great momentum in that business and we've seen very steady, consistent growth there. Ram, anything to add? Ram Krishnan: Yes. Just to add, I'll give you geographic color. Michael Baughman: On the 9%. Surendralal gave it to you by business. But North America was up 18%, reflecting many of the Surendralal Karsanbhai: end markets that Surendralal described Michael Baughman: certainly power, LNG, many of the t m m T and M markets in North America were very strong. Middle East was up 6% for us. Latin America was up 9%. So those fundamentally drove the spring. India was up 22%. So consistent with the commentary where we thought we had strength, we demonstrated a lot of positive momentum that should continue. Certainly, Europe was down low single digits and China was down high single digits in the quarter from an orders perspective. Surendralal Karsanbhai: Then the last thing I'll add, Andrew, just Ram Krishnan: on the funnel and the projects. It was a significant, as we highlighted, 32,000,000 of wins that came from approximately 70 project wins. Onethree of those were in power. But they had heavy participation in LNG, and in semiconductor life science and ADG as well. With each of those, representing about 15% of the wins. So lots of broad-based activity, but of course, power generating transmission and distribution really driving the numbers right now. Andrew Kaplowitz: Surendralal, that's very helpful. And then ACV growth was 9% in the quarter. Are you still talking about expected 10% plus growth for the year. As you know, there's angst regarding AI's on software. So I think you already spoke about Nigel.ai. I know you've talked about the greater vision of balanced automation. So maybe you can remind us Ram Krishnan: why AI could be complementary to growth for you guys in ACV and Michael Baughman: margin in your your software businesses? Ram Krishnan: Yes. For us, from a software perspective, first off, all of our software offerings are built on first principle models. Very, very sticky and a lot of domain knowledge built into these simulation capabilities, not just at Aspen, but also our offerings. With Ovation, DeltaV and certainly the VI suite. So the threat of AI disrupting our software business is very minimal as we see it today. And really as a counterpoint, AI capability we're building into our software should frankly accelerate the growth. So we see AI and all the AI capabilities we launched, not just with Nigel, but also the capabilities, innovation and DeltaV should be a net accelerator for software offerings, and that's really what we expect to see with continued ACV growth. Andrew Kaplowitz: Helpful, guys. Operator: Thank you. Our next question comes from the line of Nigel Coe with Wolfe Research. Please proceed with your question. Nigel Coe: Thanks. Good afternoon. Ram Krishnan: Going back to the order commentary, you obviously caught up LNG caught up Surendralal Karsanbhai: power. Ram Krishnan: Obviously, these are two very long cycle Surendralal Karsanbhai: end markets. I'm just wondering if Michael Baughman: of the orders we've seen, especially in power, are pushing beyond this year and into sort of multiyear phases. Ram Krishnan: Yes, you're absolutely right. Certainly, it's given us the confidence not just in the back half of 2026 as we see the backlog timing. And but we start to gain confidence into our 2027 as we see those orders. And that timing of those shipments. But I also suggest, Nigel, that if you look at the test and measurement business, that's there are projects in that business, but there's a lot more of the short cycle activity, particularly in the portfolio business, and in elements of semiconductor as well. Nigel Coe: Okay. And then a quick follow-up myself. Quick follow-up on the I guess, the Sensors is the new name. The Sensors margins were down, I think, 200 basis points year over year. I think you talked about FX benefits in the prior. Year quarter. Is there any impact of memory chip inflation here? Because if there's one area of Emerson Electric Co. where you might see some of this accumulation, think it might be there. So just maybe just touch on the margin weakness and then talk about the memory chip inflation as well. Michael Baughman: Nigel, it's Mike. Yes, your memory is very good. We did last year have some FX benefits that were in that segment. That we don't have this year, which drove about one point of the year over year negative comparison of about two points. The other things going on there related to mix. There was geographic mix Operator: Ladies and gentlemen, please standby with the technical difficulties. Ladies and gentlemen, thank you for your patience. We will resume. And you may continue. Ram Krishnan: Nigel, that was such a great question. They just try to get in the call on that. Okay. It's Nigel. Seriously, I think I broke the system. Michael Baughman: So Nigel, where did we drop? So we can where did we drop? Nigel Coe: Think you were talking about geographic mix, and and then I went to Michael Baughman: Did I did I did I finish the DRAM explanation on Nigel Coe: or not? Michael Baughman: No. Not nothing on DRAM. Okay. Okay. Let let let let's go back to you. Michael Baughman: Let's go back to your question, Nigel, about sensors margins. And I was commenting that you were correct about the FX impact, which was about one point of the approximately two points that the sensor margin was down on a year over year basis. There was also some mix dynamics that the prior year had a stronger North America and some backlog dynamic going on that benefited them. And then there's some other regional mix that affected profitability that sensors business had a good quarter in Europe, which was largely project based, which which had a a negative effect on the comparisons as well in the net So that was about the other point of margin decline in that business. As we look out to the full year, we expect some improvement on the 28.6% that, that business reported in the in the prior year. As for the second part of your question around the DRAM, from a profitability perspective, no impact, but I'll pass it to Ram to talk a little bit about that. So Nigel, we're obviously watching that carefully. We buy about $8 million of Ram Krishnan: DRAMs that impact many product lines, but most in control systems and software and T and M The sensors, to your specific question, less than $1 million of DRAM exposure. Of that, most of our buy is really Gen three and Gen four, DDR3 and four. Where, yes, supply chains have extended. We're watching that carefully. We don't have a lot of exposure in Gen five DDRs, which is really the AI driven constraints and inflation that we're seeing. But net net for us, the margin impact from the price inflation is something very manageable. We'll manage that within the scope of our P and L. It's really the availability that we're watching very carefully and making sure that we're addressing this with our suppliers and ensuring that we have enough availability to cover the year and beyond. Nigel Coe: That's great color. Thanks, guys. Ram Krishnan: Thank you. Operator: Our next question comes from the line of Steve Tusa with JPMorgan. Please proceed with your question. Shigusa Kotoko: Hi, this is Shigusa Kotoko on for Steve. Thanks for taking my question. Just following up on the orders, the order trends are encouraging and the backlog is up quarter over quarter too. But just there's longer cycle orders in there too, as you mentioned, earlier. And so just how should we think about the cadence of these orders translating into sales? And what businesses specifically do as expect to hit the second half that supports the full year guidance? Ram Krishnan: Yes. I mean so if you looked at the phasing of the back backlog, they're very supportive of hitting our second half sales. So these backlogs translate into the mid single digit growth, tell the percent growth that we've guided for the second half. Our trailing twelve month orders at 6% also substantiate that. Our backlog at $7.9 billion which is up 9% also phase into the second half and into the 2027. The backlog build is frankly across the board, certainly in our control systems and software business, both in power as well as our Delta V business. In Final Control, we have a balanced backlog position in our sensor business to support the second half. So the build is across the board. Operator: Thank you. Our next question comes from the line of Jeff Sprague with Vertical Research Partners. Please proceed with your question. Jeff Sprague: Thanks. Good afternoon, everyone. Well, congrats five years. Can't believe it. That's amazing. Time does fly. Sure, it only seems like four and a half to you. Right? Ram Krishnan: Just a just a couple quick ones from me. Mike, thanks for all those bridge items. One thing I was curious about, though, is just the drop in sequential margins Q1 to Q2 on what should be Michael Baughman: maybe a couple 100,000,000 higher revenues sequentially. Give us a little bit of insight on what would be driving that? Ram Krishnan: Yes, go ahead. Yes, it's Michael Baughman: primarily the impact of the software renewal dynamic even sequentially. I mean, the 65 over the 45 and the dilution driven by that is the fundamental driver. And frankly, unfavorable mix. And totality of the Jeff, that came through that was Michael Baughman: another boost to the barrier that won't that won't be there. Jeff Sprague: And thank you for that. Michael Baughman: And those software numbers have moved around a little bit, right? I think you were thinking $50 million in Q1 and it's $40 million It like Q2 went up a little bit. Think you were saying $60 million That's correct. So just, yeah. Yes, just a little bit of movement there. Could you just also just address sort of the weak verticals and do you see stabilization? I'm thinking chem probably most notably, but some of these areas that have been just under a lot of secular pressure pressure and this whole deindustrialization trend that's ongoing and Europe chemicals. Do you see any bottom there? Is that eroding your MRO activity? And I don't know if there's any other verticals to kind of kind of talk about also. Ram Krishnan: Yes. Certainly, Jeff, you hit a very important point here. We're seeing continued flat activity in Europe for the year. Certainly, are industries such as automotive packaging, but certainly chemicals. In in places like Benelux in in Germany that are still very challenged. And then our outlook on China has turned a little more bearish as we navigated another quarter. We now believe that we'll be down low single digits for the year. Based, again, on lackluster activity in particularly the chemical sector. There are some green shoots in China, of course. There's activity that Test and Measurement is seeing that's very encouraging. There's power generation activity. But a large chemical business, which we've had for and foster for many years, continues to be And we have not seen challenging and we've not seen recovery in that business in either one of those large world areas. Michael Baughman: And then certainly, the automotive segment, which is not as big as chemical for us, but certainly a meaningful part of Ram Krishnan: parts of safety and productivity and T and M is Michael Baughman: continues to remain soft in both Europe and China. Jeff Sprague: Yeah. Ram Krishnan: Yeah. Jeff Sprague: Okay. Great. Thanks for the color, guys. Good luck. Thank you. Operator: Thank you. Our next question comes from the line of Julian Mitchell from Barclays. Please proceed with your question. Julian Mitchell: Hi, Ram Krishnan: Maybe just wanted to understand kind of your own perspectives on the order strength. So I guess, first off, was Michael Baughman: it a surprise to you what those orders did or it was sort of in the plan based on what you knew of the dollar value of orders a year ago that we really see on the outside? And I said I'm asking that just because you didn't change your organic sales guide for the year. In the second quarter, we don't seem to see a sort of short cycle pull through into intelligent devices revenue growth, for example, from these orders? Ram Krishnan: Yes. I mean, I think what this now, obviously, I I I we didn't expect a Michael Baughman: plus 9%. So there were some projects from Q2 that we got into Q1. But certainly, Ram Krishnan: the last 44%, plus 4%, plus 6%, plus nine on a trailing three month plus 6% is consistent. The mid single digits is consistent with how we thought about how first half of this year will unfold. And provide the needed momentum to deliver on the second half shipments. So I wouldn't say we're necessarily surprised by the level of order activity. It's consistent with how the funnel has manifested and these growth initiatives in LNG power semis, aerospace and life science is playing out. Michael Baughman: I think you bring up a good point in intelligent devices, Julien. We've been certainly, we had a phenomenal year as we worked through backlog in that business in in 2024 and 2025. We're now at a point where we've been a little challenged over the last few quarters in the business. We'll see that accelerate in the second half. As we work our way out of it, but it will be another softer quarter in Q2, and that will be largely behind us. Julian Mitchell: Thanks very much. And then just my follow-up on the margin. So you've clarified second quarter, but second half of the year, I think you're dialing in kind of 40s type operating leverage year on year. So just wanted to make sure that that's roughly the right ballpark and when you're thinking about that, is there any risks to it around price cost for example? Or do you think that's a good kind of you're confident in it and it's a good run rate going into the following fiscal year? Michael Baughman: Yes. We feel good about that leverage. You're correct, it's the expectation for the year is in that high 30s which again is affected by by the the software renewal dynamic. But we we do feel good about that. The leverage for the quarter of 20% when you adjust for that software renewal is back up in the mid-30s. So, yeah, I think as we move forward and think about the profitability and the growth and the leverage that we should see from the growth, we we feel good about the expected leverage for the year in the back half. Ram Krishnan: And the other way to look at the leverage is obviously on a sequential basis, half two to half one will be up mid to high single digits from a growth perspective, and that should lever in the forties. So you you you can look at it year over year. You can look at it sequentially, and I think you'll calibrate that the second half margins will trend towards that 28% plus in terms of EBITDA margins. Julian Mitchell: Thank you. Operator: Our next question comes from the line of Andrew Obin with Bank of America. Please proceed with your question. Andrew Obin: Yes, good afternoon. Hi, Andrew. Hey, how are you? Just on the 3% pricing Michael Baughman: what should we be thinking about for the second half? Ram Krishnan: How should it flow? Michael Baughman: 2% approximately in the second half or about 2% for the full year. Andrew Obin: Got you. Thank you. And just going back to this 18% North America order number, it's very, very impressive. Can we just I know you've sort of talked about it, but it's just a nice acceleration and you know, I know you sort of talked about sort of pull forward and people have tried to see what's going on. But maybe can you just describe to us how did it go through the quarter? What are we seeing? Are we seeing this rate of orders sustainable? And what do you think has changed in North American economy to drive orders like this? And I appreciate that you have behind the meter. I understand that you're a number of sort of high growth industries. And there are sort of idiosyncratic stories, but 18% is just very, very impressive. Ram Krishnan: Thank you, Andrew. I'll try to give a little color and Ram can jump in as well. So look, I believe and we're seeing it reflected in the customer activity that the industrial policy of the administration is benefiting five specific sectors that just happen to be our growth verticals. Electrification and power generation data centers, investments in AI, modernization of our grid and generating capacity, near shoring impacting life sciences, and semiconductor, a robust open energy policy that enables the development of shale gas and the export of LNG to our partners. And lastly, a defense policy that continues to modernize the American military apparatus, and we benefit from that through NIH. So that industrial policy as holistically falls incredibly well in The United States and aligns to our technology stack serves incredibly well. Michael Baughman: Yes. And just to break it down, Ram Krishnan: on the 18%, a large majority of the $450 million in project wins came in North America from a power and LNG perspective. We indicated our Ovation business was up 74% in orders. A lot of it was in North America. T and M was up 20% in orders up close to 30% in North America. So the elements of LNG power semiconductors, aerospace, defense, life sciences, augmented with a strong MRO, which was up mid to mid to high single digit from an orders perspective drove the strength in North America. Now we don't expect the 18% to continue through the quarter, but I think we're very confident that high single digit growth in North America is something we would bake into the plan. Andrew Obin: Thank you for the full year. Ram Krishnan: Thank you very much. Thank you. Operator: Our next question comes from the line of Scott Davis with Melius Research. Please proceed with your question. Scott Davis: Hey, good afternoon guys. Scott, how are you? Ram Krishnan: I'm good. Scott Davis: I have to ask this question even though I'm not sure Michael Baughman: going to be able to answer it with much precision. But on the opportunity out there in Venezuela and there's to be just a lot of old aging equipment in there that needs a refresh. But not sure if you guys have any color you could provide on that opportunity or whether you're already talking to customers about potentially having some boots on the ground there or what you can do to kind of make sure you can benefit from a rebuild? Ram Krishnan: So I appreciate the question, Scott. Certainly, a subject that we've we've renewed here in the walls of our company with our teams. We have a long established history in Venezuela. And relationship with Pineda Vista that goes back for decades. We estimate to have approximately $1 billion of installed base in the country. And largely, many of our channel partners, believe it or not, are still intact in the country, although we are not we've not been transacting in Venezuela since the sanctions. Have been transacting over the last two years directly with Chevron but sub million dollars a year. So we have a plan. We We've mobilized and thought through what investments we need to put back into the country. We'll watch to and see what happens with the with the national oil laws that need to be amended to enable foreign investment. Into Venezuela. But we believe that a market and you're absolutely right, there has been that it's been underinvested, lacks talent, is right for growth. So we'll see how things develop and we'll be ready to go in there and provide technology into those installations. Michael Baughman: Just to add to that, interestingly, as we looked at it, the first area that will probably go will be power. And so they'll they'll have to work on the power situation there, and there's an opportunity there for us as well. Scott Davis: And and that's what I was gonna ask as a follow-up really is I'm thinking about traditional upstream Ram Krishnan: and perhaps Scott Davis: maybe not thinking as much about some of the other stuff including downstream or even other industries. I don't know Venezuela well enough to know if there's any infrastructure out there otherwise. But is there a wider TAM out there than perhaps just what we're talking about in oil and gas? Ram Krishnan: Yes. I think Mike's point on power generation is a valid one. But the biggest challenge the country is gonna have, Scott, is that there's been an incredible brains rain that's impacted Venezuela over the last twenty years. Lack of engineers, technical knowledge, And and a lot of that has to be reestablished. Security situation needs to be improved. And investment capability needs to be enabled by their Congress. So we're ways away, but we'll watch it very carefully. And we're at least and to be honest, much like we did in Iraq after the Gulf War, becoming prepared so that we can hit the ground running. Scott Davis: Okay. Sounds good. Thanks guys and best of luck the rest of the year. Ram Krishnan: Thanks Scott. Operator: Thank you. Our next last question will be from the line of Deane Dray with RBC Capital Markets. Please proceed with your question. Deane Dray: Thank you. Good afternoon, everyone. Thanks for fitting me in. Just a couple of quick ones. Any update on tariffs mitigation activity any color there? Ram Krishnan: Yeah. I mean, obviously, a tariff perspective, the positive news on China, Aipa tariffs there, fentanyl tariffs going from twenty to ten. Now we did get some tariffs from where, you know, countries that don't have a trade agreement with Mexico and importing into have tariffs. So that's a little bit of headwind. But net net, I and obviously, the development today, it early. But with India, has a meaningful impact. So I would say more favorability. We still haven't quantified versus we built in. I mean, we built in don't know if we've shared the number, Doug, on on the amount of tariffs we built in about a $130 million of tariffs into the plan We are seeing relief to that number, but it's early to quantify how much. But it will be a net positive for the year versus what we've baked into the plan. Got it. That's helpful. And then China's come up a couple different times I know it's not a new region of softness, but, Lyle, you mentioned it could be some green shoots. So, you know, what's the latest there? What's the opportunity? What are those green shoots you were referencing? Ram Krishnan: Yes. We've seen really good activity in the test and measurement space in a broad portfolio business. You know, we don't participate in the aerospace defense segment there. The semiconductor, where we allow to with the various sanctions and certainly in portfolio, And that business is up in the high double digits. So we feel very good about that. There are great opportunities and continue to be great opportunities in power generation. Again, there is a dynamic in China that very much aligns in The U.S. Around data center build out, AI infrastructure, and power generation needs. We're seeing new capacity come online as opposed to that wave hitting The U.S. There were 25 ethylene coal fired power plants last year. There's a bunch of nuclear work to be done. As well as behind the meter work. So that's where we see the activity. But overall, still, I continue just overall concern that we'll be in a low single digit negative growth. By the time we're set and done this year. Deane Dray: Understood. Thank you. Operator: Thank you. And ladies and gentlemen, we have we reached the end of the question and answer session. And this also concludes today's conference, and you may disconnect your line at this time. We thank you for your participation. Have a great day.
Operator: Good afternoon, everyone, and welcome to the Digital Turbine, Inc. Fiscal 2026 Third Quarter Earnings Conference Call. All participants will be in a listen-only mode. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star and then one on your touch-tone telephones. To withdraw your questions, you may press star and two. Please also note this event is being recorded. I would now like to turn the conference call over to Brian Bartholomew, Senior Vice President of Capital Markets. Please go ahead. Brian Bartholomew: Thanks, Jamie. Afternoon, and welcome to the Digital Turbine, Inc. Fiscal 2026 Third Quarter Earnings Conference Call. Joining me today on the call to discuss our results are CEO, William Gordon Stone, and CFO, Stephen Andrew Lasher. Before we get started, I would like to take this opportunity to remind you that our remarks today will include forward-looking statements. These forward-looking statements are based on our current assumptions, expectations, and beliefs, including projected operating metrics, future products and services, anticipated market demand, and other forward-looking topics. Although we believe that our assumptions are reasonable, they are not guarantees of future performance, and some will inevitably prove to be incorrect. Except as required by law, we undertake no obligation to update any forward-looking statements. For a discussion of the risk factors that could cause our actual results to differ materially from those contemplated by our forward-looking statements, please refer to the documents we file with the Securities and Exchange Commission. Also, during this call, we will discuss certain non-GAAP measures of our performance. Non-GAAP measures are not substitutes for GAAP measures. Please refer to today's press release for important information about the limitations of using non-GAAP measures, as well as reconciliations of these non-GAAP financial results to the most comparable GAAP measures. Now I'd like to turn the call over to our CEO, William Gordon Stone. William Gordon Stone: Thanks, Brian, and thanks, everyone, for joining our call tonight. Our December quarter showcased accelerating business momentum across both our on-device solutions and app growth platform segments. Strong demand for our platform combined with our disciplined operational execution drove top and bottom-line results that exceeded our expectations. Revenue for the quarter came in at $151.4 million, representing 12% year-over-year growth. We also achieved $39 million in quarterly EBITDA, that was 76% year-over-year growth with EBITDA margins of 26%. All of these results are proof points demonstrating the inherent operating leverage in our model. In particular, there are three things at a corporate level I wanted to call out before getting into my detailed segment remarks. First is the diversification of our revenues, the double-digit growth across so many of our products and geographies. We are seeing many drivers of our growth versus being tied to a single thing. Second is our improving use of AI and machine learning tools not only in our data and targeting that power revenue, but also for our operations that's driving improved efficiency in our coding, quality assurance, regression timelines, and a variety of other administrative and back-office tasks. As an example of this, in December, our gross profit dollars increased by more than 25% while our operating expenses declined. And finally is the strong progress we've made in strengthening our balance sheet. Our debt leverage ratio now stands at roughly three turns down from more than five turns just a year ago. This disciplined deleveraging is positioning us exceptionally well to pursue the $5 trillion market opportunity in front of us. Now turning to breaking our results out by segment, our On Device Solutions business generated nearly $100 million in revenue, which was up approximately 9% from December. In particular, our international business continues to be the driver of this growth, with a greater than 20% increase in both devices and revenue per device, or RPD, that drove more than 60% year-over-year international growth. And for the first time in our history, more than 30% of our revenues on our Ignite platform were from outside the United States. Our application growth platform or AGP business was another bright spot for the quarter and continued its momentum from September with December year-over-year growth of 19% posting $53 million in revenue. In particular, I was pleased with the strong results in our Brand business and also growth in our DTX or SSP business of over 30%. The hard work we did over the past few years to stay the course and integrate our legacy tech stacks into a common platform is now paying dividends. And we expect the momentum to continue into the future. For our growth drivers, improving supply and demand trends power the improved performance. First, on increased supply. While we continue to see softness for U.S. Devices, our overall devices grew 