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Operator: Please stand by. We are about to begin today, and welcome to the Aptiv Q4 2025 Earnings Call. Today's conference is being recorded. At this time, I would like to turn the conference to Betsy Frank, Vice President, Investor Relations. Please go ahead. Betsy Frank: Thank you, Jess. Good morning, and thank you for joining Aptiv's Fourth Quarter 2025 Earnings Conference Call. The press release and related tables, along with the slide presentation, can be found on the Investor Relations portion of our website at aptiv.com. Today's review of our financials excludes amortization, restructuring, and other special items, and we'll address the continuing operations of Aptiv. The reconciliations between GAAP and non-GAAP measures are included at the back of the slide presentation in the earnings press release. Unless otherwise stated, all references to growth rates are on an adjusted year-over-year basis. During today's call, we will be providing certain forward-looking statements that reflect Aptiv's current view of future financial performance and may be materially different for reasons that we cite in our Form 10-Ks and other SEC filings. We will begin today's call with a strategic update from Kevin Clark, Aptiv's Chair and Chief Executive Officer. Then Varun Laroyia, Aptiv's Chief Financial Officer, will cover our results and guidance in more detail. We'll then have brief remarks from Joe Liatine, Versagen's Chief Executive Officer, before Kevin and Varun take your questions. With that, I'd like to turn the call over to Kevin. Kevin Clark: Thanks, Betsy, and thanks, everyone, for joining us this morning. Starting on Slide three, we capped off 2025 with another solid quarter in which we seamlessly navigated ongoing changes in the macro environment. Our resilient operating model, which leverages our industry-leading engineering innovation, integrated global supply chain and manufacturing footprint, and best-in-class commercial capabilities, enables us to execute flawlessly in this dynamic environment. As we discussed at our recent Investor Day, we've been successfully leveraging our product portfolio and operating model to penetrate non-automotive markets, where the shared secular trends of automation, electrification, and digitalization are aligning customer needs for mission-critical applications across automotive, telecom, industrials, and other markets. Our momentum continued during the fourth quarter across all segments, as reflected by our partnership announcements with two robotics companies, Robust AI and Vecna Robotics, spanning sensing, compute, and software in intelligent systems. The launch of our modular connector series, developed jointly by our automotive and aerospace teams, and engineered components for multiple end-market applications, and a new business award for energy storage and management electrical distribution systems. Overall, we posted strong bookings in the quarter, validating customer confidence in our operating model across both geographic regions and end markets. During the quarter, we finalized the leadership team for our electrical distribution systems business, which remains on track to spin out as Versagen on April 1, under the leadership of Joe Liatine, who you'll hear from in a moment. We're confident that Versagen is well-positioned to deliver continued value to their customers and create value for their shareholders. Turning to our financial highlights, we reported record fourth quarter revenue of $5.2 billion, an increase of 3%, reflecting strength across multiple areas of our business. Adjusted operating income totaled $607 million as flow-through on volume growth and strong operating performance helped offset stronger than anticipated headwinds from FX and commodities. Combined with lower net interest expense and a lower share count, earnings per share totaled $1.86. Lastly, we generated $818 million of operating cash flow, more than half of which we deployed towards share repurchases and debt reduction. Varun will discuss each of these in more detail a bit later. I'd like to turn to slide four to touch on our achievements during 2025 and review the progress we made further strengthening our business model and increasing shareholder value. First, we continue to enhance our product portfolio with the launch of a number of new innovations across each of our segments, including interconnect product lines that leverage our expertise in both the automotive and aerospace markets, next-generation sensing and AI-powered software solutions that deliver market-leading performance at a competitive cost for applications across a broad range of end markets, and lastly, high-power distribution solutions for applications in energy storage. Second, we continue to gain new business with target automotive OEMs and further penetrate higher growth, higher margin non-automotive markets, as reflected by almost $4 billion of new business bookings with leading local China OEMs, new business awards with non-China Asian OEMs that totaled just under $4 billion, representing an increase of 20% over the prior year, and non-automotive new business bookings that reached more than $4 billion. Third, we continue to strengthen our operating model to further enhance our execution capabilities and enable profitable growth, including the continued enhancement of our supply chain digital