20% year-over-year driven by strong volumes from our international partners. In addition, our AGP supply volumes increased impressions by over 20% year-over-year, driven by strong performance internationally and strong increases in nongaming inventory. We also had higher advertiser demand, which translated into improving pricing and fill rates. Particularly for premium placements on our platform. The strong advertiser demand resulted in year-over-year growth in revenue per device in both the U.S. and international markets. For our on-device business. For our brand business, we reorganized our sales teams last year around verticals and I'm pleased to see those changes bearing fruit in our results. As our focus on vertical sales areas, consumer packaged goods, retail, telecom, and technology, all demonstrated increased spend. In particular, our retail vertical had 5x growth compared to last holiday season, as our retail media efforts are bearing fruit with large retailers wanting to extend their audiences. As we now enter 2026, we have five strategic priorities that we believe will continue to build on our profitable growth trajectory of both our ODS and AGP segments into the future. The first strategic priority is unlocking the value in our first-party data. This effort is centered on leveraging data signals across all of our DT products to create and enhance the IGNITE graph and apply the DT iQ AI machine learning models to drive better outcomes across your end consumer experiences. Our second priority is building the flywheel effect between our supply and demand. We have over 80,000 applications that have integrated our ad monetization technology. Leveraging that position in our demand-side technology to acquire more users for these apps creates a flywheel effect of increased monetization and higher investment into our platform. Our third priority is scaling our brand business. Over the last couple of years, we've established a brand and agency-facing business that diversifies and differentiates our monetization activities. This business has been showing positive growth and scaling it is the key to the next phase of our growth. Fourth is expanding the services offered through our IGNITE. Ignite's been the backbone of our highly scalable app distribution business, we're looking to leverage its footprint across more than 500 million devices to unlock better monetization and a superior user experience for our carrier and OEM partners. And finally is the alternative app opportunity. We believe the app economy is entering an era of democratization beyond the traditional duopoly. And that the ecosystem will benefit from solutions that are agnostic to the format or path developers use to distribute apps or how users choose to discover and use them. Made some recent progress with three of the largest global mobile game developers signed in December now using single tap capabilities in their alternative distribution efforts. Combined, these five things have a half trillion-dollar market opportunity in front of them, and our assets are uniquely positioned to go after this growth. You'll hear more about our progress on these areas on future calls. To wrap up, our business momentum is accelerating, our priority is to continue our growth are focused and clear. We showed solid year-over-year double-digit growth in both revenue and EBITDA driven by a healthy mix of disciplined execution innovation, and favorable industry dynamics. We're building the right foundation through operational discipline and strategic investment to drive sustained profitable growth. We're excited by the traction we're seeing across our business and confident in our ability to continue delivering value to partners, advertisers, users, and shareholders. With that, I'll turn it over to Stephen Andrew Lasher to take you through the financials in more detail. Stephen Andrew Lasher: Thank you, Bill, and good afternoon, everyone. The fiscal third-quarter results were reflective of sustained business momentum. We delivered another quarter of double-digit revenue growth, further expanded profit margin, and delivered top and bottom-line results that surpassed expectations. We also made significant progress in strengthening our balance sheet in the process. Now let's get into the numbers. Total revenue for the fiscal third quarter was $151.4 million, representing 12% growth year-over-year. Both segments of our businesses, ODS and AGP, contributed positively to the overall growth and upside versus expectations. Our ODS business delivered $99.6 million in revenue, up 9% year-over-year. This growth was primarily driven by higher device volumes and RPDs primarily with our international partners. Our AGP segment delivered $52.6 million in revenue, up 19% from the prior year. These results reflect positive outcomes of our strategic focus to better utilize first-party data and showcase our AI-driven capabilities. The combination of strong top-line growth and efficient operational execution yielded 76% year-over-year growth in adjusted EBITDA in the quarter. Adjusted EBITDA for the fiscal third quarter totaled $38.8 million, representing a 76% increase year-over-year. EBITDA margin reached 26%, marking the seventh consecutive quarter of expansion and improvement of more than 900 basis points versus the prior year. This comparison includes approximately $3.5 million of one-time benefits in the period primarily related to a sublease settlement and improved working capital. Free cash flow for our third quarter totaled $6.4 million. Our non-GAAP gross margin in the fiscal third quarter was 49%, well above the prior year figure of 44%. This expansion was primarily the result of a more positive product and segment mix during the quarter. Cash operating expenses were $36 million, down 4% year-over-year. We're pleased with the progress we've made on our cost controls and operational discipline, which allowed us to achieve double-digit year-over-year revenue growth with lower cash operating expenses. We will continue to do that to identify areas of additional efficiency while maintaining targeted, disciplined investments to support future growth. Turning to the bottom line. We reported a GAAP net income of $5.1 million or $0.03 per share in the fiscal third quarter. On a non-GAAP basis, we generated net income of $21.7 million or $0.18 per share on 120 million shares outstanding. Looking at the balance sheet. We ended December with a cash balance of $40 million, up approximately $1 million from the end of September. Meanwhile, our total debt net of debt issuance cost declined during the quarter by more than $41 million and ended the quarter at $355 million. This decline was a result of tax-positive cash flow generation supplemented by proceeds from our at-the-market offering. The company sold a total of 6.8 million shares at an average price of $6.54 during December, yielding $44.6 million in gross proceeds. We are pleased with the progress we have made to our balance sheet in recent months. To that end, we made the decision to terminate our existing at-the-market equity program. Given our performance and improved leverage profile, we believe our current liquidity and balance sheet strength eliminate the need for this funding source as a component of our long-term capital management strategy. Now let me turn to the updated outlook for fiscal 2026. Following the stronger-than-expected December performance, and with improved visibility into the current March, we are once again raising our full-year revenue and adjusted EBITDA guide. We now expect revenue to be in the range of $553 million to $558 million and adjusted EBITDA to be in the range of $114 million to $117 million for fiscal year 2026. At the midpoint, this represents an increase of $10 million in revenue guidance and over $13 million in EBITDA guidance compared to our prior outlook. In closing, I want to reiterate Bill's earlier comments. That momentum across our core business remains strong and we're increasingly confident in our ability to build on this performance as we move forward. With that, let me hand the call back to the operator to open up the line for questions. Operator: Jamie? Ladies and gentlemen, at this time, if you would like to ask a question, you may press star and then one. To withdraw your questions, you may press star and 2. If you are using a speakerphone, we do ask that you please pick up the handset prior to pressing the keys to ensure the best sound quality. Once again, that is star and then 1. Join the question queue. We'll pause momentarily to assemble the roster. And our first question today comes from Anthony Joseph Stoss from Craig Hallum. Please go ahead with your question. Anthony Joseph Stoss: Great. Thanks. I have a couple, so I'll just go one at a time. Bill, I love to hear, you know, you used the word flywheel. What are you seeing in terms of maybe the app install business? If those same customers are now giving you advertising within the app, any thoughts just on how things are starting to come in faster and faster? Love to hear it. William Gordon Stone: Yeah. Sure, Tony. Yeah. This is, as I mentioned, this is one of our five strategic priorities in the business. And there's enormous opportunity given that we have over 80,000 different applications with our technology, and those applications are all out trying to acquire users. So the ability for us to integrate their budgets that we're paying them back into acquiring users both with our own DSP as well as our own device business then feeds back into the monetization and becomes a flywheel feeding on itself to generate incremental growth in revenue and better margins. So this is a big area to integrate those. Now that we have the tech stacks integrated that we had not had over the few years, we can put a lot more energy behind this. So, you know, we're really excited about this being a driver for growth for us as we look into the future. Anthony Joseph Stoss: Got it. And then, Bill, I've fielded a couple of calls in the last few days regarding the Google Gemini announcement. You can help us understand how you think that'll impact you. William Gordon Stone: Yeah. So, you know, first, you know, for us, we made a concentrated effort I mentioned in my remarks, to diversify away from just strictly gaming inventory and increase nongaming inventory. And so that's been a growth driver for us. As it relates to Google's announcement specifically, I think it's a great thing for our company. And what I mean by that is we don't not in the game business. We don't we don't we don't make games. You know, we distribute them. And so as more games come into the market, they're all gonna need distribution. So our ability to leverage our extensive distribution footprint both on device and with our DSP, I think it's going to bring more games to market, and those they're gonna need more distribution to acquire the users regardless of how they're generating the technology to make the game. So I view it as positive, you know, for our business. And as I mentioned in our remarks more broadly around AI, it's driving revenue growth for us and it's driving efficiencies in the back office. So I look at it as a net positive. I can't speak for other companies. But for us, we're excited about it. Anthony Joseph Stoss: Got it. And, yeah, I just wanna call out your mentioning of the three largest global gaming companies have signed in December for Single Tap. How do they plan on using it? What's kind of the timing? And how quickly do you think it'll ramp? William Gordon Stone: Yeah. So I'm excited to say they're live today. And so they're using it today to distribute all alternative applications of their own versions that can be their own house billing, if you will, versus using, you know, one of the duopolies billing for that. They're also using it for a thing called dual downloads. And what that is is the ability to download an application with Single Tap, but also download the store that goes with that. So in other words, if a large gaming studio, you want you, Tony, want wanted wants a game, download it. Well, you also get the store that can be delivered in the background once you enter in your credentials and pay through that app or game you've downloaded, now it's prewired for anything that that publisher wants to do. So it reduces the friction in the future. It lowers the cost structure for the app publishers. So Single Tap's a key enabler to make that happen. So yeah, we're excited about that, and it's already generating revenue today. Anthony Joseph Stoss: Thanks, Bill, for everything, and great job, guys. Nice results. William Gordon Stone: Thanks, Tony. Operator: Once again, if you would like to ask a question, please press star and then one. To withdraw your questions, you may press star and 2. Our next question comes from Arthur Chu from Bank of America. Please go ahead with your question. Arthur Chu: Hey, guys. This is Arthur on for Omar. Thanks for taking my question. Bill, there's been some recent chatter about Meta back on iOS bidding for non-IDFA traffic. I think after a couple of years of only bidding on the IDFA traffic, any sort of observations you have around maybe just, you know, any changes in the competitive landscape as a result of Meta being carrying a little bit more active on iOS? William Gordon Stone: Yeah. So nothing to comment specifically on them and iOS here. I would just say from a competitive perspective, I'm excited to see that the overall market grew kind of mid to high single digits, you know, in December. And our growth, you know, on the AGP side was 20%. So in other words, you know, our growth is 2x the market. From a competitive perspective, we're out taking share. Obviously, we're focused we have iOS and Android. We're focused more on Android, you know, given our unique on-device position there. So nothing specific on Meta to comment on this call. But in terms of what we're doing, you know, we're outgrowing the market right now. Arthur Chu: Got it. That's really helpful color. Thanks a lot, guys. Operator: And ladies and gentlemen, I'm showing no additional questions at this time. I'd like to turn the floor back over to William Gordon Stone for any closing remarks. William Gordon Stone: Thanks, everyone, for joining our call tonight. We'll talk to you again on our fiscal '26 fourth-quarter call in a few months. Thanks, and have a great night. Operator: Ladies and gentlemen, with that, we'll conclude today's conference call and presentation. We thank you for joining. You may now disconnect your lines.
Cyril Meilland: Hello. Good morning, all. I'm Cyril Meilland, the Head of Investor Relations at Amundi, and it's a real pleasure to welcome you today in the not so sunny London for a presentation of our full year and fourth quarter results. We are here in our London office, and this is a hybrid event. So we will have people in the room and people online via Zoom. We shall have a presentation by our CEO, who is here with me, Valerie Baudson; and our Deputy CEO, Nicolas Calcoen. Presentation will last for about 30 minutes. And as usual, it will be followed by a Q&A session for as long as it takes. So ask any questions. The questions can be asked obviously in the room as well as online. [Operator Instructions] And unfortunately, before we get started, a very short disclaimer. Throughout the presentation, we will make some forward-looking statements and mention forecasts. We call your attention to the fact that Amundi's actual results may differ from these statements. Some of the factors that may cause the results to differ materially are listed in our universal registration documents. And Amundi assumes no duty and does not undertake to update any forward-looking statements. And after this task, I leave the floor to Valerie. Thank you. Valérie Baudson: Well, thank you, Cyril, and good morning, everyone, in the room behind the screen. We are very pleased to present our Q4 and full year 2025 results, which reflect both our record activity and the core elements of our Invest for the Future 2028 plan. So I will take you through some key highlights before Nicolas, as usual, looks at our activity and financial results in more detail. First, our assets under management have now reached almost EUR 2.4 trillion, so up 6%. This is thanks to record total 2025 net inflows of EUR 88 billion from both passive and active management activities. In terms of clients, this performance was driven by positive inflows across retail, institutional and our JVs. Retail inflows predominantly came from our very fast-growing third-party distribution business. And on the institutional side, medium- to long-term asset collection tripled in 2025 with some major mandate wins in Europe and the Gulf in Q4. Our activity drove strong financial results with adjusted pretax income up 12% for the quarter and 6% for the year, while adjusted EPS reached EUR 6.58. This performance and our strong financial position allow us to propose a 2025 dividend of EUR 4.25. This represents a payout that is EUR 100 million above our 65% target. And we are also delivering on our commitment to return excess capital to shareholders from the 2025 strategic cycle. So today, we are announcing a EUR 500 million share buyback, which starts tomorrow. So combined, the dividend and share buyback will return close to EUR 1.4 billion to investors, around 10% of our current market cap. And more than half of these figures will go to minority shareholders. So all in all, we enjoyed success across all our strategic growth areas in our Invest for the Future plan, making 2025 a strong start to our 2028 plan period. So let's take a closer look at some of the key activities. Clients first, starting with retirement, which is, as you remember, one of the key strategic priorities in our new plan. We have established a dedicated business line to package our offer and capture new opportunities. And following from the people's pensions in the U.K., we secured another major mandate at the end of the year. Amundi is one of just 3 asset managers selected for Ireland's new auto enrollment pension scheme, which will serve the majority of the Irish workforce. Assets for this scheme are expected to reach EUR 20 billion in the next 10 years. Our other major strategic client priority, you remember, is digital distribution. We saw EUR 10 billion in net new assets from digital players in 2025, almost half of our full year retail flows. New mandates included the retirement offer launched with Moneybox, an award-winning digital wealth management platform in the U.K. This partnership brings together Moneybox client-led product design with Amundi's global multi-asset and ETF expertise, creating 3 new Moneybox blended funds. Now geographies next, starting with Asia. We continue to deliver strong growth powered by our direct presence and our successful JVs. Asian net inflows were EUR 33 billion for the year. Over 40% came from our direct distribution business with contributions well diversified by country and client type. And on the JV side, India and Korea were the main contributors and China showed a good momentum as well. Now closer to home, Europe continues to offer significant growth potential for Amundi and increasing our market share in Northern Europe is, as you remember, another strategic priority. Our 2025 activity reflects this with EUR 40 billion in net inflows from this region, including EUR 29 billion from the U.K. Germany contributed EUR 8 billion in net inflows with EUR 5 billion from digital platforms. And as part of our new strategy, we will also reinforce our presence and build on strong client activity in new high potential regions. The Middle East is one of these. And in addition to strong business momentum, we also signed a new strategic partnership with First Abu Dhabi Bank to target Gulf investors at the end of 2025. This partnership combines Amundi's wide coverage of investment solutions and asset classes with First Abu Dhabi Bank regional insights and presence. Solutions next, where innovation is key to future growth. So let's start with active management, where we saw good investment performance as we continue to widen and strengthen our offer. We launched 3 new UCITS funds in key strategies: global equity, U.S. large caps and U.S. mid-caps. These funds fulfilled via our Victory Capital partnership are the first from investment platforms outside of the former Amundi U.S. brand pioneer, demonstrating the clear potential to extend our range as promised. We have also launched in 2025, the first tokenized share for one of our money market funds. The fund is now easily accessible via standard distribution networks and/or the tokenized shares. This first class of tokenized shares is just the beginning, and we will gradually test and add new features to our offering based on specific business cases. Smart Solutions, our another commercially successful innovation, well suited to the current environment. These solutions enable institutional investors to optimize their excess cash by capturing their premiums offered by top-tier issuers for their funding while maintaining low volatility and high liquidity. Assets under management for these funds reached more than EUR 41 billion in '25, representing additional inflows of EUR 20 billion. And this includes EUR 3 billion -- additional EUR 3 billion from a European public institution in Q4. Now ETFs next, where we are further strengthening our position as the second largest provider in Europe and the #1 European provider, both in terms of assets under management and inflows. ETFs assets under management reached EUR 342 billion, up 27% year-on-year. In Q4, we achieved record quarterly inflows of EUR 18 billion and EUR 46 billion for the year. We are, by far, the #1 collector of European equity ETF inflows. This leadership is driven by our diversified offer, which includes products like [ Euro ] Stoxx Europe 600, the largest selling European equity ETF on the market. But innovation is also key to capturing ETF growth. So new products, including macro thematics like defense and strategic autonomy collected EUR 5 billion in '25. Innovation is also key to adapt and grow our responsible investment offer. In July, we launched a new global green bond fund tailored for Zurich's Life Insurance clients seeking diversified access to Green bonds. And in December, we launched a Euro biodiversity credit fund available to both institutional and retail clients in more than 10 countries. This fund allows investors to participate in the preservation of natural capital through a euro credit allocation. So in summary, a period of strong innovation across our investment solutions that is supporting, of course, our growth trajectory. Finally, I would like to highlight Amundi Technology. We are now a recognized technology provider covering the entire savings value chain and operating at scale in 15 markets. Revenues reached EUR 116 million in 2025, up 45% year-on-year, thanks to 10 new client wins, which also saw us enter 2 new markets, Denmark and Singapore. We talked about some of the great 2025 client wins at the Capital Market Day, including AJ Bell in the U.K. Since then, leading Dutch assets and wealth manager, Van Lanschot Kempen has selected our ALTO investment platform. We also signed Bankdata, a technology services consortium made up of 7 Danish banks that serve 1/3 of the country's population. Bankdata selected Amundi's ALTO wealth and Distribution solution to introduce comprehensive portfolio analytics and reporting into its ecosystem and obviously, for the clients of these banks. We also recently launched our new Data-as-a-Service offer, leveraging our robust architecture, our data provider connectivity and our market expertise. We are now onboarding our first client, a leading global insurer in Asia. So our tech business is continuing to deliver growth while also serving as a key strategic enabler for the wider Amundi Group. It strengthens our investment solutions, creates durable long-term relationships and is a key differentiator for Amundi among European asset managers. So that's all for me for now. Let me hand over to Nicolas to take you through our Q4 and '25 activity and financial results in more detail. And I will be back, of course, for some closing remarks ahead of the Q&A. Nicolas Calcoen: Thank you, Valerie, and good morning, everyone. I will now comment on our activity and the financial results. Starting with our assets under management, which reached EUR 2.38 trillion at the end of December. This is again a new record for Amundi. Assets were up by 6% over the year. Almost 2/3 of the growth is coming from net inflows at EUR 88 billion of 4% of AUM, and the rest come from a positive market and ForEx effect of EUR 62 billion despite the depreciation of the U.S. dollar and the Indian rupee. On the fourth quarter, our assets rose by 2.7% with similar trends. Moving now to our net inflows. As I said, they amounted to EUR 88 billion. They are sharply up versus 2024, which already showed a strong increase compared to the previous year. In other words, we have enjoyed strong business momentum in the past 3 years. Furthermore, this business momentum was driven mostly by medium- to long-term assets from our 2 client segments, retail and institutional. Long-term net inflows indeed more than doubled at EUR 81 billion for all these clients. Long-term flows were positive in both active and passive management. Passive management was very successful at EUR 76 billion, including the EUR 46 billion in ETFs, as Valerie highlighted. And active management gathered EUR 13 billion, almost double the net flows of the previous year. Fixed income was again the main driver, but growth also came from the return to positive net flows of active multi-asset management. Conversely, treasury products posted net outflows largely related to the ECB rate cuts and a slightly more risk on approach by our institutional clients. Turning to our joint ventures. They collected EUR 20 billion. I will come back later on with more detail. And finally, the U.S. distribution of Victory Capital for the share we own in this partner posted net outflows of EUR 1.4 billion. However, the strategies managed by Victory Capital that Amundi distributes to its clients in Europe and Asia gathered EUR 800 million despite a lower appetite for U.S. strategies last year. I will not comment in detail on the fourth quarter because it is, in fact, very much in line with the full year trends with some acceleration in areas like long-term assets in general, in particular, ETF, but also active management. Coming to performance. Our investment management teams delivered sustained performance in 2025 as illustrated on the slide. Close to 3/4 of our open-ended funds were in the first and second quarter over 1 year, 3 years and 5 years and 233 Amundi funds are rated 4 or 5 star by Morningstar. The investment performance is particularly good for fixed income and multi-asset flagships. For example, in multi-assets, global -- multi-asset on its more conservative versions, global multi-asset conservative ranked in the top 5 and 10 percentile of the category. On the fixed income side, global aggregate, our main flagship outperformed its benchmark by more than 300 basis points on our Euro subordinated strategy by more than 600 basis points. And beyond this particular highlights, I think the main message from this slide remains sustained consistency at a high level of investment performance. Looking next at our client segments, starting with retail. Retail flow was positive at EUR 22 billion over the full year. These flows remain driven by third-party distributors, which continued to post very healthy inflows of EUR 33 billion with EUR 27 billion in ETF and positive flows in active management. Flows are also very diversified by region. In Europe, first with EUR 23 billion with a high level of activity, in particular in Northern Europe, in U.K., in Germany, in Netherlands, but also in Spain and Italy. Asia continued its healthy momentum with EUR 6 billion of net flows. And in addition, we gathered material flows from high potential regions like the Middle East, Canada and Mexico in line with the strategy -- our strategy to conquer these new markets. Beyond third-party distribution, our Chinese joint venture with Bank of China also enjoys strong momentum with EUR 2 billion gathered year-to-date. And turning now to our international partner networks. The net outflows totaled EUR 14 billion, as you can see. They are fully attributable to UniCredit, where outflows totaled EUR 16 billion in the full year, of which EUR 4 billion in the last quarter. Finally, the French partner networks in France are showing positive net inflows of EUR 1 billion. The fourth quarter net inflows in this segment are entirely due to treasury products, in particular due to corporate clients of these networks, where the long-term assets are positive. Moving to the institutional segments now. In '25, net inflows were EUR 48 billion with a strong performance in long-term assets at EUR 61 billion, triple the level of '24. Passive management accounting for large share EUR 44 billion, of which almost half coming from the mandate won with people's pension. But we also gathered close to EUR 20 billion from active management for the most part in the Smart Solutions Valerie highlighted. If you look at by subsegments, institutional and sovereign posted record levels, thanks to a series of mandate wins in Europe and the Middle East, with in particular sovereign funds, central banks or stable relative entities. Employee and savings and retirement business that we presented more in depth last quarter posted a high level of long-term inflows once again. And finally, Credit Agricole and Societe Gennerale, the long-term inflows of EUR 17 billion benefited from the renewed interest in euro contracts in France. The short one maybe on the outflows from treasury products. They originated, as I indicated, from the rate cuts implemented by the central banks and the resulting share for our clients for better yields. An illustration once again of the success -- of this is the success of the Smart Solutions we mentioned. Again, I will not comment in detail on the fourth quarter. As you can see, the trends are very similar to the one we saw for the full year with EUR 13 billion in total. Finally, our Asian joint ventures posted net inflows of EUR 20 billion over the full year with good performance in all countries. South Korea posted EUR 6 billion, mostly in long-term assets, and we saw some outflows in the last quarter, which are purely seasonal and linked to treasury products. China with ABC continued its recovery with EUR 2 billion inflows over the year. And our Indian joint ventures posted more than EUR 10 billion of inflows. The decrease compared to '24 is partially explained by the decline in the Indian rupee versus euro. And for the rest, it was driven by lower inflows from institutional clients in a less favorable markets. However, net inflows into savings plans in retail continue to grow in a very healthy manner. Moving now to our net results. You are now very familiar with the pro forma restatement that we made to 2024 quarters to make the series comparable after the clubbing -- the closing, sorry, of our partnership with Victory. So I will not detail them again, but you have, of course, all the details in the appendix of the slide deck and in the press release. All my comments will refer to adjusted data and year-on-year variations refer to '22 pro forma figures -- '24, sorry, pro forma figures. So let's start with the review of our fourth quarter and in particular, on revenues. As you can see, total revenues were just shy of EUR 900 million in this quarter. They were up by more than 8%, thanks to a healthy growth in all business-related fees in asset management and technology. First, net management revenues were up by 7% compared to the last quarter of '24, of which 4% for management fees, thanks to our strong asset gathering in the past 12 months. And performance fees were very elevated, thanks to the performance delivered by our teams across a large range of expertise. Technology revenues were up by 37% at EUR 35 million. This reflects both healthy growth in license revenues and a high level of billed revenues, thanks to the launch of new client projects. Finally, a short word about our financial income. It's stable compared to the end of '24, but this reflects contrasting elements. On one hand, the decrease in euro short-term rates resulted in a material drop of the return we get from our voluntary placement of our cash. However, on the other hand, this was offset by better mark-to-market valuation and carried interest from our private asset investments. Turning now to our cost at EUR 450 million. They were up on the quarter by 6%, more than 2 points below the top line growth in the context of very healthy business development. This good cost control over our cost was achieved, thanks to our continued efficiency efforts, including the first savings from the cost optimization plan we announced in the second quarter of last year. This allowed us to continue our investment in our strategic priorities to nurture our future growth. And approximately 1/3 of the year-on-year cost growth originate from investment, in particular from technology. As a consequence of this large jaws effect, the adjusted cost-income ratio was 50%, 51.5% to be precise on this quarter. Finally, our adjusted pretax income topped EUR 500 million for the first time in a quarter at EUR 519 million to be precise. It was up by 12%, thanks to, again, the healthy growth in operating profit, up by 11% and the acceleration from our associates up by 21%. It's further contribution from our Asian joint ventures, which was up by 20%, driven mainly by our Indian joint venture. And despite the decline in the rupee and the contribution from Victory Capital, which was up by 19%, reaching EUR 35 million, thanks to the synergies and again, despite the currency headwind. The adjusted net income was EUR 376 million, almost the same level as in the fourth quarter '24 despite the exceptional items in the tax charge. First, of course, the tax surcharge in France, which represented around EUR 11 million in this quarter. And second, the resulting tax on an exceptional dividend we received from our Indian JVs, which represented a cost of EUR 12 million, sorry. This exceptional dividend was paid out in preparation of the IPO of SBI FM, which is, as you know, scheduled for the first half of this year. And we received indeed EUR 130 million as exceptional dividend. But as the joint venture is consolidated according to the equity method, this dividend does not contribute to our results, but only to our cash position. Finally, let's get a look to our financial performance for the full year. The trends, as you can see, are very similar to those of the first quarter. The pretax income rose by 6% to an all-time high of almost EUR 1.9 billion, EUR 1,858 million to be precise. And this growth was driven by an equivalent growth in revenues, 6%, driven by business-related fees, of which 4% for management fees, which represent 2/3 of this growth, 20% growth for performance fees to EUR 173 million, and 40% of growth for technology revenues reaching EUR 116 million, including a full year of aixigo. But organic growth and technology again remained very solid, excluding aixigo, 30% of growth in revenues. Our revenue margin, asset management revenue margin, of course, was 15.9 basis points pro forma again of the deconsolidation of Amundi U.S, like in the first half of '25, but down by 50 basis points from full year '24. We already commented on this decrease in the previous month -- previous quarters. It is entirely due to the strong growth we have enjoyed in the Institutional claimant segment, in passive management and as well as in active fixed income. So both the clients and the project mix have therefore weighted on our margins, but the growth has been profitable on a bottom line basis, of course. Finally, on the revenue side, contrary to business-related revenues, net financial income was down by 5% due to the rate cuts by the ECB and partially offset by the positive mark-to-market as for the last quarter. On the cost side, costs were controlled, again, 6% growth, in line with revenues, reflecting again the investment we made in our growth drivers. And more than half of the cost growth is related to an increase in investment in particular, again in technology. As a result of this good cost control, our operational efficiency remained best-in-class with an adjusted cost income ratio of -- sorry, 52.1% for the full year. This good operating performance for our fully controlled business was complemented once again by strong contribution from our associates. Our Asian joint ventures contributed EUR 135 million or 10% of our net result and up also by 10% despite again the currency headwind in India. And the contribution from Victory Capital was EUR 95 million for the first -- for the last 9 months only, up by 12% over the profit contribution of Amundi U.S. over the same period in '24. As a consequence, excluding the tax surcharge in France that totaled EUR 74 million, our adjusted net income would have been over EUR 1.4 billion. And including the tax surcharge, it was EUR 1,354 million, and the earnings per share was EUR 6.58. This good level of profitability only strengthened again our financial position, as you can see on this new slide. We are probably the traditional asset manager with the largest tangible equity base globally. Indeed, it reached EUR 4.9 billion at the end of '25, up by 10% over a year. As Valerie announced, the strong balance sheet allow us to propose to the general assembly next June, a dividend per share of EUR 4.25. This represents a payout of 74%, EUR 1 billion over what it would have been if we had applied the minimum 65% target. This decision is part of our disciplined capital management. If we can move to the next slide. Our final surplus capital at the end of December '25, the end of our previous plan and before distribution on ICG was EUR 1.4 billion. We will appropriate this amount for 3 purposes in line with our commitments. First, M&A. The acquisition of our stake in ICG is likely to use EUR 700 million to EUR 800 million for the final 9.9% share we target. Second, the ordinary dividend, the EUR 100 million above the minimum payout I just mentioned. And third, additional capital return. The Board has indeed decided on a final amount for share buyback of EUR 500 million, well above the minimum EUR 300 million we had committed at our Capital Market Day in November. This will represent an earning accretion of around 3% at the current share price. And this share buyback will start tomorrow and is likely to span over a full year given the share liquidity and the regulatory constraints applicable to such an operation. It's worth noting that if we combine the total ordinary dividend for '25 around EUR 900 million and the share buyback, we will return to our shareholders this year just shy of EUR 1.4 billion, almost 10% of our current market capitalization. One last word regarding our partnership with ICG and the equity stake we are in the process of building. As you know, we have acquired via a structured transaction 4.64% in ICG on November 19, the day after our Capital Market Day. So we own the shares with full voting rights. However, the structured transaction is still in the process of being unwound. The next milestone is for us to get the mandatory approval from various authorities. We should obtain them in the course of the second or third quarter. And by that time, we will be allowed to appoint a director to the Board of ICG and to start equity accounting for our stake, the 4.64% I mentioned. This will also allow ICG to start issuing new nonvoting shares to us for a total economic interest of 5.3%, taking our final stake to the target 9.9%. They will do so while at the same time, buy back an equivalent amount of ordinary shares on the market and canceling them to avoid dilution. This process is expected to last several months, depending, of course, on ICG share liquidity. And it should be completed early '27, at which point, we shall equity account for the full amount. I hope this clarifies the process. Of course, ICG will be integrated on our reporting as an associate in a similar way to Victory, and Cyril and the team at your disposal for the detail. I will now hand back to Valerie for concluding remarks before we take your questions. Thank you very much for your attention. Valérie Baudson: So thank you, Nicolas. 2025 has been a solid start to our new strategic plan period. We saw higher activity across our strategic growth areas, which supported our strong results. In terms of strategic initiatives, as Nicolas outlined, we are now building our stake in ICG. Our wider partnership has kicked off, and we have already seen some very promising and fruitful cooperation. We are both excited by the significant long-term value it will generate, both in terms of enriching our investment solutions and delivering return on investment for Amundi. We are already working on the funds we are planning to launch with ICG and expect to offer them to our wealth investors soon in H2. And finally, with our proposed EUR 900 million dividend and our EUR 500 million share buyback, we are delivering shareholder returns of more than EUR 1.4 billion, fully demonstrating our disciplined capital management approach. And with that, Cyril, I think it's back to you for the Q&A. Cyril Meilland: Thank you, Valerie and Nicolas. Many questions. We'll start from the room. [Operator Instructions] Let's start with the front row, Arnaud. Arnaud Giblat: Three questions, please... Unknown Executive: To make sure that we can hear [indiscernible]. Is it okay? Arnaud Giblat: Three questions. Firstly, can I ask about ALTO? So a big step-up in Q4. You did say that there was a lot of build for new clients going on. I'm just wondering, how we should be thinking about the coming quarters. Does that build continue -- the revenues from build continue into the future quarters? Or does it step back down to recurring revenues in Q1? My second question is on SocGen. So the contract you announced was renegotiated, I think, in the press release, no material impact because I think Societe Generale as a percentage of the total group has been diluted. I'm just wondering if you could give us a bit more specifics. Has the conditions in terms of share of flows changed with that renegotiation? Has the headline rates changed as part of that negotiation? And my third question is on the Irish DC pension. I think during the presentation; you mentioned EUR 20 billion flow potential over 10 years. Just wondering, how that splits across the 3 partners and what sort of products, the fee rates? I mean, any more details you can disclose that could be helpful. Valérie Baudson: I will let you on SocGen and I answer on ALTO and the Irish into enrollment. On ALTO, Arnaud, as mentioned, new clients -- I mean, in tech, you have the build part when you win the client and that you have to build the project and then you have the recurring fees. So obviously, everything built means more recurring fees for the future. But of course, according to the number of clients you won in the quarter, you can have some plus or minus. So this last quarter was a very good one because new clients. By definition, the sale process in the technology area is a long one. So we are working today on clients that we hope will be onboarded in 2026, but I am unable to tell you today what will be the exact figures for 2026. What I'm absolutely comfortable and happy about is the fact that we are onboarding more and more clients, which means that we are building more and more recurring revenues, which do not depend on the markets or on the geopolitics or whatever for the future and which are reinforcing our position. And we -- another point which is really important with ALTO is that we deliver growth and new clients, both on ALTO investment or investment platform and on ALTO Wealth. So the 2 lines of -- main lines of products and clients are really up and running. And last but not least, we managed to open new countries because when you get your first client in one country, it means that people around look at it and it's also a source of growth for the future. Regarding the Irish to enrollment by which -- you know that this is a brand-new scheme in Ireland. And by definition, there is no history on which we can count. But we shared is that, that might represent EUR 20 billion, of course, shared between the 3 players. So for the time, it's really just starting. We are thrilled -- I mean, we wanted to focus on that one. It will not change the P&L of Amundi in 2026. It's a very long-term mandate, but we were thrilled about it because it's recognition of the capacities and the expertise of Amundi in the retirement area. And as we are absolutely certain that the move from DB to DC both in Europe and in Asia will go ongoing. The more we are recognized as a strong player in this area, the better it will deliver growth for the future. Nicolas Calcoen: And regarding the Societe Generale deal, so as you know, we don't disclose the specifics on our agreement. What I can tell you is that it confirms our position as a privileged provider of asset management with our funds or mandates for the -- our clients and for that networks, and it should not have any material impact on our P&L going forward. Cyril Meilland: Okay. Next question from Nick. Nicholas Herman: Nicholas Herman from Citi. Three questions as well, please. Firstly, is there any update you can give us on the SBI JV IPO, please? I guess, presumably, can you confirm if you're still on track for an IPO in the first half of this year? Any update on the process would be helpful. Secondly, on passive inflows. Did I hear you correctly that you brought in EUR 5 billion from new passive product launches during the year, it's about 10% of your passive inflows. I guess could you just talk about the competitive environment within passive because it looks like you've been taking a lot better share recently. But I guess also as part of that, and I know you don't disclose your passive fee margins. But I guess with such strong demand for funds like Core Stoxx 600, is it fair to assume that the margins on your passive inflows have been dilutive to your blended passive fee margins? And then finally, just a technical one on the buyback. Just curious why you decided to upsize the buyback already 2.5 months after announcing the buyback of at least EUR 300 million. And I guess also part of that... Valérie Baudson: Why we increased... Nicholas Herman: [indiscernible] it before, I think when you announced it, at least EUR 300 million and now 2.5 months later you're saying EUR 500 million. So why stay? And what is it that drives the variance of the cost of the ICG stake between EUR 700 million and EUR 800 million because I understand that you've structured the transaction to kind of limit the variability. Is that an incorrect understanding? If you could clarify that please. Valérie Baudson: Okay. We're going to clarify. On the -- so on the SBI IPO, very simple. The process is on track. And as of today, but we're still only in January, we expect the IPO to happen by the end of the semester by the end of June. But 6 months to go, an IPO is not an easy process. So -- but for the time being, everything is on track. Second topic on the passive side, I don't know if we have -- if you want to share any figures. I mean, honestly, regarding your question around the Core Stoxx 600, I think what is remarkable here is that Europe attracted by definition, a lot of flows this year for good reasons, of course, the performance of the index, but also the fact that the dollar decreased a lot, as you know. And for all these reasons, investors have diversified their position and all over Europe and Asia and especially diversified their position in investing into Europe. So it's great news that our Core Stoxx 600 attracted so many flows. And I think it's the sort of evidence and recognition that Amundi is the largest ETF provider in Europe with the largest and widest range. Honestly, on the margins for me, it's -- I'm going to let Nicolas look at it or answer if any, but I haven't seen anything significant. Nicolas Calcoen: No, nothing significant. And what's important to see is that we have inflows on, I would say, very vanilla products, but we are also innovating and margins on more innovative products tend to be higher. So... Valérie Baudson: Yes, because at the same time, so we stress the Eurostoxx 600, but we launched a lot of EFT, thematic fund, [indiscernible], strategy [indiscernible], which have attracted a lot of flows as well. As you know, we launched our first active ETFs with by definition, higher margin. We also launched, as you remember, at the end of the year, our ETF as a platform service, which is another way to increase the revenues of Amundi. I remind you, we offer our ETF platform, both to active asset managers who don't have one and who want to list their expertise on the market, and we act as a service provider, but we also sell this platform to distributors who want to distribute ETFs, can be passive or active under their own brand name. So all this is a sort of, I would say, virtuous circle on the ETF space. And on your last question, I'm going to try to do it to make it very simple. On the share buyback, when we announced you this share buyback and said minimum EUR 300 million, it's because in early November, by definition, we did not have the figures at the end of the year. What we committed was to give you back the excess capital at the end of the 2025 plan. And when we add -- when we look at the end of 2025 and when we add the price of ICG, the dividend we are proposing to the -- we propose to the Board and the excess capital, the difference is the EUR 500 million. So we are committing to our promise. Nicolas Calcoen: On ICG, the reason why there's no precise number is as you have understood, there are 2 operations, one which is already done, and which is structured operation. But there's a second operation, which will be issuance of shares in the months or quarters to come by ICG to us, and they will buy back on the market. And we don't know at which price it will be done, and they are still probably something like a year before the end of the operation. Valérie Baudson: So we will know... Nicolas Calcoen: So we don't know exactly the price at which we will buy the full stake. Cyril Meilland: Okay. Thank you. Next question from Tom. Thomas Mills: It's Tom Mills from Jefferies. I don't think you guys mentioned in your presentation about Fund Channel. I was just interested in how that business is developing. I guess we've seen some consolidation in the B2B fund services space in the last month or so. Just curious as to how you see that development in terms of your own competitive positioning. Is that something you object to from an antitrust perspective? Just curious on your thoughts. Valérie Baudson: First of all, we saw a very nice development on Fund Channel. I'm going to Nicolas or [indiscernible] to give the exact figures, but we won new clients, and the company is growing at the pace we were expecting budget-wise. And second, there was a very -- I'm not sure we discussed about that already. There has been a very important development this year within Fund Channel, we launched a specific money market platform, which is super attractive for all our corporate clients. So it will be an additional source of growth for us in the future. So we are still totally committed to Fund Channel and are very happy to remain and to be a strong competitor on that market. For us, it's both a source of growth and also a very important way to go on delivering a good service to all our clients and to help them manage their open architecture. Thomas Mills: [indiscernible] just a combination of... Cyril Meilland: Maybe we should use, mic, I think, for online... Thomas Mills: Just the combination that we've seen elsewhere in the market, Deutsche Borse and all funds, is that something that you guys are fine with? Is there any some antitrust objection that you might have to that combination? Valérie Baudson: We never comment on the transactions of our competitors. I cannot -- only comment about the fact that we are very happy to have Fund Channel, and we are totally committed to go on having it growing and confident. Nicolas Calcoen: Assets under distribution are EUR 660 billion, which is above the target we had set to the previous plan at the end of December. Cyril Meilland: Jacques-Henri and then we will answer it with online questions from Claire. Jacques-Henri Gaulard: Jacques-Henri Gaulard from Kepler Cheuvreux. I did something fun this morning. I didn't restate the Q4 2025. And when you don't do that, when you don't restate, you realize that imagine you don't have revenues as a reference from the U.S. You have the UniCredit outflow. So it's not exactly a great condition. But despite that, your earnings pre associates remain flat, pretty much stable, which is quite incredible. The whole point being the resilience of the rest of the business versus that is quite big. Then you're also going to buy back 600 million of share, maybe more, you never know if we have an IPO. So when are you raising your EPS target for '28? Valérie Baudson: First, we take the good part of your comment. Jacques-Henri, thank you so much. And I'm very happy that you see through your spreadsheet, the reality behind Amundi, which is the incredible resilience, which is linked to something real, the huge diversification of our client base, our expertise of our services, et cetera, which makes us strong and growing day after day. And as I told you during the medium-term plan, I'm very confident that for the 2028 plan, and I will -- and today even more. We have no plan to change the target. We were very clear by telling you that the earnings per share target was a floor on which we committed, and we stick to the strategy as of today. Cyril Meilland: Thank you. We move, as I said, to online questions. So I open the mic of Pierre Chedeville. Pierre, you should be able to unmute your mic and speak. Unknown Analyst: Jacques-Henri, asked the same question as me -- as I wanted to ask, but I wanted to ask, when are you going to lower your cost income ratio target? Valérie Baudson: Same answer. Same answer [indiscernible] question... Unknown Analyst: More or less the same question. So more or less the same answer. Other question regarding your digital development, I was wondering if you had any target related to Credit Agricole ambitions in this area. You know that Credit Agricole wants to develop strongly on the savings side with BforBank Bank and also in Germany, particularly with Credit [indiscernible]. And I wanted to know what is exactly the cooperation you are setting up with them, if you have any target there, it could be interesting. A precision regarding the tax. Can we imagine that in 2026, now that we have the budget voted, we will see more or less the same tax impact in 2026. roughly, I would say, a tax rate around 31%, something like that. Is it reasonable to see that or not? And maybe just to clarify regarding share buyback. As far as I understand, you said in your business plan that you were focusing on external growth, you privilege external growth. So I mean that if you are about to make over share buybacks operation, you will wait for the end of the plan? Or I'm not clear on that. Valérie Baudson: Thank you. Nicolas, I'm going to take the Credit Agricole, and I would be letting on somebody to other one. On Credit Agricole, of course, I mean, by definition, Credit Agricole is an essential, okay, has always been an essential client of Amundi, and we are totally committed to all their growth prospects and thrilled that they are investing outside of Europe in the savings area. So we are working on that topic to answer very transparently this question. We are working on that topic with them, of course, as we would with any other clients, but of course, on that topic. But also not only on this one, we are -- it would be very long to explain, but we are delivering every year new solutions. For instance, we just launched last year incredibly successful new DPM solution within the Credit Agricole networks, which is growing very fast. So we have plenty of new solutions that we launch on a recurring basis, both with [ Credit ] Regional and with LCL. We have been working a lot with BforBank already. This is not new for us. It's been a long relationship, and we are in the process of helping [indiscernible] in development in Germany right now. So no specific figures to give you and to release, but you can be assured that we are helping them, of course. On the tax, Nicolas? Nicolas Calcoen: On the tax, indeed, as you have noticed in France, the tax bill has been -- the budget bill has been adopted or in the process to be formally adopted. It does include the same tax surcharge mechanism as last year with the same rule, the same way. So basically, it will have the same impact for Amundi, meaning tax surcharge, which should be around, let's say, EUR 70 million to EUR 75 million. By the way, accounted the same way as last year. It's based both on '25 and '26 results. So it will be accounted -- let's say, 60% will be -- around 60% will be accounted on the first quarter and the rest will be accounted progressively in the 3 following quarters. And indeed, I would say, excluding our tax -- this tax surcharge, our tax -- average blended tax rate is, let's say, around globally for Amundi around 25% -- 25%, 26%. And this tax surcharge added close to 5% to this tax rate. And the last question -- yes, was regarding share buyback. So let me reclarify the share buyback we are announcing the EUR 500 million is the implementation of fact of the commitment we took in the previous plan and the commitment was to use the excess capital to do M&A or to return it by the end of the plan. So that we are fulfilling our commitment. Going forward, our approach has been, I think, developed during our last medium-term plan Capital Day. We continue to prioritize external growth for the use of excess capital. But at the same time, we don't want to accumulate capital on the balance sheet. So at the end of the day, we return the flexibility to return excess capital that wouldn't be used to the shareholders, but at the time in a way that will be determined during the course of the plan. Cyril Meilland: Thank you. We will take our next question from Hubert in the room. Hubert Lam: It's Hubert Lam from Bank of America. Just 3 questions. Firstly, for ICG, I think you mentioned the first product is going to be launched in the second half of this year. Could you remind us again, like is it a private credit product, private credit or/and public credit product? Also who you can distribute it to geographies and maybe even what your outlook in terms of flows for that? Second question is, I saw that the French networks had a good inflows into medium, long-term in Q4. So wondering if you see this as a turning point, just any dynamics around that? And lastly, just a follow-up on the ALTO question earlier. Q4, we saw a step up. I think in the presentation, you mentioned 40% of it was due to project revenues. I'm wondering, how much of that was maybe a one-off? Or is this something that could be sustained in the near term, at least? Valérie Baudson: On the cost side or on the revenue side? Hubert Lam: The revenue, sorry. Valérie Baudson: Can you repeat the last one, sorry? Hubert Lam: Yes, questions on ALTO. Valérie Baudson: On ALTO, sorry. Okay. Hubert Lam: I think it was EUR 35 million in the quarter. I think you mentioned 40% of it was due to project revenues or something like... Nicolas Calcoen: 40%. Hubert Lam: 40% margin [indiscernible]. Is that a one-off, or is that seasonal one-off? I'm just wondering how would you think about this number? Valérie Baudson: It's probably higher than what would be the average. Nicolas Calcoen: Exactly. Valérie Baudson: If I had to give an answer, but it will depend on all the new clients we will get next year. But it's probably -- I mean, let's say it's a bit higher. On ICG, so yes, we will launch our first 2 new common solutions. So we are in the process of building the SCA and package the solution in the new regulated format we have in Europe, as you know. We expect all this to be ready during H2, probably after summer. We're working hard to make it very efficient and quick and in an excellent collaboration and good project mode. The 2 first solutions will be one on private credit and the other one on secondaries. And we're already preparing what will be the future. But at least these 2 are in the pipeline, and we will -- it will be under regulated European format. So obviously, distributed in Europe and in some Asian countries, which allow it. On the second question was on [indiscernible] Nicolas? Nicolas Calcoen: French network. Valérie Baudson: I mean, french network, sorry. French networks part of the flows we saw is linked to the dynamic of the life insurance in France, which is, as you know, dynamic and which also explains, by the way, the very good figures we have on the insurance side for the euro contracts on the institutional side in our figures. And part of it is a share of the new solutions I was mentioning. Typically, the very nice growth rate on our new DPM solutions is part of what you see in Q4. Cyril Meilland: We take next question from Zoom. So Michael, I'm opening your mic. Unknown Analyst: Can you hear me? Cyril Meilland: Yes, we can. Unknown Analyst: I have 3 questions, please. First, I think you indicated UniCredit channels saw about EUR 16 billion of outflows in 2025. Should we expect a similar number next year? And can you confirm whether any of the distribution -- if they are paying a penalty fee related to your distribution contract? That's number one. And number two, we saw really strong performance fees in the quarter, and yet you still showed pretty good cost discipline. I was just wondering how much of the Q4 cost base was performance fee related, i.e., incremental compensation based on that? And then finally, in terms of the share buyback, is this a buyback that will include your parent company? Or is the shares are going to be bought back from minority shareholders? Valérie Baudson: Good. I take UniCredit, I'll let you take the two other ones, Nicolas. So UniCredit, nothing new since the medium-term plan you attended. You know our partnership present in July '27, at which point it might not be renewed. We committed on targets to you which we will deliver whatever happens with UniCredit. We are obviously fully committed to service as we always done the networks and their clients. The difference is that we give you the exact flows and assets on a quarterly basis to give you full transparency of it. So I remind them, minus EUR 16 billion with EUR 4 billion at the end -- for the last quarter. Obviously, I'm not going to speculate on what will happen in '26. What I can tell you is that UniCredit represents today EUR 86 billion of assets under management. Group-wise, among which EUR 66 billion in Italy. And that means EUR 86 billion out of EUR 2,380 billion, as you know, and EUR 86 billion is less than what we raised this year overall. I just wanted to remind the global picture on that front. Otherwise, nothing more. Nicolas Calcoen: On the second question regarding performance fees and potentially associated costs, there are no costs directly associated to performance fees as to any kind of revenues, by the way. Just a reminder, we have a variable remuneration policy, which is to basically, I would say, allocate something between 14% and 20% of the pre-variable remuneration gross operating income to variable remuneration, but it's appreciated globally, no direct cost associated to any particular kind of revenues in particular performance fees. And the last question regarding -- yes, it was a share buyback. So Credit Agricole informed us that they will not participate in the share buyback. So it will be bought on the market. Unknown Analyst: [indiscernible]? Valérie Baudson: We never comment on our [indiscernible] on our partners and clients. Cyril Meilland: Thank you. Next question from Sharath. Sharath Ramanathan: Sharath Kumar from Deutsche Bank. I have 3 questions, 2 on India and one on digital flows. Firstly, on the India flows, I would say still not very encouraging. Do you think yesterday's tariff deal with the U.S. and Sunday's budget announcement could be the catalyst for the flow's recovery in India? So what is the outlook on the near-term flows? The second one, sticking with India. From my calculations, assuming that we get a $14 billion IPO value for the SBI on the basis of what we hear from the press, I calculate capital gains of, say, $300 million, $350 million for the 3.7% stake that you would sell. So what do you intend to do with the proceeds? Would it go into the M&A pool? Or do you -- are you thinking about a special dividend? And finally, on digital flows, how do you characterize the nature of flows? What does it do to your group margins? I imagine it would be accretive, but if you could clarify, that would be helpful. Valérie Baudson: On the digital flow... Sharath Ramanathan: On the digital flows -- so what sort of products are we getting at? And what sort of margins compared to the group margins? Valérie Baudson: Okay. On the first question about [indiscernible]. Sorry, SBI flows first before speaking about the IPO. Honestly, exactly as Nicolas explained it, we saw this year that the Indian rupee was down 15%, which clearly explained a material part of the decrease in flows in euros over the period. And the slowdown was driven by institutional clients, which were, I would say, less enthusiastic in this environment. What is very positive and essential for us is the fact that on the retail side and on the rise of the individual savings plans, which is incredible source of growth for the future of this company. They have remained very dynamic. So the strong fundamentals are completely here, despite the fact that the rupee was really down this year. So I am fully and totally confident in the future and the growth outlook of SBI MF just because this is a market which is still so -- which has such a low penetration compared to the penetration of the asset management industry, we can see in the U.S., in Europe and even in a lot of other Asian countries that the growth is going to be huge. Second, regarding the transaction, of course, we -- it's much too early to give both the valuation and value for Amundi. And it's also too early to say whether it will depend on the decision of the Board when it will be done. We will discuss this topic later. And on the digital flows, what is obvious is that distributing savings digitally means using a lot of ETF, and it is the reason why Amundi is so successful in -- it's one of the reasons why Amundi is so successful in this new market, which is the digital distribution of savings. It is not the only reason. It's also because it's a very different way of working with digital distributors than with traditional banks and that we really were able to adapt to everything in terms of marketing, in terms of technology, in terms of speed of answering, et cetera, et cetera. But at least it does explain. So of course, a big bulk of this distribution is and will be done through ETF. But as I explained to you very often, the cost of production of an ETF is much, much, much lower than the cost of production of active management. And at the end of the day, selling ETFs for Amundi is very profitable and exponentially profitable. Sharath Ramanathan: Just a follow-up. Just on the India flows on the AUM mix, do you have -- what is it between Retail and Institutional segment? Valérie Baudson: I'm going to ask my CFO friends in the room to give you the exact figure. Can we come back to you later on the call. Cyril Meilland: We'll definitely get back to you, Sharath. I think there was a question from Michael. Michael Sanderson: Mike Sanderson, Barclays. Just a couple, please. First of all, the ICG product launch timings, you've obviously laid out the time line in relation to the corporate governance and the ownership piece. Are they directly linked? Does the regulatory piece have to come through before you can launch the product? Or are you happy to go separately? And then secondly, you saw some strong institutional flows through Q4 that you particularly noted. And I'm just interested, first of all, the scale of them and whether there's any sort of margin dilution, particular margin dilution when you're talking sovereign wealth and central banks? And secondly, I suppose, the pipeline in those areas, how that's looking into the next year? Valérie Baudson: On ICG, the answer is no. There is absolutely no relationship between these regulatory approvals, which are really linked to the accounting topic that Nicolas was explaining and the partnerships. We already started the raising, and we will be delivering it whatever the regulatory and financial process. On the second point, Nicolas? Nicolas Calcoen: So no particular dilution. We had indeed a strong activity on the last quarter. And as for any of our business, the margins we can -- we get depend very much on the type of strategies we propose and not that much on the type of clients. So... Valérie Baudson: If I have to give you an idea, I think the institutional share of our business this year was particularly exceptional, but it will depend on our clients in 2026. So -- and once again, we are thrilled to see so many big institutional clients, especially in the retirement area, willing to work with Amundi. Cyril Meilland: We do not seem to have any questions from the Zoom video conference. Any questions left from the room? No. Okay. Thank you. I think that's done. Thank you very much. Obviously, we're at your disposal for any follow-up. Annabelle, Thomas and myself and looking forward to our next encounters at the very last Q1 results, which will be announced on the 29th of April, if I remember well. Thank you. Valérie Baudson: Thank you so much. Nicolas Calcoen: Thank you.
Cyril Meilland: Hello. Good morning, all. I'm Cyril Meilland, the Head of Investor Relations at Amundi, and it's a real pleasure to welcome you today in the not so sunny London for a presentation of our full year and fourth quarter results. We are here in our London office, and this is a hybrid event. So we will have people in the room and people online via Zoom. We shall have a presentation by our CEO, who is here with me, Valerie Baudson; and our Deputy CEO, Nicolas Calcoen. Presentation will last for about 30 minutes. And as usual, it will be followed by a Q&A session for as long as it takes. So ask any questions. The questions can be asked obviously in the room as well as online. [Operator Instructions] And unfortunately, before we get started, a very short disclaimer. Throughout the presentation, we will make some forward-looking statements and mention forecasts. We call your attention to the fact that Amundi's actual results may differ from these statements. Some of the factors that may cause the results to differ materially are listed in our universal registration documents. And Amundi assumes no duty and does not undertake to update any forward-looking statements. And after this task, I leave the floor to Valerie. Thank you. Valérie Baudson: Well, thank you, Cyril, and good morning, everyone, in the room behind the screen. We are very pleased to present our Q4 and full year 2025 results, which reflect both our record activity and the core elements of our Invest for the Future 2028 plan. So I will take you through some key highlights before Nicolas, as usual, looks at our activity and financial results in more detail. First, our assets under management have now reached almost EUR 2.4 trillion, so up 6%. This is thanks to record total 2025 net inflows of EUR 88 billion from both passive and active management activities. In terms of clients, this performance was driven by positive inflows across retail, institutional and our JVs. Retail inflows predominantly came from our very fast-growing third-party distribution business. And on the institutional side, medium- to long-term asset collection tripled in 2025 with some major mandate wins in Europe and the Gulf in Q4. Our activity drove strong financial results with adjusted pretax income up 12% for the quarter and 6% for the year, while adjusted EPS reached EUR 6.58. This performance and our strong financial position allow us to propose a 2025 dividend of EUR 4.25. This represents a payout that is EUR 100 million above our 65% target. And we are also delivering on our commitment to return excess capital to shareholders from the 2025 strategic cycle. So today, we are announcing a EUR 500 million share buyback, which starts tomorrow. So combined, the dividend and share buyback will return close to EUR 1.4 billion to investors, around 10% of our current market cap. And more than half of these figures will go to minority shareholders. So all in all, we enjoyed success across all our strategic growth areas in our Invest for the Future plan, making 2025 a strong start to our 2028 plan period. So let's take a closer look at some of the key activities. Clients first, starting with retirement, which is, as you remember, one of the key strategic priorities in our new plan. We have established a dedicated business line to package our offer and capture new opportunities. And following from the people's pensions in the U.K., we secured another major mandate at the end of the year. Amundi is one of just 3 asset managers selected for Ireland's new auto enrollment pension scheme, which will serve the majority of the Irish workforce. Assets for this scheme are expected to reach EUR 20 billion in the next 10 years. Our other major strategic client priority, you remember, is digital distribution. We saw EUR 10 billion in net new assets from digital players in 2025, almost half of our full year retail flows. New mandates included the retirement offer launched with Moneybox, an award-winning digital wealth management platform in the U.K. This partnership brings together Moneybox client-led product design with Amundi's global multi-asset and ETF expertise, creating 3 new Moneybox blended funds. Now geographies next, starting with Asia. We continue to deliver strong growth powered by our direct presence and our successful JVs. Asian net inflows were EUR 33 billion for the year. Over 40% came from our direct distribution business with contributions well diversified by country and client type. And on the JV side, India and Korea were the main contributors and China showed a good momentum as well. Now closer to home, Europe continues to offer significant growth potential for Amundi and increasing our market share in Northern Europe is, as you remember, another strategic priority. Our 2025 activity reflects this with EUR 40 billion in net inflows from this region, including EUR 29 billion from the U.K. Germany contributed EUR 8 billion in net inflows with EUR 5 billion from digital platforms. And as part of our new strategy, we will also reinforce our presence and build on strong client activity in new high potential regions. The Middle East is one of these. And in addition to strong business momentum, we also signed a new strategic partnership with First Abu Dhabi Bank to target Gulf investors at the end of 2025. This partnership combines Amundi's wide coverage of investment solutions and asset classes with First Abu Dhabi Bank regional insights and presence. Solutions next, where innovation is key to future growth. So let's start with active management, where we saw good investment performance as we continue to widen and strengthen our offer. We launched 3 new UCITS funds in key strategies: global equity, U.S. large caps and U.S. mid-caps. These funds fulfilled via our Victory Capital partnership are the first from investment platforms outside of the former Amundi U.S. brand pioneer, demonstrating the clear potential to extend our range as promised. We have also launched in 2025, the first tokenized share for one of our money market funds. The fund is now easily accessible via standard distribution networks and/or the tokenized shares. This first class of tokenized shares is just the beginning, and we will gradually test and add new features to our offering based on specific business cases. Smart Solutions, our another commercially successful innovation, well suited to the current environment. These solutions enable institutional investors to optimize their excess cash by capturing their premiums offered by top-tier issuers for their funding while maintaining low volatility and high liquidity. Assets under management for these funds reached more than EUR 41 billion in '25, representing additional inflows of EUR 20 billion. And this includes EUR 3 billion -- additional EUR 3 billion from a European public institution in Q4. Now ETFs next, where we are further strengthening our position as the second largest provider in Europe and the #1 European provider, both in terms of assets under management and inflows. ETFs assets under management reached EUR 342 billion, up 27% year-on-year. In Q4, we achieved record quarterly inflows of EUR 18 billion and EUR 46 billion for the year. We are, by far, the #1 collector of European equity ETF inflows. This leadership is driven by our diversified offer, which includes products like [ Euro ] Stoxx Europe 600, the largest selling European equity ETF on the market. But innovation is also key to capturing ETF growth. So new products, including macro thematics like defense and strategic autonomy collected EUR 5 billion in '25. Innovation is also key to adapt and grow our responsible investment offer. In July, we launched a new global green bond fund tailored for Zurich's Life Insurance clients seeking diversified access to Green bonds. And in December, we launched a Euro biodiversity credit fund available to both institutional and retail clients in more than 10 countries. This fund allows investors to participate in the preservation of natural capital through a euro credit allocation. So in summary, a period of strong innovation across our investment solutions that is supporting, of course, our growth trajectory. Finally, I would like to highlight Amundi Technology. We are now a recognized technology provider covering the entire savings value chain and operating at scale in 15 markets. Revenues reached EUR 116 million in 2025, up 45% year-on-year, thanks to 10 new client wins, which also saw us enter 2 new markets, Denmark and Singapore. We talked about some of the great 2025 client wins at the Capital Market Day, including AJ Bell in the U.K. Since then, leading Dutch assets and wealth manager, Van Lanschot Kempen has selected our ALTO investment platform. We also signed Bankdata, a technology services consortium made up of 7 Danish banks that serve 1/3 of the country's population. Bankdata selected Amundi's ALTO wealth and Distribution solution to introduce comprehensive portfolio analytics and reporting into its ecosystem and obviously, for the clients of these banks. We also recently launched our new Data-as-a-Service offer, leveraging our robust architecture, our data provider connectivity and our market expertise. We are now onboarding our first client, a leading global insurer in Asia. So our tech business is continuing to deliver growth while also serving as a key strategic enabler for the wider Amundi Group. It strengthens our investment solutions, creates durable long-term relationships and is a key differentiator for Amundi among European asset managers. So that's all for me for now. Let me hand over to Nicolas to take you through our Q4 and '25 activity and financial results in more detail. And I will be back, of course, for some closing remarks ahead of the Q&A. Nicolas Calcoen: Thank you, Valerie, and good morning, everyone. I will now comment on our activity and the financial results. Starting with our assets under management, which reached EUR 2.38 trillion at the end of December. This is again a new record for Amundi. Assets were up by 6% over the year. Almost 2/3 of the growth is coming from net inflows at EUR 88 billion of 4% of AUM, and the rest come from a positive market and ForEx effect of EUR 62 billion despite the depreciation of the U.S. dollar and the Indian rupee. On the fourth quarter, our assets rose by 2.7% with similar trends. Moving now to our net inflows. As I said, they amounted to EUR 88 billion. They are sharply up versus 2024, which already showed a strong increase compared to the previous year. In other words, we have enjoyed strong business momentum in the past 3 years. Furthermore, this business momentum was driven mostly by medium- to long-term assets from our 2 client segments, retail and institutional. Long-term net inflows indeed more than doubled at EUR 81 billion for all these clients. Long-term flows were positive in both active and passive management. Passive management was very successful at EUR 76 billion, including the EUR 46 billion in ETFs, as Valerie highlighted. And active management gathered EUR 13 billion, almost double the net flows of the previous year. Fixed income was again the main driver, but growth also came from the return to positive net flows of active multi-asset management. Conversely, treasury products posted net outflows largely related to the ECB rate cuts and a slightly more risk on approach by our institutional clients. Turning to our joint ventures. They collected EUR 20 billion. I will come back later on with more detail. And finally, the U.S. distribution of Victory Capital for the share we own in this partner posted net outflows of EUR 1.4 billion. However, the strategies managed by Victory Capital that Amundi distributes to its clients in Europe and Asia gathered EUR 800 million despite a lower appetite for U.S. strategies last year. I will not comment in detail on the fourth quarter because it is, in fact, very much in line with the full year trends with some acceleration in areas like long-term assets in general, in particular, ETF, but also active management. Coming to performance. Our investment management teams delivered sustained performance in 2025 as illustrated on the slide. Close to 3/4 of our open-ended funds were in the first and second quarter over 1 year, 3 years and 5 years and 233 Amundi funds are rated 4 or 5 star by Morningstar. The investment performance is particularly good for fixed income and multi-asset flagships. For example, in multi-assets, global -- multi-asset on its more conservative versions, global multi-asset conservative ranked in the top 5 and 10 percentile of the category. On the fixed income side, global aggregate, our main flagship outperformed its benchmark by more than 300 basis points on our Euro subordinated strategy by more than 600 basis points. And beyond this particular highlights, I think the main message from this slide remains sustained consistency at a high level of investment performance. Looking next at our client segments, starting with retail. Retail flow was positive at EUR 22 billion over the full year. These flows remain driven by third-party distributors, which continued to post very healthy inflows of EUR 33 billion with EUR 27 billion in ETF and positive flows in active management. Flows are also very diversified by region. In Europe, first with EUR 23 billion with a high level of activity, in particular in Northern Europe, in U.K., in Germany, in Netherlands, but also in Spain and Italy. Asia continued its healthy momentum with EUR 6 billion of net flows. And in addition, we gathered material flows from high potential regions like the Middle East, Canada and Mexico in line with the strategy -- our strategy to conquer these new markets. Beyond third-party distribution, our Chinese joint venture with Bank of China also enjoys strong momentum with EUR 2 billion gathered year-to-date. And turning now to our international partner networks. The net outflows totaled EUR 14 billion, as you can see. They are fully attributable to UniCredit, where outflows totaled EUR 16 billion in the full year, of which EUR 4 billion in the last quarter. Finally, the French partner networks in France are showing positive net inflows of EUR 1 billion. The fourth quarter net inflows in this segment are entirely due to treasury products, in particular due to corporate clients of these networks, where the long-term assets are positive. Moving to the institutional segments now. In '25, net inflows were EUR 48 billion with a strong performance in long-term assets at EUR 61 billion, triple the level of '24. Passive management accounting for large share EUR 44 billion, of which almost half coming from the mandate won with people's pension. But we also gathered close to EUR 20 billion from active management for the most part in the Smart Solutions Valerie highlighted. If you look at by subsegments, institutional and sovereign posted record levels, thanks to a series of mandate wins in Europe and the Middle East, with in particular sovereign funds, central banks or stable relative entities. Employee and savings and retirement business that we presented more in depth last quarter posted a high level of long-term inflows once again. And finally, Credit Agricole and Societe Gennerale, the long-term inflows of EUR 17 billion benefited from the renewed interest in euro contracts in France. The short one maybe on the outflows from treasury products. They originated, as I indicated, from the rate cuts implemented by the central banks and the resulting share for our clients for better yields. An illustration once again of the success -- of this is the success of the Smart Solutions we mentioned. Again, I will not comment in detail on the fourth quarter. As you can see, the trends are very similar to the one we saw for the full year with EUR 13 billion in total. Finally, our Asian joint ventures posted net inflows of EUR 20 billion over the full year with good performance in all countries. South Korea posted EUR 6 billion, mostly in long-term assets, and we saw some outflows in the last quarter, which are purely seasonal and linked to treasury products. China with ABC continued its recovery with EUR 2 billion inflows over the year. And our Indian joint ventures posted more than EUR 10 billion of inflows. The decrease compared to '24 is partially explained by the decline in the Indian rupee versus euro. And for the rest, it was driven by lower inflows from institutional clients in a less favorable markets. However, net inflows into savings plans in retail continue to grow in a very healthy manner. Moving now to our net results. You are now very familiar with the pro forma restatement that we made to 2024 quarters to make the series comparable after the clubbing -- the closing, sorry, of our partnership with Victory. So I will not detail them again, but you have, of course, all the details in the appendix of the slide deck and in the press release. All my comments will refer to adjusted data and year-on-year variations refer to '22 pro forma figures -- '24, sorry, pro forma figures. So let's start with the review of our fourth quarter and in particular, on revenues. As you can see, total revenues were just shy of EUR 900 million in this quarter. They were up by more than 8%, thanks to a healthy growth in all business-related fees in asset management and technology. First, net management revenues were up by 7% compared to the last quarter of '24, of which 4% for management fees, thanks to our strong asset gathering in the past 12 months. And performance fees were very elevated, thanks to the performance delivered by our teams across a large range of expertise. Technology revenues were up by 37% at EUR 35 million. This reflects both healthy growth in license revenues and a high level of billed revenues, thanks to the launch of new client projects. Finally, a short word about our financial income. It's stable compared to the end of '24, but this reflects contrasting elements. On one hand, the decrease in euro short-term rates resulted in a material drop of the return we get from our voluntary placement of our cash. However, on the other hand, this was offset by better mark-to-market valuation and carried interest from our private asset investments. Turning now to our cost at EUR 450 million. They were up on the quarter by 6%, more than 2 points below the top line growth in the context of very healthy business development. This good cost control over our cost was achieved, thanks to our continued efficiency efforts, including the first savings from the cost optimization plan we announced in the second quarter of last year. This allowed us to continue our investment in our strategic priorities to nurture our future growth. And approximately 1/3 of the year-on-year cost growth originate from investment, in particular from technology. As a consequence of this large jaws effect, the adjusted cost-income ratio was 50%, 51.5% to be precise on this quarter. Finally, our adjusted pretax income topped EUR 500 million for the first time in a quarter at EUR 519 million to be precise. It was up by 12%, thanks to, again, the healthy growth in operating profit, up by 11% and the acceleration from our associates up by 21%. It's further contribution from our Asian joint ventures, which was up by 20%, driven mainly by our Indian joint venture. And despite the decline in the rupee and the contribution from Victory Capital, which was up by 19%, reaching EUR 35 million, thanks to the synergies and again, despite the currency headwind. The adjusted net income was EUR 376 million, almost the same level as in the fourth quarter '24 despite the exceptional items in the tax charge. First, of course, the tax surcharge in France, which represented around EUR 11 million in this quarter. And second, the resulting tax on an exceptional dividend we received from our Indian JVs, which represented a cost of EUR 12 million, sorry. This exceptional dividend was paid out in preparation of the IPO of SBI FM, which is, as you know, scheduled for the first half of this year. And we received indeed EUR 130 million as exceptional dividend. But as the joint venture is consolidated according to the equity method, this dividend does not contribute to our results, but only to our cash position. Finally, let's get a look to our financial performance for the full year. The trends, as you can see, are very similar to those of the first quarter. The pretax income rose by 6% to an all-time high of almost EUR 1.9 billion, EUR 1,858 million to be precise. And this growth was driven by an equivalent growth in revenues, 6%, driven by business-related fees, of which 4% for management fees, which represent 2/3 of this growth, 20% growth for performance fees to EUR 173 million, and 40% of growth for technology revenues reaching EUR 116 million, including a full year of aixigo. But organic growth and technology again remained very solid, excluding aixigo, 30% of growth in revenues. Our revenue margin, asset management revenue margin, of course, was 15.9 basis points pro forma again of the deconsolidation of Amundi U.S, like in the first half of '25, but down by 50 basis points from full year '24. We already commented on this decrease in the previous month -- previous quarters. It is entirely due to the strong growth we have enjoyed in the Institutional claimant segment, in passive management and as well as in active fixed income. So both the clients and the project mix have therefore weighted on our margins, but the growth has been profitable on a bottom line basis, of course. Finally, on the revenue side, contrary to business-related revenues, net financial income was down by 5% due to the rate cuts by the ECB and partially offset by the positive mark-to-market as for the last quarter. On the cost side, costs were controlled, again, 6% growth, in line with revenues, reflecting again the investment we made in our growth drivers. And more than half of the cost growth is related to an increase in investment in particular, again in technology. As a result of this good cost control, our operational efficiency remained best-in-class with an adjusted cost income ratio of -- sorry, 52.1% for the full year. This good operating performance for our fully controlled business was complemented once again by strong contribution from our associates. Our Asian joint ventures contributed EUR 135 million or 10% of our net result and up also by 10% despite again the currency headwind in India. And the contribution from Victory Capital was EUR 95 million for the first -- for the last 9 months only, up by 12% over the profit contribution of Amundi U.S. over the same period in '24. As a consequence, excluding the tax surcharge in France that totaled EUR 74 million, our adjusted net income would have been over EUR 1.4 billion. And including the tax surcharge, it was EUR 1,354 million, and the earnings per share was EUR 6.58. This good level of profitability only strengthened again our financial position, as you can see on this new slide. We are probably the traditional asset manager with the largest tangible equity base globally. Indeed, it reached EUR 4.9 billion at the end of '25, up by 10% over a year. As Valerie announced, the strong balance sheet allow us to propose to the general assembly next June, a dividend per share of EUR 4.25. This represents a payout of 74%, EUR 1 billion over what it would have been if we had applied the minimum 65% target. This decision is part of our disciplined capital management. If we can move to the next slide. Our final surplus capital at the end of December '25, the end of our previous plan and before distribution on ICG was EUR 1.4 billion. We will appropriate this amount for 3 purposes in line with our commitments. First, M&A. The acquisition of our stake in ICG is likely to use EUR 700 million to EUR 800 million for the final 9.9% share we target. Second, the ordinary dividend, the EUR 100 million above the minimum payout I just mentioned. And third, additional capital return. The Board has indeed decided on a final amount for share buyback of EUR 500 million, well above the minimum EUR 300 million we had committed at our Capital Market Day in November. This will represent an earning accretion of around 3% at the current share price. And this share buyback will start tomorrow and is likely to span over a full year given the share liquidity and the regulatory constraints applicable to such an operation. It's worth noting that if we combine the total ordinary dividend for '25 around EUR 900 million and the share buyback, we will return to our shareholders this year just shy of EUR 1.4 billion, almost 10% of our current market capitalization. One last word regarding our partnership with ICG and the equity stake we are in the process of building. As you know, we have acquired via a structured transaction 4.64% in ICG on November 19, the day after our Capital Market Day. So we own the shares with full voting rights. However, the structured transaction is still in the process of being unwound. The next milestone is for us to get the mandatory approval from various authorities. We should obtain them in the course of the second or third quarter. And by that time, we will be allowed to appoint a director to the Board of ICG and to start equity accounting for our stake, the 4.64% I mentioned. This will also allow ICG to start issuing new nonvoting shares to us for a total economic interest of 5.3%, taking our final stake to the target 9.9%. They will do so while at the same time, buy back an equivalent amount of ordinary shares on the market and canceling them to avoid dilution. This process is expected to last several months, depending, of course, on ICG share liquidity. And it should be completed early '27, at which point, we shall equity account for the full amount. I hope this clarifies the process. Of course, ICG will be integrated on our reporting as an associate in a similar way to Victory, and Cyril and the team at your disposal for the detail. I will now hand back to Valerie for concluding remarks before we take your questions. Thank you very much for your attention. Valérie Baudson: So thank you, Nicolas. 2025 has been a solid start to our new strategic plan period. We saw higher activity across our strategic growth areas, which supported our strong results. In terms of strategic initiatives, as Nicolas outlined, we are now building our stake in ICG. Our wider partnership has kicked off, and we have already seen some very promising and fruitful cooperation. We are both excited by the significant long-term value it will generate, both in terms of enriching our investment solutions and delivering return on investment for Amundi. We are already working on the funds we are planning to launch with ICG and expect to offer them to our wealth investors soon in H2. And finally, with our proposed EUR 900 million dividend and our EUR 500 million share buyback, we are delivering shareholder returns of more than EUR 1.4 billion, fully demonstrating our disciplined capital management approach. And with that, Cyril, I think it's back to you for the Q&A. Cyril Meilland: Thank you, Valerie and Nicolas. Many questions. We'll start from the room. [Operator Instructions] Let's start with the front row, Arnaud. Arnaud Giblat: Three questions, please... Unknown Executive: To make sure that we can hear [indiscernible]. Is it okay? Arnaud Giblat: Three questions. Firstly, can I ask about ALTO? So a big step-up in Q4. You did say that there was a lot of build for new clients going on. I'm just wondering, how we should be thinking about the coming quarters. Does that build continue -- the revenues from build continue into the future quarters? Or does it step back down to recurring revenues in Q1? My second question is on SocGen. So the contract you announced was renegotiated, I think, in the press release, no material impact because I think Societe Generale as a percentage of the total group has been diluted. I'm just wondering if you could give us a bit more specifics. Has the conditions in terms of share of flows changed with that renegotiation? Has the headline rates changed as part of that negotiation? And my third question is on the Irish DC pension. I think during the presentation; you mentioned EUR 20 billion flow potential over 10 years. Just wondering, how that splits across the 3 partners and what sort of products, the fee rates? I mean, any more details you can disclose that could be helpful. Valérie Baudson: I will let you on SocGen and I answer on ALTO and the Irish into enrollment. On ALTO, Arnaud, as mentioned, new clients -- I mean, in tech, you have the build part when you win the client and that you have to build the project and then you have the recurring fees. So obviously, everything built means more recurring fees for the future. But of course, according to the number of clients you won in the quarter, you can have some plus or minus. So this last quarter was a very good one because new clients. By definition, the sale process in the technology area is a long one. So we are working today on clients that we hope will be onboarded in 2026, but I am unable to tell you today what will be the exact figures for 2026. What I'm absolutely comfortable and happy about is the fact that we are onboarding more and more clients, which means that we are building more and more recurring revenues, which do not depend on the markets or on the geopolitics or whatever for the future and which are reinforcing our position. And we -- another point which is really important with ALTO is that we deliver growth and new clients, both on ALTO investment or investment platform and on ALTO Wealth. So the 2 lines of -- main lines of products and clients are really up and running. And last but not least, we managed to open new countries because when you get your first client in one country, it means that people around look at it and it's also a source of growth for the future. Regarding the Irish to enrollment by which -- you know that this is a brand-new scheme in Ireland. And by definition, there is no history on which we can count. But we shared is that, that might represent EUR 20 billion, of course, shared between the 3 players. So for the time, it's really just starting. We are thrilled -- I mean, we wanted to focus on that one. It will not change the P&L of Amundi in 2026. It's a very long-term mandate, but we were thrilled about it because it's recognition of the capacities and the expertise of Amundi in the retirement area. And as we are absolutely certain that the move from DB to DC both in Europe and in Asia will go ongoing. The more we are recognized as a strong player in this area, the better it will deliver growth for the future. Nicolas Calcoen: And regarding the Societe Generale deal, so as you know, we don't disclose the specifics on our agreement. What I can tell you is that it confirms our position as a privileged provider of asset management with our funds or mandates for the -- our clients and for that networks, and it should not have any material impact on our P&L going forward. Cyril Meilland: Okay. Next question from Nick. Nicholas Herman: Nicholas Herman from Citi. Three questions as well, please. Firstly, is there any update you can give us on the SBI JV IPO, please? I guess, presumably, can you confirm if you're still on track for an IPO in the first half of this year? Any update on the process would be helpful. Secondly, on passive inflows. Did I hear you correctly that you brought in EUR 5 billion from new passive product launches during the year, it's about 10% of your passive inflows. I guess could you just talk about the competitive environment within passive because it looks like you've been taking a lot better share recently. But I guess also as part of that, and I know you don't disclose your passive fee margins. But I guess with such strong demand for funds like Core Stoxx 600, is it fair to assume that the margins on your passive inflows have been dilutive to your blended passive fee margins? And then finally, just a technical one on the buyback. Just curious why you decided to upsize the buyback already 2.5 months after announcing the buyback of at least EUR 300 million. And I guess also part of that... Valérie Baudson: Why we increased... Nicholas Herman: [indiscernible] it before, I think when you announced it, at least EUR 300 million and now 2.5 months later you're saying EUR 500 million. So why stay? And what is it that drives the variance of the cost of the ICG stake between EUR 700 million and EUR 800 million because I understand that you've structured the transaction to kind of limit the variability. Is that an incorrect understanding? If you could clarify that please. Valérie Baudson: Okay. We're going to clarify. On the -- so on the SBI IPO, very simple. The process is on track. And as of today, but we're still only in January, we expect the IPO to happen by the end of the semester by the end of June. But 6 months to go, an IPO is not an easy process. So -- but for the time being, everything is on track. Second topic on the passive side, I don't know if we have -- if you want to share any figures. I mean, honestly, regarding your question around the Core Stoxx 600, I think what is remarkable here is that Europe attracted by definition, a lot of flows this year for good reasons, of course, the performance of the index, but also the fact that the dollar decreased a lot, as you know. And for all these reasons, investors have diversified their position and all over Europe and Asia and especially diversified their position in investing into Europe. So it's great news that our Core Stoxx 600 attracted so many flows. And I think it's the sort of evidence and recognition that Amundi is the largest ETF provider in Europe with the largest and widest range. Honestly, on the margins for me, it's -- I'm going to let Nicolas look at it or answer if any, but I haven't seen anything significant. Nicolas Calcoen: No, nothing significant. And what's important to see is that we have inflows on, I would say, very vanilla products, but we are also innovating and margins on more innovative products tend to be higher. So... Valérie Baudson: Yes, because at the same time, so we stress the Eurostoxx 600, but we launched a lot of EFT, thematic fund, [indiscernible], strategy [indiscernible], which have attracted a lot of flows as well. As you know, we launched our first active ETFs with by definition, higher margin. We also launched, as you remember, at the end of the year, our ETF as a platform service, which is another way to increase the revenues of Amundi. I remind you, we offer our ETF platform, both to active asset managers who don't have one and who want to list their expertise on the market, and we act as a service provider, but we also sell this platform to distributors who want to distribute ETFs, can be passive or active under their own brand name. So all this is a sort of, I would say, virtuous circle on the ETF space. And on your last question, I'm going to try to do it to make it very simple. On the share buyback, when we announced you this share buyback and said minimum EUR 300 million, it's because in early November, by definition, we did not have the figures at the end of the year. What we committed was to give you back the excess capital at the end of the 2025 plan. And when we add -- when we look at the end of 2025 and when we add the price of ICG, the dividend we are proposing to the -- we propose to the Board and the excess capital, the difference is the EUR 500 million. So we are committing to our promise. Nicolas Calcoen: On ICG, the reason why there's no precise number is as you have understood, there are 2 operations, one which is already done, and which is structured operation. But there's a second operation, which will be issuance of shares in the months or quarters to come by ICG to us, and they will buy back on the market. And we don't know at which price it will be done, and they are still probably something like a year before the end of the operation. Valérie Baudson: So we will know... Nicolas Calcoen: So we don't know exactly the price at which we will buy the full stake. Cyril Meilland: Okay. Thank you. Next question from Tom. Thomas Mills: It's Tom Mills from Jefferies. I don't think you guys mentioned in your presentation about Fund Channel. I was just interested in how that business is developing. I guess we've seen some consolidation in the B2B fund services space in the last month or so. Just curious as to how you see that development in terms of your own competitive positioning. Is that something you object to from an antitrust perspective? Just curious on your thoughts. Valérie Baudson: First of all, we saw a very nice development on Fund Channel. I'm going to Nicolas or [indiscernible] to give the exact figures, but we won new clients, and the company is growing at the pace we were expecting budget-wise. And second, there was a very -- I'm not sure we discussed about that already. There has been a very important development this year within Fund Channel, we launched a specific money market platform, which is super attractive for all our corporate clients. So it will be an additional source of growth for us in the future. So we are still totally committed to Fund Channel and are very happy to remain and to be a strong competitor on that market. For us, it's both a source of growth and also a very important way to go on delivering a good service to all our clients and to help them manage their open architecture. Thomas Mills: [indiscernible] just a combination of... Cyril Meilland: Maybe we should use, mic, I think, for online... Thomas Mills: Just the combination that we've seen elsewhere in the market, Deutsche Borse and all funds, is that something that you guys are fine with? Is there any some antitrust objection that you might have to that combination? Valérie Baudson: We never comment on the transactions of our competitors. I cannot -- only comment about the fact that we are very happy to have Fund Channel, and we are totally committed to go on having it growing and confident. Nicolas Calcoen: Assets under distribution are EUR 660 billion, which is above the target we had set to the previous plan at the end of December. Cyril Meilland: Jacques-Henri and then we will answer it with online questions from Claire. Jacques-Henri Gaulard: Jacques-Henri Gaulard from Kepler Cheuvreux. I did something fun this morning. I didn't restate the Q4 2025. And when you don't do that, when you don't restate, you realize that imagine you don't have revenues as a reference from the U.S. You have the UniCredit outflow. So it's not exactly a great condition. But despite that, your earnings pre associates remain flat, pretty much stable, which is quite incredible. The whole point being the resilience of the rest of the business versus that is quite big. Then you're also going to buy back 600 million of share, maybe more, you never know if we have an IPO. So when are you raising your EPS target for '28? Valérie Baudson: First, we take the good part of your comment. Jacques-Henri, thank you so much. And I'm very happy that you see through your spreadsheet, the reality behind Amundi, which is the incredible resilience, which is linked to something real, the huge diversification of our client base, our expertise of our services, et cetera, which makes us strong and growing day after day. And as I told you during the medium-term plan, I'm very confident that for the 2028 plan, and I will -- and today even more. We have no plan to change the target. We were very clear by telling you that the earnings per share target was a floor on which we committed, and we stick to the strategy as of today. Cyril Meilland: Thank you. We move, as I said, to online questions. So I open the mic of Pierre Chedeville. Pierre, you should be able to unmute your mic and speak. Unknown Analyst: Jacques-Henri, asked the same question as me -- as I wanted to ask, but I wanted to ask, when are you going to lower your cost income ratio target? Valérie Baudson: Same answer. Same answer [indiscernible] question... Unknown Analyst: More or less the same question. So more or less the same answer. Other question regarding your digital development, I was wondering if you had any target related to Credit Agricole ambitions in this area. You know that Credit Agricole wants to develop strongly on the savings side with BforBank Bank and also in Germany, particularly with Credit [indiscernible]. And I wanted to know what is exactly the cooperation you are setting up with them, if you have any target there, it could be interesting. A precision regarding the tax. Can we imagine that in 2026, now that we have the budget voted, we will see more or less the same tax impact in 2026. roughly, I would say, a tax rate around 31%, something like that. Is it reasonable to see that or not? And maybe just to clarify regarding share buyback. As far as I understand, you said in your business plan that you were focusing on external growth, you privilege external growth. So I mean that if you are about to make over share buybacks operation, you will wait for the end of the plan? Or I'm not clear on that. Valérie Baudson: Thank you. Nicolas, I'm going to take the Credit Agricole, and I would be letting on somebody to other one. On Credit Agricole, of course, I mean, by definition, Credit Agricole is an essential, okay, has always been an essential client of Amundi, and we are totally committed to all their growth prospects and thrilled that they are investing outside of Europe in the savings area. So we are working on that topic to answer very transparently this question. We are working on that topic with them, of course, as we would with any other clients, but of course, on that topic. But also not only on this one, we are -- it would be very long to explain, but we are delivering every year new solutions. For instance, we just launched last year incredibly successful new DPM solution within the Credit Agricole networks, which is growing very fast. So we have plenty of new solutions that we launch on a recurring basis, both with [ Credit ] Regional and with LCL. We have been working a lot with BforBank already. This is not new for us. It's been a long relationship, and we are in the process of helping [indiscernible] in development in Germany right now. So no specific figures to give you and to release, but you can be assured that we are helping them, of course. On the tax, Nicolas? Nicolas Calcoen: On the tax, indeed, as you have noticed in France, the tax bill has been -- the budget bill has been adopted or in the process to be formally adopted. It does include the same tax surcharge mechanism as last year with the same rule, the same way. So basically, it will have the same impact for Amundi, meaning tax surcharge, which should be around, let's say, EUR 70 million to EUR 75 million. By the way, accounted the same way as last year. It's based both on '25 and '26 results. So it will be accounted -- let's say, 60% will be -- around 60% will be accounted on the first quarter and the rest will be accounted progressively in the 3 following quarters. And indeed, I would say, excluding our tax -- this tax surcharge, our tax -- average blended tax rate is, let's say, around globally for Amundi around 25% -- 25%, 26%. And this tax surcharge added close to 5% to this tax rate. And the last question -- yes, was regarding share buyback. So let me reclarify the share buyback we are announcing the EUR 500 million is the implementation of fact of the commitment we took in the previous plan and the commitment was to use the excess capital to do M&A or to return it by the end of the plan. So that we are fulfilling our commitment. Going forward, our approach has been, I think, developed during our last medium-term plan Capital Day. We continue to prioritize external growth for the use of excess capital. But at the same time, we don't want to accumulate capital on the balance sheet. So at the end of the day, we return the flexibility to return excess capital that wouldn't be used to the shareholders, but at the time in a way that will be determined during the course of the plan. Cyril Meilland: Thank you. We will take our next question from Hubert in the room. Hubert Lam: It's Hubert Lam from Bank of America. Just 3 questions. Firstly, for ICG, I think you mentioned the first product is going to be launched in the second half of this year. Could you remind us again, like is it a private credit product, private credit or/and public credit product? Also who you can distribute it to geographies and maybe even what your outlook in terms of flows for that? Second question is, I saw that the French networks had a good inflows into medium, long-term in Q4. So wondering if you see this as a turning point, just any dynamics around that? And lastly, just a follow-up on the ALTO question earlier. Q4, we saw a step up. I think in the presentation, you mentioned 40% of it was due to project revenues. I'm wondering, how much of that was maybe a one-off? Or is this something that could be sustained in the near term, at least? Valérie Baudson: On the cost side or on the revenue side? Hubert Lam: The revenue, sorry. Valérie Baudson: Can you repeat the last one, sorry? Hubert Lam: Yes, questions on ALTO. Valérie Baudson: On ALTO, sorry. Okay. Hubert Lam: I think it was EUR 35 million in the quarter. I think you mentioned 40% of it was due to project revenues or something like... Nicolas Calcoen: 40%. Hubert Lam: 40% margin [indiscernible]. Is that a one-off, or is that seasonal one-off? I'm just wondering how would you think about this number? Valérie Baudson: It's probably higher than what would be the average. Nicolas Calcoen: Exactly. Valérie Baudson: If I had to give an answer, but it will depend on all the new clients we will get next year. But it's probably -- I mean, let's say it's a bit higher. On ICG, so yes, we will launch our first 2 new common solutions. So we are in the process of building the SCA and package the solution in the new regulated format we have in Europe, as you know. We expect all this to be ready during H2, probably after summer. We're working hard to make it very efficient and quick and in an excellent collaboration and good project mode. The 2 first solutions will be one on private credit and the other one on secondaries. And we're already preparing what will be the future. But at least these 2 are in the pipeline, and we will -- it will be under regulated European format. So obviously, distributed in Europe and in some Asian countries, which allow it. On the second question was on [indiscernible] Nicolas? Nicolas Calcoen: French network. Valérie Baudson: I mean, french network, sorry. French networks part of the flows we saw is linked to the dynamic of the life insurance in France, which is, as you know, dynamic and which also explains, by the way, the very good figures we have on the insurance side for the euro contracts on the institutional side in our figures. And part of it is a share of the new solutions I was mentioning. Typically, the very nice growth rate on our new DPM solutions is part of what you see in Q4. Cyril Meilland: We take next question from Zoom. So Michael, I'm opening your mic. Unknown Analyst: Can you hear me? Cyril Meilland: Yes, we can. Unknown Analyst: I have 3 questions, please. First, I think you indicated UniCredit channels saw about EUR 16 billion of outflows in 2025. Should we expect a similar number next year? And can you confirm whether any of the distribution -- if they are paying a penalty fee related to your distribution contract? That's number one. And number two, we saw really strong performance fees in the quarter, and yet you still showed pretty good cost discipline. I was just wondering how much of the Q4 cost base was performance fee related, i.e., incremental compensation based on that? And then finally, in terms of the share buyback, is this a buyback that will include your parent company? Or is the shares are going to be bought back from minority shareholders? Valérie Baudson: Good. I take UniCredit, I'll let you take the two other ones, Nicolas. So UniCredit, nothing new since the medium-term plan you attended. You know our partnership present in July '27, at which point it might not be renewed. We committed on targets to you which we will deliver whatever happens with UniCredit. We are obviously fully committed to service as we always done the networks and their clients. The difference is that we give you the exact flows and assets on a quarterly basis to give you full transparency of it. So I remind them, minus EUR 16 billion with EUR 4 billion at the end -- for the last quarter. Obviously, I'm not going to speculate on what will happen in '26. What I can tell you is that UniCredit represents today EUR 86 billion of assets under management. Group-wise, among which EUR 66 billion in Italy. And that means EUR 86 billion out of EUR 2,380 billion, as you know, and EUR 86 billion is less than what we raised this year overall. I just wanted to remind the global picture on that front. Otherwise, nothing more. Nicolas Calcoen: On the second question regarding performance fees and potentially associated costs, there are no costs directly associated to performance fees as to any kind of revenues, by the way. Just a reminder, we have a variable remuneration policy, which is to basically, I would say, allocate something between 14% and 20% of the pre-variable remuneration gross operating income to variable remuneration, but it's appreciated globally, no direct cost associated to any particular kind of revenues in particular performance fees. And the last question regarding -- yes, it was a share buyback. So Credit Agricole informed us that they will not participate in the share buyback. So it will be bought on the market. Unknown Analyst: [indiscernible]? Valérie Baudson: We never comment on our [indiscernible] on our partners and clients. Cyril Meilland: Thank you. Next question from Sharath. Sharath Ramanathan: Sharath Kumar from Deutsche Bank. I have 3 questions, 2 on India and one on digital flows. Firstly, on the India flows, I would say still not very encouraging. Do you think yesterday's tariff deal with the U.S. and Sunday's budget announcement could be the catalyst for the flow's recovery in India? So what is the outlook on the near-term flows? The second one, sticking with India. From my calculations, assuming that we get a $14 billion IPO value for the SBI on the basis of what we hear from the press, I calculate capital gains of, say, $300 million, $350 million for the 3.7% stake that you would sell. So what do you intend to do with the proceeds? Would it go into the M&A pool? Or do you -- are you thinking about a special dividend? And finally, on digital flows, how do you characterize the nature of flows? What does it do to your group margins? I imagine it would be accretive, but if you could clarify, that would be helpful. Valérie Baudson: On the digital flow... Sharath Ramanathan: On the digital flows -- so what sort of products are we getting at? And what sort of margins compared to the group margins? Valérie Baudson: Okay. On the first question about [indiscernible]. Sorry, SBI flows first before speaking about the IPO. Honestly, exactly as Nicolas explained it, we saw this year that the Indian rupee was down 15%, which clearly explained a material part of the decrease in flows in euros over the period. And the slowdown was driven by institutional clients, which were, I would say, less enthusiastic in this environment. What is very positive and essential for us is the fact that on the retail side and on the rise of the individual savings plans, which is incredible source of growth for the future of this company. They have remained very dynamic. So the strong fundamentals are completely here, despite the fact that the rupee was really down this year. So I am fully and totally confident in the future and the growth outlook of SBI MF just because this is a market which is still so -- which has such a low penetration compared to the penetration of the asset management industry, we can see in the U.S., in Europe and even in a lot of other Asian countries that the growth is going to be huge. Second, regarding the transaction, of course, we -- it's much too early to give both the valuation and value for Amundi. And it's also too early to say whether it will depend on the decision of the Board when it will be done. We will discuss this topic later. And on the digital flows, what is obvious is that distributing savings digitally means using a lot of ETF, and it is the reason why Amundi is so successful in -- it's one of the reasons why Amundi is so successful in this new market, which is the digital distribution of savings. It is not the only reason. It's also because it's a very different way of working with digital distributors than with traditional banks and that we really were able to adapt to everything in terms of marketing, in terms of technology, in terms of speed of answering, et cetera, et cetera. But at least it does explain. So of course, a big bulk of this distribution is and will be done through ETF. But as I explained to you very often, the cost of production of an ETF is much, much, much lower than the cost of production of active management. And at the end of the day, selling ETFs for Amundi is very profitable and exponentially profitable. Sharath Ramanathan: Just a follow-up. Just on the India flows on the AUM mix, do you have -- what is it between Retail and Institutional segment? Valérie Baudson: I'm going to ask my CFO friends in the room to give you the exact figure. Can we come back to you later on the call. Cyril Meilland: We'll definitely get back to you, Sharath. I think there was a question from Michael. Michael Sanderson: Mike Sanderson, Barclays. Just a couple, please. First of all, the ICG product launch timings, you've obviously laid out the time line in relation to the corporate governance and the ownership piece. Are they directly linked? Does the regulatory piece have to come through before you can launch the product? Or are you happy to go separately? And then secondly, you saw some strong institutional flows through Q4 that you particularly noted. And I'm just interested, first of all, the scale of them and whether there's any sort of margin dilution, particular margin dilution when you're talking sovereign wealth and central banks? And secondly, I suppose, the pipeline in those areas, how that's looking into the next year? Valérie Baudson: On ICG, the answer is no. There is absolutely no relationship between these regulatory approvals, which are really linked to the accounting topic that Nicolas was explaining and the partnerships. We already started the raising, and we will be delivering it whatever the regulatory and financial process. On the second point, Nicolas? Nicolas Calcoen: So no particular dilution. We had indeed a strong activity on the last quarter. And as for any of our business, the margins we can -- we get depend very much on the type of strategies we propose and not that much on the type of clients. So... Valérie Baudson: If I have to give you an idea, I think the institutional share of our business this year was particularly exceptional, but it will depend on our clients in 2026. So -- and once again, we are thrilled to see so many big institutional clients, especially in the retirement area, willing to work with Amundi. Cyril Meilland: We do not seem to have any questions from the Zoom video conference. Any questions left from the room? No. Okay. Thank you. I think that's done. Thank you very much. Obviously, we're at your disposal for any follow-up. Annabelle, Thomas and myself and looking forward to our next encounters at the very last Q1 results, which will be announced on the 29th of April, if I remember well. Thank you. Valérie Baudson: Thank you so much. Nicolas Calcoen: Thank you.
Operator: Good day, and thank you for standing by. Welcome to the Patria Fourth Quarter and Full Year 2025 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Andre Medina from Patria Shareholder Relations. Please go ahead. Andre Medina: Thank you. Good morning, everyone, and welcome to Patria's Fourth Quarter and Full Year 2025 Earnings Call. Speaking today on the call are our Chief Executive Officer, Alex Saigh; and our Chief Financial Officer, Ana Russo; and our Chief Economist, Luis Fernando Lopes, for the Q&A session. This morning, we issued a press release and earnings presentation detailing our results for the quarter, which you can find posted in the Investor Relations section of our website on Form 6-K filed within the Securities and Exchange Commission. This call is being webcast, and a replay will be available. Before we begin, I'd like to remind everyone that today's call may include forward-looking statements, which are uncertain, do not guarantee future performance and undue reliance should not be placed on them. Patria assumes no obligation and does not intend to update any such forward-looking statements. Such statements are based on current management expectations and involve risks, including those discussed in the Risk Factors section of our latest Form 20-F annual report. Also note that no statements on this call constitute an offer to sell or a solicitation of an offer to purchase an interest in any Patria fund. As a foreign private issuer, Patria reports financial results using International Financial Reporting Standards, or IFRS, as opposed to U.S. GAAP. Additionally, we would like to remind everyone that we will refer to certain non-IFRS measures, which we believe are relevant in assessing the financial performance of the business, but which should not be considered in isolation from or as a substitute for measures prepared in accordance with IFRS. Reconciliation of these measures to the most comparable IFRS measures are included in our earnings presentation. Now I'll turn the call over to Alex. Alexandre Teixeira de Assumpção Saigh: Thank you, Andre. Good morning, everyone, and thank you for joining us today. We are very excited to report our fourth quarter results, a capstone to a very successful 2025, which highlights how as we enter 2026, Patria is in a strong position to achieve and hopefully exceed the 3-year fundraising and FRE fee-related earnings objectives in addition to other important KPIs we set for ourselves at our Investor Day in December 2024. Highlights of the quarter and 2025 include organic fundraising of $1.7 billion in the quarter and a record $7.7 billion for the full year, sharply surpassed our previously upwardly revised full year target of $6 billion by more than $1 billion. We generated $203 million of fee-related earnings in 2025, up 19% year-over-year, achieving our objective of $200 million plus for the year. Distributable earnings per share reached $1.27 in 2025, driven by the strong fee-related earnings growth in addition to $19.6 million of performance-related earnings in the fourth quarter. We announced back on November 26, 2025, the acquisition of 51% of the Brazilian private credit manager, Solis, which closed on January 2. Solis, with approximately $3.5 billion of fee-earning AUM as of the third quarter 2025, substantially expands our capabilities and scale in the rapidly growing private credit market in Brazil. Pro forma for the acquisition, our credit vertical fee-earning AUM is approximately $12.1 billion. We also announced on December 11, 2025, the acquisition of several REITs real estate investment trusts from the Brazilian real estate manager, RBR, which closed yesterday and is expected to add approximately $1.3 billion of permanent capital real estate investment trust assets in Brazil. We are now the largest manager of listed REITs in Brazil with a pro forma fee-earning AUM of approximately $5.7 billion, a market in which we believe scale provides significant competitive advantages. Also just yesterday, we announced an agreement to acquire WP Global Partners, a U.S.-based lower middle market private equity solutions manager with $1.8 billion of fee-earning AUM as of the third quarter 2025, which will enhance our global capabilities in our global private markets solutions business. Pro forma for the acquisition, our GPMS Global Private Markets Solutions fee-earning AUM is approximately $13.6 billion. Our total fee-earning AUM of $41 billion as of the fourth quarter 2025 rose 5% sequentially and 24% year-over-year. Pro forma for the announced acquisitions, our fee-earning AUM at year-end is approximately $47.4 billion, putting us in a strong position to achieve our year-end 2027 target of $70 billion. We are also pleased to share that our energy trading platform, Tria, which has experienced strong growth since its launch in 2024 and contributed with $4 million to our 2025 distributable earnings signed a definite agreement with Raizen to acquire its energy trading arm, Raizen Power. Upon completion of the transaction, Tria is expected to become one of the largest independent energy trading companies in Brazil. Finally, adding to our current approved share buyback program of 3 million shares, of which we have already acquired 1.5 million in the third quarter 2025, our Board just approved an additional 3 million share buyback program. On top, further illustrating Patria Partners' alignment with our business, of which we already own approximately 60% and our belief in Patria's unique position to continue its growth path, we, Patria's Partners through our holding company, PHL, are happy to announce our intention to purchase up to 2.5 million PAX shares. Summing it all up, we can now purchase up to 7 million shares to return capital to our shareholders. Now let's take a closer look into the quarter and the year, starting with fundraising. The $1.7 billion of capital we raised in the fourth quarter 2025 and the $7.7 billion we raised for the full year do not include any acquisition and were driven by continued demand for our infrastructure, credit, real estate and GPMS strategies. Our fundraising in 2025 exceeded the initial $6 billion target we set back at our Investor Day in December 2024. As well as the revised target of $6.6 billion we set in the third quarter of 2025. While we are leaving our 2026 and 2027 fundraising targets at $7 billion and $8 billion unchanged for now, our success in leveraging the investments we have been making in our platforms and distribution capabilities increases our confidence in our ability to meet and hopefully exceed our targets. Now turning to the fundraising performance of specific asset classes As the leading infrastructure investor in Latin America, we continue to see increased global interest in this fast-growing asset class as we raised approximately $2.3 billion for our infrastructure strategies in 2025, led by the final closing of our Infrastructure Development Fund V and various fee-paying SMAs and co-investment vehicles. This was approximately 5x what we raised for infrastructure in 2024, and we see no letup in demand for these strategies from both global investors as exemplified by the recently announced $2 billion data center projects led by one of our drawdown funds in partnership with ByteDance and increasingly local investors. Next, GPMS raised almost $2 billion in 2025, continuing to highlight the strong support from our clients and our success in integrating this business into our platform. The recently announced agreement to acquire WP Global Partners with approximately $1.8 billion of fee-earning AUM, we expect will further strengthen investor demand for our solutions strategies over time as it enhances our investment capabilities in the United States. Credit also had another strong year, fundraising a record $1.8 billion of capital, handily surpassing the $1.4 billion raised in 2024, which was itself a record. Continued strong investment performance, combined with the addition of Solis and its robust private credit capabilities further enhances the capital raising prospects of our credit platform. On that note, let me give a little more color on how we see the private credit opportunity in Brazil. The total Brazilian credit market reached $1.7 trillion in 2024, with $800 billion estimated to represent the addressable market opportunity for asset-backed nonbank private credit, of which around $200 billion is already currently served through private credit vehicles, mainly CLOs. CLOs, which AUM in Brazil exceeded $150 billion as of September 2025, have been the fastest-growing asset management strategy in the country, having grown at a 30% plus CAGR compounded annual growth rate since 2019. This growth is supported by multiple structural drivers, including, but not limited to, favorable regulation, banking disintermediation, tax incentives and broader financial deepening and growing interest in the CLO structure amongst investors. With the acquisition of a majority stake in Solis, Patria significantly enhances its capabilities and scale in this very attractive market. Finally, even within a high interest rate environment, we see building momentum in our real estate business. Our real estate strategies raised over $520 million in the fourth quarter of 2025, including over $260 million through a follow-on offering in our Brazilian logistics REITs and over $180 million in our funds in Colombia. As the largest manager of REITs assets in Brazil and one of the largest in Colombia with over $8 billion of pro forma permanent capital fee earning AUM, -- we believe our substantial scale in this business is a significant competitive advantage when it comes to attracting investor capital, and we are excited with the opportunities this business has to offer heading into 2026. Of course, fundraising alone does not drive growth in fee-earning AUM and management fees. And we are proud to report that redemptions decreased by approximately 25% in 2025 versus 2024, a clear reflection of our strong investment performance across our verticals. Our ability to grow our fee-earning AUM is further enhanced by the stickiness of our asset base, given that approximately 90% is in vehicles with no or limited redemptions, including 22% or $9.1 billion of fee-earning AUM in permanent capital vehicles. Our strong fundraising, coupled with low redemption rates and a sticky asset base is translating into solid net organic growth as we generated approximately $2.4 billion of organic net inflows into fee-earning AUM in 2025, representing an organic growth rate of about 7%. We see additional room for our organic growth rates to increase further in the years ahead as we plan to grow our base of attractive products in sticky structures. In addition, with over 50% of our management fees charged on NAV or market value, our strong investment performance continues to be an important growth driver, contributing approximately $3 billion to our fee-earning AUM. Combined organic net inflows and the positive impact of investment performance added over $5.3 billion to our fee-earning AUM in 2025. The impact of FX throughout the year was also positive, adding $2 billion to our fee-paying asset base. Finally, the acquisition of the Brazilian REITs discussed during our last earnings call and concluded in the second quarter of 2025 contributed with $600 million. Summing it all together, our fee-earning AUM in the fourth quarter of 2025 reached $40.8 billion, up 24% or $7.9 billion year-over-year. Pro forma for recently announced acquisitions, our fee-earning AUM is now at $47.4 billion. It is also important to highlight that as we expand our business, a large portion of the capital we raise will only flow into fee-earning AUM as capital is deployed. Our fourth quarter 2025 pending fee-earning AUM totaled about $2.9 billion, further highlighting our future fee-earning AUM and management fee growth potential. Our fee-earning AUM growth is also reflected in the diversification of our business. Pro forma for recent acquisitions, our fee-earning AUM base is well diversified across our asset classes with 29% in GPMS, 26% in credit, 19% in real estate, 12% in private equity, 9% in infrastructure and 6% in public equities. Patria today has over 35 investment strategies with more than 100 products with no single product representing more than 8% of our pro forma fee-earning AUM. Our largest fund, which is a corporate credit LatAm high-yield fund has approximately $3.8 billion in AUM and has delivered an impressive 13.1% net compounded annualized return since inception in 2022 and as of the fourth quarter 2025. Our corporate credit LatAm high-yield strategy more broadly, which started back in 2000, currently has an aggregate AUM of over $5 billion. And as of the fourth quarter 2025 has outperformed its benchmark for every single period, 1 year, 3 years, 5 years and since inception. with since inception, net compounded annualized return of 11.1%, exceeding the benchmark by more than 360 basis points. In terms of geography, approximately 1/3 of our assets are invested in Brazil, 1/3 in other Latin American countries and 1/3 in developed markets across Europe and the United States. With regards to our investor base, our sources of capital are also diversified across geographies with approximately 27% of our AUM coming from Europe and the Middle East, 31% from Latin America, excluding Brazil, 16% from North America, 18% from Brazil and 9% from the Asia Pacific region. Looking at our foreign exchange exposure, over 60% of our fee-earning AUM is denominated in a diversified basket of hard currencies, mainly the U.S. dollar and not exposed to soft currency fluctuations. Finally, as I mentioned before, approximately 90% of our pro forma fee earnings AUM is in vehicles with no or limited redemptions, including 22% or $9.1 billion of fee-earning AUM in permanent capital vehicles. These points further highlight the quality of our fee-paying asset base and the predictability and long duration of our management fees. Finally, we're also expanding the number of flagship drawdown funds into new strategies and asset classes, including infrastructure development, infrastructure credit, private equity buyouts, growth equity, venture capital, private credit, real estate development, secondaries, co-investment vehicles, among others. All of these products will be eligible to generate performance fees, highlighting the potential for even greater diversification of our performance fee earnings stream. Now our strong fee-earning AUM growth is translating into robust growth in fee-related earnings. In the fourth quarter of 2025, we reported fee-related earnings of $64.2 million, representing 30% sequential and 17% year-over-year growth, also supported by our margin expansion of 5% versus the third quarter 2025 and 5% versus 1 year ago, reflecting our success in integrating acquisitions and the growing scale of our business. For the full year, fee-related earnings reached $202.5 million, up 19% and in line with our guidance. On a per share basis, fee-related earnings of $0.41 in the fourth quarter 2025 rose 30% sequentially and 14% year-over-year. Full year fee-related earnings per share was $1.28, a 15% year-over-year increase. Given our strong fundraising momentum and fee-earning AUM growth outlook, we remain confident in meeting our 2026 fee-related earnings targets of $225 million to $245 million or $1.42 to $1.54 per share, in addition to our target of $260 million to $290 million or $1.60 to $1.80 per share. As a reminder, our fee-related earnings targets are inclusive of already announced and prospective M&A. We reported $78.5 million of distributable earnings in the fourth quarter and $200.9 million for the full year. On a per share basis, this was $0.50 and $1.27, respectively. In addition to the very strong fee-related earnings growth we highlighted earlier, distributable earnings also benefited from multiple monetization events in our Infrastructure Fund III as we announced last quarter, our share count for the fourth quarter 2025 remained at 158 million shares. In connection with performance-related earnings, I think it is important to address the decrease in our net accrued performance fees primarily due to private equity buyout Fund V falling out of carry. As this particular fund's performance is close to its hurdle rate and given its European carry structure, foreign exchange and the price of public holdings can drive private equity buyout Fund V in and out of carry frequently. However, as we look more deeply into our business, we are optimistic in our ability to generate future performance fees as we believe we remain on track to deliver our performance-related earnings target range of $120 million to $140 million from the fourth quarter 2024 to the end of 2027. We have already realized $62 million of performance-related earnings against our target and Infrastructure Fund III, which is generating cash carry and had approximately $19 million of net accrued carry remaining as of year-end is expected to generate performance fees in 2026. Private Equity buyout Fund VI, which is a 2019 vintage and has over $210 million of net accrued carry is fully invested and entering its monetization phase. We have several newer strategies in growth and venture that have performed well. And while still early days, already have about $7 million of net accrued carry, a balance that we would expect to grow over the coming years. For both private equity and infrastructure, an increasing proportion of our growing co-investment assets are carry eligible, which has the potential to generate performance fees on a deal-by-deal basis. In addition, as I mentioned, we have an expanding range of drawdown funds across our asset classes eligible to generate performance fees. To summarize, I want to reinforce that we believe that we are on track to deliver on our performance-related earnings target range of $120 million to $140 million from the fourth quarter 2024 to the end of 2027. With $62 million already realized, approximately $20 million expected in 2026, mainly from our Infrastructure Development Fund III and the remaining balance expected to be realized in 2027 from multiple funds. Before I conclude, a quick note on macro. From our perspective, the macro events, both globally and within the region favor the drivers of our business. These long-term drivers such as the financial deepening across Latin America, deregulation and pension reforms in large economies in the region, increased allocations to alternatives, robust demand for infrastructure investing, potentially lower interest rates on the back of declining inflation and better fiscal prospects, a consequence of more market-friendly governments being elected in the region continue to drive demand from both local and global investors. If anything, the current geopolitical scenario, coupled with a weaker U.S. dollar and attractive on-the-ground trends are fueling increased interest in Latin America from a broadening range of investors. Incidentally, that is what capital markets showed in 2025 and also year-to-date with the region outperforming in many asset classes. With that as a backdrop, we think it is important for investors to keep in mind that we have close to 40 years of investing experience navigating the various economic and political cycles in the region. This experience, combined with the greater diversification and resilience of our business, in our view, make us uniquely positioned to capitalize on both the increased investor interest in the region and the wide range of investment opportunities we see. Again, we are excited about the fundraising and fee-related earnings momentum we have been building, momentum which is supported by our increasing scale and capabilities across an expanding range of strategies. We believe our long-term opportunity and outlook remain bright, and none of this would be possible without the dedication and capabilities of our team members. for which I am very proud and grateful. On a final note, I want to comment on organizational and structural changes we have announced in recent months. First, I'd like to thank our CFO, Chief Financial Officer, Ana Russo. Ana approached me about a year ago with her plan to step down from her current corporate role as Patria's CFO to focus the next stage of her career on advisory and nonexecutive roles and projects. We are sorry to see Ana leave and want to thank her for all her hard work and contribution in the past several years. but we are glad that we will continue our relationship in several fronts as, for example, with her current position as Board member of Patria-Moneda Asset Management in Chile. I wish Ana the best of luck as she charts a new career path. Following an extensive review process, we announced that Raphael Denadai, currently Patria's partner and CFO of Portfolio Management with over 25 years of experience, will assume the role of Patria's CFO effective in April 2026. Ana, who will remain in her position until then, will provide more color on the transition in her prepared remarks. In addition, as we announced back in December 2025, to further strengthen our corporate structure in order to drive operational excellence and better support Patria's strategic execution at scale. Patria recently created the role of Global Chief Operating Officer and was pleased to introduce Nikitas Psyllakis as our new Global COO. Nikitas joins Patria from DWS Group, bringing over 20 years of extensive global experience in financial services, having led strategic planning, operational transformation and regulatory initiatives. With that, I would like to once again welcome Nikitas and Raphael to their new roles. Now let me turn the call over to Ana to review our financial results in more detail. Thank you, Ana. Ana Russo: Thank you, Alex, for the kind words, and good morning, everyone. Indeed, it's quite rewarding to close out 2025 with $7.7 billion of organic fundraising, exceeding by a large margin, our previously upwardly revised full year target of $6.6 billion by more than $1 billion. We expect the strong fundraising momentum and fee-earning AUM growth for 2025 to continue as we enter the second year of our current 3-year plan and are even more confident of our ability to achieve our objectives for 2026 and 2027. Before I review our financials in more detail, I would like to take a moment to speak about my transition from the CFO role. Stepping down as Patria's CFO is a deeply personal decision driven by my desire to dedicate the next stage of my career to advisory and nonexecutive positions, areas where I believe I can contribute to a different organization given my diverse background. I will continue serving as a Board member of Patria-Moneda Asset Management in Chile and remain fully committed to Patria as a CFO through the end of April. Over the next few months, my focus will be on delivering all 2025 annual reports and regulatory obligations, supporting our new auditor, KPMG, as they complete their first annual audit and most importantly, ensuring a smooth and effective transition to Raphael Denadai. I'm extremely proud of how Patria has evolved during my 3.5-year tenure as CFO, and I'm confident that my colleague, Raphael, will do an excellent job and supported by a strong and committed team. Let's review our fourth quarter and full year 2025 results in more detail. Our full year organic fundraising of $7.7 billion was an important step to deliver our cumulative 3-year plan of $21 billion of total fundraising that we communicated at our 2024 Investor Day. Our success this year demonstrates that the strategic investments we made across our investment platforms, products and distribution capabilities are paying off. We entered 2026 with greater visibility and unwavering confidence in our ability and our path to achieve our objectives for this year and next. Our FEAUM rose 24% year-over-year and 5% sequentially to $40.8 billion. The strong year-over-year growth reflects mainly the combination of solid organic net inflows of $2.4 billion and the positive contribution from our strong investment performance in addition to a positive FX impact and the acquisition of several Brazilian REITs concluded in the second quarter of 2025. As Alex mentioned, our fee-earning AUM growth continues to highlight our expanding fundraising capabilities and deployment opportunities, coupled with the stickiness and resilience of our asset base. Pending fee-earning AUM of $2.9 billion, combined with our fundraising goals, the 22% of fee-earning AUM that are in permanent capital vehicles, the almost 35% of fee-earning AUM in drawdown funds with an average life of 6 years and an overall stickiness of our asset base, altogether highlight our ongoing ability to generate net organic FEAUM growth over time. Total fee revenue in the fourth quarter reached $101 million, up 8% year-over-year and about 19% sequentially. For the full year, total fee revenue reached $344 million, an increase of 14% versus 1 year ago. Our management fee rate averaged 92 basis points over the trailing 4 quarters. As reviewed at our December 9, 2024 Investor Day, we are steadily diversifying our business and introducing new investment strategies and product structures, which are key drivers of our growth. Consequently, our management fee rate will continue to evolve, and we expect our fee rate to trend towards approximately 90 basis points over the coming quarters, but with the potential to vary depending on the mix. Looking into our expense lines, operating expenses, which include personnel and G&A expenses, totaled approximately $36.1 million in the quarter, up 5% sequentially and down 4% year-over-year. We remain focused on controlling expenses and capturing operating efficiencies even as we continue to reinvest in the business. For the full year, operating expenses totaled $141.6 million, up 8% versus 2024, mainly driven by new acquisitions and salary increase inflation adjustment, partially offset by realized operating efficiencies. As we look ahead to 2026, excluding the impact of acquisitions, total expenses in the fourth quarter are a good starting point as we enter the new year. Putting it all together, Patria delivered fee-related earnings of $64.3 million in the quarter, up 17% versus prior year and 30% sequentially with an FRE margin that rose approximately 5 percentage points versus Q4 '24 and sequentially to 63.6%. We remind everyone that the fourth quarter is often our strongest quarter in terms of FRE margin, driven by the recognition of most of our high-margin incentive fees from our credit and public equity portfolio, which totaled $11.3 million in the quarter. For the full year 2025, we generated $202.5 million of fee-related earnings, up 19% year-over-year, in line with our guidance. As Alex mentioned, we continue to expect to generate $225 million to $245 million of FRE in 2026, and we remain confident that we are on path to deliver on our 2027 FRE target of $260 million to $290 million with an FRE margin objective of 58% to 60%. While our recent M&A may exert some short-term pressures of FRE margins, our expanding scale and ability to realize operating efficiencies keep us confident that we can meet our FRE margin objectives for 2026 and 2027 of 58% to 60%. As noted on our last call, in Q4 2025, we had multiple monetization events in our Infrastructure Fund III, which generated $19.6 million of performance-related earnings in the fourth quarter. We continue to expect Infrastructure III, which had approximately $19 million of net accrued performance fees at the quarter end to continue its realization through 2026. Our total net accrued performance fee decreased from $402 million in the third quarter '25 to $249 million in the fourth quarter of 2025, mainly driven by private equity Fund V falling out of carry, driven by the price of public listed companies and FX. For reference purpose, if we consider the FX rate and the price of the public holdings by end of January, net accrued performance fees for Fund V would have been around $40 million. As we look more deeply into our business and as detailed by Alex, we are optimistic about our ability to generate future performance fees from multiple funds. Next, our net financial and other income and expenses in fourth quarter '25 totaled a positive $1.8 million versus Q4 '24, mainly due to lower average debt and higher contribution from Tria, our energy trading platform. Sequentially, net financial income and other expenses were up of $0.8 million versus third quarter '25, mainly reflecting a lower contribution from Tria. While it can vary sharply quarter-to-quarter, it's worth noting that in 2025, Tria contributed approximately $4 million to Patria, and we are very excited regarding the long-term potential of this business and hope to share more updates on the development of this business over the course of 2026. At the end of the quarter, net debt totaled approximately $105 million, slightly below the $108 million for the third quarter '25 as we did not have any meaningful M&A payments in the quarter. Our net debt to FRE ratio of 0.5 was well below our long-term guidance of 1x. Deferred M&A-related cash payments through 2028 currently total approximately $110 million, excluding potential earn-outs. As highlighted in previous earnings call, during third quarter, we entered a total return swap or TRS with a financial institution through which 1.5 million shares were purchased on our behalf. We expect to settle the TRS by Q3 2026, at which point the share will be transferred to Patria and subsequently retired. I would like to take the opportunity to recap our capital management strategy based on our strong cash generation and conversion of distributable earnings. First, we increased our dividend by $0.05 per share for 2026, resulting in an expected dividend payment of $100 million. Second, we will target around 3 million shares repurchase to offset dilution from stock-based compensation and any M&A transaction settled in shares. For this purpose, we may again consider the use of total return swaps, which have proven to be a cost-effective capital management tool. With regard to current M&A, we expect funding to come primarily from cash. Also, as of December 31, our 2026 deferring contingent payment totals approximately $100 million, of which about 80% is expected to be paid in cash. To highlight our ample ability to fund our growth and maintain a healthy dividend, let's look at a simple math. Based on the midpoint of our 2026 FRE guidance and expected PRE, we estimate our cash generation in 2026 will be approximately $220 million. So detracting our dividend, payment of TRS and the current deferred and contingent payments noted before, we still leave us with the capacity to fund CapEx and additional M&A when considering our cash generation and our total unused debt capacity of over $100 million. Of note, our total current net debt capacity is about $235 million or onetime FRE compared to the $105 million at year-end, which is very conservative as industry standards. All the above underscores the strength of our financial position to support growth initiatives and maintain strategic optionality for our shareholders. Our effective tax rate in the fourth quarter '25 was 4.2%, excluding performance fees, which is usually crystallized in the tax favorable jurisdiction, the effective rate was 5.6%, which represents 120 basis point improvement versus Q4 '24 on a comparable basis. The reduction was mainly driven by tax credits on our U.K. entities. On a full year basis, excluding performance fees, the effective tax rate reached 6.3% with 180 basis points lower than 2024. Looking ahead, we continue to expect our annual tax rate to average around 10% -- in the fourth quarter, we generated $78.5 million of distributable earnings or $0.50 per share. For the full year, distributable earnings were $200.9 million or $1.27 per share, representing a 6% year-over-year growth from $189.2 million in 2024 with a strong FRE growth more than offsetting lower performance-related earnings and the higher share count. While FRE and DE are important financial metrics, I would like to give you some additional color on line items that impact our net income. In 2025, net income totaled $85.6 million, which is up 19% versus $71.9 million in 2024. The increase of $13.6 million is mainly driven by distributable earnings growth and lower deferred contingent consideration, partially offset by higher than originally anticipated equity-based compensation, reflecting better performance, lower employee turnover and expansion of the program. We plan to give more color on the equity-based comp and other line items during our first quarter call. We finished the quarter with 158 million shares, unchanged from the prior quarter. We did not repurchase any share in the quarter and continue to expect the share count to average between 158 million and 160 million from 2025 to 2027, inclusive of our additional share repurchase. In 2025, the Board approved a share repurchase program of up to 3 million shares, of which we have utilized $1.5 million through the TRS. At our recent Board meeting, we received the approval for an additional 3 million shares to be added to the program. Finally, we declared a dividend of $0.15 per share for the fourth quarter. We remind everyone that we have updated our fixed dividend policy from $0.60 in 2025 to $0.65 per share for 2026, an increase of 8%. Overall, we are truly encouraged by our fourth quarter results and with the momentum we are building as we continue to diversify and improve the resilience of our business. We believe we are firmly on track to achieve the various targets we have shared with you, and we are excited by the growth opportunity ahead. Thank you, everybody, for dialing in, and we are now ready to answer your questions. Operator: [Operator Instructions] And our first incomes from Craig Siegenthaler of Bank of America. Craig Siegenthaler: So first question is on private equity valuation process. We've had some recent inbound on the topic, so I thought we could kind of clean it up here. Private Equity Funds IV and V, they're both pre-2016 vintage funds. They both have a significant amount of unrealized value. So I was wondering if you could talk about your internal valuation process, how it works and also how those valuations are validated by third parties. Alexandre Teixeira de Assumpção Saigh: Okay. Thank you very much, Craig. Thanks for your question. On the valuation process, we -- in summary, we use industry practice, industry common valuation process for our private equity drawdown funds and our infrastructure fund funds, all of our drawdown funds, we -- once a year, we have an independent appraiser to value the funds. We normally use a recognized independent appraiser that does the valuation with year-end numbers, in this case, end of 2025. This independent appraiser works with the management teams of the respective portfolio company, going through a whole understanding of the business, understanding of the next 3 to 5 years and future prospects of the business and more of a technical discounted cash flow model as it is common in the industry for these kinds of valuations. And then this valuation, of course, is compared with multiples and compared with industry multiples, peers, if there are no comparable listed peers, whatever. So it's, of course, the main methodology is a discounted cash flow. And of course, the end result is compared with peers, valuations, listed, nonlisted M&A transactions, et cetera, et cetera. As it is what I'm saying, it's completely normal for these kind of valuations in the industry. And what we do is actually we then -- they give us a range and then we value within the range, we actually mark the companies one by one. That's what we do. And during the year, we don't really do much. We just actually have the valuation during the year, quarter-by-quarter be adjusted by the cost of capital of that specific business and adjust the valuation if something major happens like we sell part of the business or we merge or whatever or something really went -- goes wrong, like COVID or something like that or whatever. But if there was no major changes, I don't -- we really don't like and we are advised not really to keep changing the valuation of the business. If nothing major happens with that specific business during the year, we just then adjust the valuation by, again, the cost of capital until we go through that process, all that process again at the end of the subsequent year. So again, we have been doing this for -- since inception, right? Our first private equity fund was back in '97. It's going to be 30 years, not 29 years as of now. We know that because it's going to be -- this year is going to be our annual meeting with investors #29, and we do 1 a year. So it's now 29 years ago, we did our first one. And we've been doing this kind of valuation for the businesses since then. We check with the industry practices now and again, and the industry practices continue to be more or less what I just mentioned. But it's different, and I think there's sometimes confusion when we -- if we -- when we -- about charging management fees and performance fees, et cetera. Now we do not charge management fees on NAV for the drawdown funds. So the valuation is an indicative value because it doesn't mean much for our revenues. It doesn't mean anything for our revenues because we charge on costs. So if we did invest $100 in that business and that business now is valued at $150 or $50, we continue charging on $100 until we sell the business. So the valuation does not affect our management fees. Number two, we do not run performance fees, unrealized performance fees through our P&L. So if we have more performance fee, more unrealized performance fees or less unrealized performance fees, all the numbers that you just heard me say about our 2025 financials and Ana Russo say about our 2025 financials does not affect any little bit, okay? It's no effect whatsoever because we do not run our performance fees through our P&L. Our team, our employees are not incentivized by unrealized performance fees. They do not receive a bonus on unrealized performance fees. So if the valuation is 1, 2, 3 or 4, 10 or 0, their bonus is exactly the same. We only run the performance fees through our P&L. We only recognize performance fees if they are paid, if they are paid, cash in the bank. And then we recognize as revenues and then we calculate the bonuses of our employees, and we pay a couple of quarters later. So there's even a negative working capital here, the firm versus the employees on paying performance fees. Now we don't anticipate any performance fees as bonus before we actually get the cash, okay? And we get the money in the bank account. So we do actually give the number of unrealized performance fees as an off-balance sheet number, not completely off balance sheet, is unrealized. And as you probably saw for the December 2025 numbers, we have around $250 million of unrealized performance fees. And we gave the guidance that we're going to -- we should generate around $120 million to $140 million of performance fees from the last quarter of 2024, all the way to the end of 2027. We already realized $60 million plus. We have another $60 million to go, $60 million. And there's a -- I think the most -- the highest probability fund that will generate performance fees continues to be Infrastructure Fund III for 2026. We just gave the guidance that we think we're going to generate another $20 million for 2026. And there are so many other strategies that today we have in our menu of products that generate performance fees, venture capital, growth equity, private debt, opportunistic real estate, blah, blah, blah, blah, blah, all of them should then generate more fees that we should actually make us hit the target by the end of 2027. So this is what we do. Again, it's industry practice. We try to be as conservative as possible, but we get a valuation range from the appraiser we normally don't -- of course, we talk to the operator about the valuation process. But what we do is like we try to put in the middle of the range, and that's how we use -- that's the exercise of how we actually mark our companies. I think it's -- again, it's -- this is -- again, you are -- you know the industry very well. And sometimes you might compare the valuation of a company with another company that you might know well in another industry, in another country, in another situation, one company is doing better, the other company is doing worse, one company is this, one company is that, one company has more debt, less debt. It's very hard sometimes for you to compare one single asset with another single asset. Of course, it's hard for us to also be able to have individual opinions because we follow the valuation of the independent appraiser, okay? So this is what we do. And yes, our Private Equity Fund IV, as you know, has been underperforming. And now we have Private Equity Fund V also not generating performance fees. So 2 funds that as of the end of 2025, we don't expect performance fees coming from these 2 funds. And this is also already reflected in all of our numbers. So when we gave our projections guidance for '25, '26, '27, the end of 2024, we had a PC stay with '25, '26, '27 projections. As you can see from that presentation, we had asset class by asset class projection. And you can see that we were conservative in capital raising for private equity, given that private equity Fund IV and V are underperforming. And we were more optimistic and realistic about fundraising for the other asset classes. So -- and if you look at how much money we raised in 2025, $7.7 billion, surpassing by 30% our initial guidance of $6 billion, 30% more than our initial guidance is a substantial increase in which asset classes in credit, in real estate and in GPMS, Global Private Market Solutions. So we were not expecting to raise in 2025 more money for the private equity asset class vertical. We were expecting to raise from other asset classes. Not only we did, we surpassed in total by 30% our initial guidance. We gave a guidance for 2026 of $7 billion organic fundraising and 2027 for $8 billion, and we raised $7.7 billion in 2025. So I think we're in a strong position to continue delivering the guidance and hopefully even exceeding. So I hope I answered your questions there. Craig Siegenthaler: I do have a follow-up also on private equity. But if you look at the MSCI Brazil Index of listed public equities, Brazil has been very strong. As you know, it's returned 55% over the last 12 months, outperforming the S&P 500 in the U.S. by about 40%. Interest rates are expected to decline in Brazil. All this should benefit public equities, private equities, your realization pipeline. So can you talk about the prospects for both IPOs and strategic exits in private equity in 2026? And I assume exits to other private equity firms are still quite limited at this moment given the lack of competition in Brazil, too. Alexandre Teixeira de Assumpção Saigh: Yes. Thank you very much. Yes, I think normally, I'm generalizing again here, sorry to generalize listed traded securities do anticipate trends. And in this case, I think the upward trend that you just mentioned, we did see through the 2025 numbers of listed securities. And the MSCI is one of them. As you mentioned, appreciating substantially in 2025 in local currency and in U.S. dollars. Of course, the U.S. dollar has weakened against some of the local currencies. So that's helped the U.S. dollar also base return. That normally translates into private securities with time. It is not from Monday to Tuesday, but the whole enthusiasm with the region and investors start buying assets which they can and the listed ones are the ones that they have more access because they're listed, of course. And the private assets come in due time. And that's exactly what we're seeing. And a lot of exits from both our infrastructure and private equity funds programmed, infrastructure coming first. Basically, all of the assets of our Infrastructure Fund II were sold already. All of the assets of our Infrastructure III sold most of the assets in Infrastructure Fund III. So we're getting into the mode of beginning to realize the investments of Infrastructure Fund IV. Same in private equity, I think focusing in selling the assets of Private Equity Fund IV and V. Private Equity Fund IV, as we do invest -- we did invest mostly in health care, it was affected also by COVID, but companies they are recovering. And Private Equity Fund V, we have invested also in health care also investing in other sectors and Private Equity Fund VI and VII, I fully invested, 7 being invested now should begin to come into realization. Also, we have the growth equity funds, which are also private equity. Now we just mentioned about the private equity buyout funds, but we have private equity growth funds. Private equity growth Fund #1, which is a single asset fund, which was managed by [ Kamado Ping ], the asset manager that we did partner with acquire a couple of years ago, is a company in the pet care space that is doing extremely well, and that's a prospect for a sale and IPO as well. We also see private Active Growth Fund #2 with already 2 realizations, partial realization, full realization of an education company was the full realization. And we see other prospects coming along of more realizations this year and in 2026. And we also see our private active venture fund with significant and important realizations in '25 and other realizations coming into 2026. One of the notorious realizations that we did of our private equity venture fund #3 was a company called Avenue, which is basically a brokerage house targeted for Brazilians willing to open a cash account or a bank account in U.S. dollars. And it was acquired by Itau. It was a very, very, very good deal for us. So not only is the private equity buyout strategies that are posed to generate performance fees, our private equity growth funds, our private equity venture funds, our infrastructure development funds, our real estate opportunistic funds that we have in Colombia that is also right for realizations, our real estate opportunistic funds in Chile that also are right for realizations and will generate performance fees in the future. And now with other funds like private debt that we raised private debt LatAm #1, also fully invested, short duration, should generate performance fees in the future, and we are currently in the road raising private debt #2. So again, I think we're excited about the prospects, but boil everything down, we're expecting $60 million of performance fees over the next 2 years, $20 million should come from Infrastructure Fund III. Our presentation shows that we have an inventory as of December 2025 of approximately $250 million of performance fees. So $60 million out of $250 million is close to 20%, 20-something percent. So if we realize 20-something percent of that $49 million, $250 million of performance fees that we showed as of now in our December 2025 numbers, we should then be able to hit the guidance that we gave for the next 2 years. Of course, no major caveats. Performance fees depends on so many things. It depends on the macro situation. It depends on the political situation. So I'm just saying there's no macro caveat here. I think when I look into management fees, the preservability and predictability of our management fees, given that 22% of fee-paying AUM is now permanent capital structures, and we have long-dated drawdown funds, 90% of our funds are in drawdown funds or permanent capital. I can say with more confidence that our predictability of our management fees and therefore, our FRE is more visible. Everything that I said about performance fees is a big question mark because things can happen and companies can perform better or worse. The macro situation can get better or worse. The U.S. dollar can get -- can strengthen and weaken. So therefore, we have a low hit ratio. And I'm putting this major caveat that we might generate it, but we might not as well, given there are performance fees, not management fees that are already being driven by permanent capital or drawdown funds in nature, okay? Operator: And our next question comes from Lindsey Shema of Goldman Sachs. Lindsey Marie Shema: Just wondering, you maintained your 2026 fundraising guidance. And because of that, it does imply slightly lower fundraising in 2026. So because of that, I just want to understand, do you see any risks to fundraising? Are you maybe a little bit less optimistic? And what are really those reasons for maintaining the fundraising guidance where they are? And then on the flip side, if there's kind of any upside risk to that guidance? And then on that note, if you could just mention how much of your fundraising is coming from your own fund of funds and how that plays into your fundraising? Alexandre Teixeira de Assumpção Saigh: Lindsey, thanks for the question, and thanks for participating in the call. No, we're just being conservative, to be honest. I think it's -- we're not -- we had a guidance. We gave a 3-year plan. We want to hit the 3-year plan. And the 3-year plan that we did give out December of '24 was to raise organically $21 billion. So it would be $6 billion in 2025, which we did $7.7 billion, actual $7.7 billion versus $6 billion, the guidance and $7 billion for 2026, $8 billion for 2027. So $6 billion plus $7 billion plus the $8 billion, $21 billion, our organic fundraising to hit the $70 billion of fee-earning AUM by the end of 2027, having started in the end of 2024 at around $35 billion. So we would double fee-earning AUM, which is 25% increase per year. And -- we are extremely positive about our fundraising momentum. And -- but we wanted to keep that as a $7 billion and $8 billion guidance. Nothing that really worries about that. On the contrary, we see a good momentum. But we didn't see any reason for us to upsize this guidance given that it's $21 billion for the 3 years. I think we're in a good momentum to deliver the 3-year plan. But having said that, let us go through the first 1 or 2 quarters of 2026, and we're going to be in the mid of the $21 billion target. And if we feel even more confident we'll come out with a new number. Hopefully, I cannot guarantee. Hopefully, it's going to be on the positive side, but that's it. It was more for conservative reasons than any other reason. On the second part of your question that our fund of funds do not really fund of funds, to be honest. And I think private equity and infrastructure, if that's what you're referring to, we don't see any of our -- we don't have any fund of funds investing in our buyout private equity funds, growth private equity funds, venture private equity funds. We don't have any fund -- our fund of funds investing in our development infrastructure funds. We do not -- we don't have that fund of funds investing in our own funds that I can -- I don't know -- Marco, any comments there? I don't think we have anything, right? Marco DIppolito: My only comment here and good afternoon, everyone. My only comment here is, as Alex said, we don't have a fund of fund. We do manage a listed trust that has actually funded one of our secondary funds. The amount is $75 million. Again, a very small amount relative to the overall fundraising for last year. Just to remind, this is a vehicle that has an independent Board. It's a listed trust listed in the London Stock Exchange. Therefore, decisions are subject to an independent Board. Alexandre Teixeira de Assumpção Saigh: Okay. Any subsequent questions, Lindsey? Did we manage to answer your questions? Lindsey Marie Shema: Yes. Thank you, Marco. It was the listed vehicle that I was asking about there. And then maybe just some further color on fundraising. Are you still seeing international interest in Latin America region? I know Brazil has been kind of a hot topic right now. What regions are you really seeing the most interest from? And where do you expect that incremental fundraising to come from? Alexandre Teixeira de Assumpção Saigh: Yes. No, thank you, Lindsey. No, yes, I think we have the -- I have been saying that, I think, over the last earnings -- several earnings calls that we have been geographically overperforming LatAm, overperforming Asia, Middle East. We're kind of performing at expectations in Europe. and we are underperforming the U.S. So I've been saying that for several earnings calls. That hasn't really changed much throughout the whole year 2025. We have been, again, overperforming LatAm. In general, we have been overperforming, right, 7.7% versus the guidance of 6%, 30% more. Where is it coming from? Overperforming Asia Pacific, overperforming Middle East, overperforming LatAm, in line with our expectations in Europe, underperforming the U.S. And asset class-wise, overperforming credit, overperforming GPMS, overperforming infrastructure, in line with real estate and in line with private equity. And as I mentioned, our expectations for private equity were low, but were in line with our expectations. We see these geopolitical shifts in the world benefiting LatAm. We see interest from Asia Pacific, Middle East and LatAm itself. I think some of that interest in LatAm has to do with geopolitical shifts in some of the investors in these regions allocating more to LatAm versus other parts of the world. And I think LatAm is extremely well positioned to benefit from these trends given the solid democracies with solid institutional frameworks, solid regulatory framework with -- if you look at the kind of balanced fiscal budgets relative to other countries in the world, of course, you can see that -- you can say the 1% or 2% there or here is that. But if you compare to other countries in the world in a somewhat better situation. We see also a region of the world with a high percentage of renewable energy being driving manufacturing. We have commodities, soft and hard commodities in the region. We have -- the region has the second largest deposit of rare earth in the world is in the region, a region that is also rich in oil and gas and also in protein and other commodities. So it's a region that actually was, in my view, underrated for so many years. And now I think it's getting its place under the sun. -- optimistic about continuing to see even more resources coming to the region in the near future. Operator: Our next question comes from Ricardo Buchpiguel of BTG Pactual. Ricardo Buchpiguel: Can you please provide more color on the nature of the process related to the around $100 million in litigation liabilities Patria has and also comment about the chances of having to pay some of this value? And how are the key steps on the main litigations on this bulk of $100 million? Alexandre Teixeira de Assumpção Saigh: All right. Ana, do you want to help me with this answer? I think specifically the litigation liability, please? Ana Russo: Thank you, Ricardo, for the question. I was also making sure that this -- the $100 million as is posted in our -- I think in our financial statement and also 20-F, it just so that is not in our balance sheet, as you know, because we just consider an accrue if there is a possibility for considering that is losing. So you -- as part of our information, you're going to see that more than 80% of this litigation, we already it's going to went away in our next reports and basically as we already in the past already included in all the statements that are very -- it was not possible -- it was not a remote, but it was probable. So we actually won and this more than 85% is going to go away in our next reports, okay? So we will see in our next reports. Ricardo Buchpiguel: That's clear. And a follow-up question. We saw that there was an increase in transaction costs related to M&A understand that Pat has been reaccelerating the M&A agenda and some announcements were made this year. So my question is if we should see -- should expect this level of transaction costs of around like $20 million, $25 million per quarter in the following quarters. Alexandre Teixeira de Assumpção Saigh: Yes. I think -- well, I can take that from a macro view and then I can answer specific about the numbers. Just again, just to go through this litigation process again. So we won a specific litigation there, Ricardo, where around approximately 85% of the number of $100 million will come out of our numbers as of beginning of 2026, okay? So that's 85% out of the $100 million there. On transaction costs, I think we did say, I think, to the market that we would have a hiatus in our acquisitions during 2025 in order to be able to show our capability to integrate the businesses that we have acquired and fundraise for the businesses that we did acquire, which I think we were spot on with the $7.7 billion that we raised does not include any acquisitions because we did not do any acquisitions during 2025. And we raised money for businesses that we had acquired in the past like our credit business, our GPMS business, et cetera, and our real estate business as well. So happy that, that happened. We had 1 year of hiatus. In addition, we also mentioned that as we do integrate these acquisitions will bring our FRE margins again to 58% to 60%. Now our FRE margin was close to 59% for 2025, so right in the middle of the 58%, 60% number that we gave. And compared to 2024, our margins increased from around 56% to around 59% because of the integration of the businesses that we acquired in 2024 or earlier than that, okay? We also mentioned that as of the end of 2025, we would like to continue our acquisitions in very strategically placed. We also gave the guidance in December 2024 that we would fundraise $21 billion organically, as I mentioned here in Vinay's answer, but also do $18 billion of fee-paying AUM acquisitions. In order to reach the $70 billion of fee-paying AUM by 2027. So we will come back with the acquisitions programs as we did with the acquisition of this private debt platform, private credit platform in Brazil, plus some real estate investment trust in Brazil as well. Plus recently, we announced the signing of a global private market solution business in the United States called WP. So yes, I think we will come back. And I think what is the guideline is the $18 billion. If you add these 3 acquisitions is around 7.5 -- so we see that -- or we give us a guidance that we should try to buy another $10 billion of fee-paying AUM by the end of 2027. So that's -- it's the same guidance as we gave in the end of 2024. The $18 billion, I'm just subtracting what we have already acquired, around 8 billion. So we have another $10 billion to go by the end of 2027. I hope I answered your question. Ricardo Buchpiguel: No, that's clear. And given that the pace of M&A should continue in line with the strategy here, should we expect still this transaction cost that impacts the accounting net profit and excluded from distributable earnings, should it continue to be around like $20 million, $25 million? Alexandre Teixeira de Assumpção Saigh: Yes. Sorry, that's right. Ana, if you can comment on the number itself, please. I'm sorry. I forgot the second part of your answer. Ana Russo: Ricardo, as you know, this line of transaction costs, including all our nonrecurring expenses, which is directly related to our M&As and also restructuring costs, as you know. The quarter specifically was accelerated because of those M&A agenda, as Alexandre mentioned, the closing of those 2 of Solis and RBR and signing of WP. And specifically in this quarter is a higher than usual, the quarter specifically because of the impact of those transactions and some of the specific agreements that hit or cost that hit the fourth quarter. So when we look in a quarterly basis, is -- I would say this is on the high end. So -- it's too high to consider that all quarters is going to be around $20 million. But we are -- as we have no new M&As, when we talk about total year, we can expect to have a slightly lower next year, but not in a quarterly basis, $20 million is more on the high side because of those events happening in the same quarter. I think I don't know if I answer your question. Ricardo Buchpiguel: That's very clear. So mainly when you are closing M&A, we should see small well. That's very clear. Operator: And our next question comes from Nicolas Vaysselier of BNP Paribas. Nicolas Vaysselier: I would like to bring the discussion back to the flagship PE and infrastructure funds. I acknowledge this is not the bulk of your fundraising targets for the next few years. Still, I would like to have a bit of color from your side. I mean you've managed to raise the success of funds in what was a difficult environment -- macro environment for the LatAm region. And I was wondering if you could tell us more about the changes in the LP base you might have had from PE Fund IV to PE Fund V and same thing on the infra and particularly the sort of free-up rates you've managed to achieve from your LPs? Alexandre Teixeira de Assumpção Saigh: Nicolas, thanks for your question. Well, we have seen, in general, I think if we go back to our earlier funds and today, a shift from endowments and family offices to institutional investors. And so if you look at the absolute value of the dollars that we raised more and more for these funds that you mentioned, the drawdown funds, private equity funds and infrastructure funds drawdown, private equity buyout, private equity growth and infrastructure development, which no value add, we see more and more institutional investors composing the absolute value of the fundraising. You have a big number of family offices, but in absolute value, they are contributing less and because the institutional investors come with sizable checks, not sizable checks. So that has been the trend in most of our drawdown funds, those that you just mentioned specifically, the trends are similar to ones that I described. Re-up rates, they go from 40% to 60% re-up rates. I think the latest fund that we are raising drawdown is our secondaries opportunity fund #5. We have re-up rates above 50%. So that's the latest one. So to give you no fresh news on that. And if you go back to the funds that you mentioned, even though you mentioned private equity buyout #4, but it's a 10-year-old fund. To be honest, I forget now what is the re-up rate versus private equity buyout #3 because it's 10, 12 years ago. But the latest funds, it's around the 40%, 60%, which I have in mind number, Nicolas. I can get back to you offline on the re-up rates of private equity buyout #4, which I forget given that it's not a 10-year-old fund. But the last ones that I see infrastructure development fund #5 that we closed in 2025. That's the range, 40% to 60% re-ups. -- secondary opportunistic opportunity fund #5. We see around 50% re-up rates. So that's more or less between the 40% and 60% for the more recent funds that I have fresher in my memory. But I can go offline and look for you for the older funds, okay, if you don't mind. Operator: And our next question comes from Carlos Gomez-Lopez of HSBC. Carlos Gomez-Lopez: So first, I want to congratulate Ana I think for a very good present very good job and luck in your next endeavor. Specifically on Page 21, you give us a very good breakdown about shares outstanding and the increase in the first quarter of '25. We understand this is related to particular transactions M&A. What do we expect for the share count in the next, let's say, 2 or 3 years? Where should we expect to be dilution to shareholders -- and second, when you look at the EPS evolution on Page 2 -- and I realize that the earnings is not everything, but you have had 126 in '23, 24 in '24, 127 '25. What -- again, what is the evolution that we should expect in the coming years. Alexandre Teixeira de Assumpção Saigh: Carlos, thank you for your question. I'll ask Ana to help me here and answer specifically on the numbers that you just mentioned. In general, we gave a guideline in our December 2024 3-year plan tax Day that we will have a share count of around 158 million to 160 million shares for the '25, '26 and '27 period. We have finished 2025 with 158 million shares, and we project 2026 to '27 for the share count to stay within that range, around 160 million shares, around 160 million shares. Again, a guideline that we gave in the end of 2024 for the '25, '26 and '27 period. And we have -- also we gave as a guideline, our FRE for 2026 for this year is $225 million to $245 million with a midrange, of course, of $235 million. And for 2027, $260 million to $290 million with a midrange to $275 million. So then we use these numbers and we use the share count that I gave you and to calculate the FRE per share. And Ana, do you have the specific numbers there that you can help me, please for FRE per share for '26 and '27? Ana Russo: Sorry, I was on mute. Yes. I think just to understand what Carlos, what you're saying. So -- when we look into our FRE per share -- sorry, we have 108 on the FRE when we talk -- I'm sorry, -- you were talking about FRE per share. I'm sorry that we couldn't hear you. Carlos Gomez-Lopez: No, no. Actually, your answer has been on FRE per share, and I understand that it is the main metrics that you use. But I was looking at distributable earnings, which ultimately is the measure for shareholders. Alexandre Teixeira de Assumpção Saigh: To be honest, it's very hard to listen exactly to what you were asking. I think there was a noise in the background. So I understood FRE, but you're saying DE. So I'm sorry about that, Carlos. Carlos Gomez-Lopez: No, no, my fault. I hope it's better now. Alexandre Teixeira de Assumpção Saigh: No, no, I'm sorry. We were not listening very well to your question. So on the DE side, what we do is the following. We give an FRE number, which is the one that I just gave you, $225 million to $245 million for 2026, $260 million to $190 million for 2027. We also give them a share count number, which is 158 million shares to 160 million shares for '26 and '27. And we also give a performance-related earnings number. We do not give a per year number because it's very hard, as I was, I think, answering one of the questions here today to pinpoint exactly which quarter, which year that performance fees is going to be generated. So we gave a 3-year guidance. The 3-year guidance was $120 million to $140 million of performance fees. As of the end of 2025, we generated approximately $60 million, $62 million of performance fees. So for 2026 and 2027, there's $60 million to $80 million to go. okay? And we -- it's very hard again to predict exactly what quarter or even 1 year. So that's why we gave a 3-year guidance. We are 1 year into the guidance. We have another 2 years to go. If we take into the low end of the range, which is now $60 million to go of performance fees, we predict that Infrastructure Fund III is the one that will probably generate the highest probability to generate performance fees. And we estimate that there is a non unrealized performance fees in that fund of $20 million. So that's $20 million out of the $60 million. And the other $40 million should come from other funds that we have several funds that are maturing to generate performance fees in several different asset classes. So we don't give specific DE per share on a quarter-by-quarter basis or year-by-year basis because of this nature of our performance fees. if I managed to answer your question. Carlos Gomez-Lopez: No, you have answered that question. And last one, do you expect the tax rate, which is down again about 5% or so to stay in those levels? Alexandre Teixeira de Assumpção Saigh: Our guidance on tax is around 10% tax rate. That's our guidance. We're currently been able to have a lower tax rate several different reasons. One specifically for 2025 is because we had a tax credit in the U.K. But we don't see that as a recurring tax credit for 2026, 2027. So we should, as we move into 2026, 2027 to see approximately a 10% tax rate. And Ana, do you want to comment on that as well, please? Ana Russo: Yes. Our tax rate, there are 2 impacts when you look into our tax rate is also the size of the performance also impact our effective tax rate because some of the revenue sometimes comes from jurisdiction which have a favorable tax rate. So you also have to take that into consideration when compared year-over-year. But when we look into over time, and as Alexandre mentioned, and I mentioned in my remarks, is actually this year was actually had a favorable impact of a credit on the U.K. And therefore, we foresee for the next 3 years that at the end of the 3-year period, it would reach approximately 10%. So it's going to increase over time to reach approximately 10% as we increase revenue and income in jurisdictions and pay more tax as we -- as our mix of M&A that enters and also our revenue. So this has been our guidance and we're looking to our plan. Operator: Our next question comes from Fernanda Sayao of JPMorgan. Fernanda Sayão: You've been growing very aggressively on the real estate business. Could you elaborate a little bit more on the strategy here? And how dependent do you think that lower rates is to grow this business? Alexandre Teixeira de Assumpção Saigh: Thank you, Fernanda. Thanks for your question. And well, we are extremely excited with our real estate business in general, not only in Brazil, but in LatAm. And we are the largest real estate investment trust manager in Brazil as of now and scale in this asset class does matter. Yes, I think it's -- we've been successfully fundraising and there are several ways that we can fundraise. It is an asset class in general that is interest rate dependent. Yes, it is in general. We see that as interest rates do raise, you have a slower pace of fundraising as interest rates start showing a trend of decreasing, which is the case of Brazil, which is -- we saw that in Chile last year, we see the fundraising increasing, increasing. So it is dependent. Interest rates -- when interest rates increased in Brazil, using Brazil as an example, fundraising then the pace of fundraising decreased and vice versa now, we see that the Brazilian Central Bank will most probably reduce interest rates in Brazil this year as the yield curve also shows that. And our fundraising pace, at least in Brazil should increase. It should be better fundraising environment for our Brazilian real estate investment trusts. In addition, Fernanda, what we also see that given the size of our funds in Brazil, -- we -- a lot of investors look to us. And of course, we are talking also proactively with investors in exchanging their assets for shares of the fund. So it's an asset exchange. If you have a portfolio of real estate and you want to exit that portfolio, maybe you don't want to sell the whole real estate 100%, you can actually get shares of the fund and you can sell 10% now, 20% then because we have large funds that do have a sizable and very reasonable daily liquidity. It's also very interesting for families when they do inheritance planning. You have one real estate or a portfolio of real estate and you have 2 or 3 sons or daughters, you don't have to sell the whole thing and you don't have to give real estate divided by 3, you can give shares of a fund. which for inheritance purposes and planning is very, very intelligent. So we see a lot of not only institutional investors looking for our funds as a liquidity path, exchanging their portfolio with shares of our funds. We also see families and family offices looking for our funds in order to have better family inheritance planning. So all of that together, I think we see that 2026 should be a better year in Brazil for fundraising for the real estate investment trust versus '25. '25 was already a good year, and we already started doing this exchange of assets for shares of the fund. But I think we see even more so in 2026. So yes, I think we're excited about that asset class, and I think that adds to our enthusiasm with fundraising for 2026, Fernanda. I hope I answered your question. Operator: I'm showing no further questions at this time. I'd like to turn it back to Alex Saigh for any closing remarks. Alexandre Teixeira de Assumpção Saigh: Great. Thank you very much for your patience and keeping on with us for long 1.5 hour here and your support is very much appreciated. I hope to see all of you in person during the year. I think there are several conferences that you already invited, and thank you very much for the invitation. And here we go. Hope to continue delivering as we are extremely confident in our numbers, and we start the year with a very strong momentum. And hopefully, that momentum is going to translate into even better fundraising that we gave the guidance and also fee earnings AUM and revenues, et cetera. Thanks a lot. Have a good day. Bye-bye. Operator: This concludes today's conference call. Thank you for participating, and you may now disconnect.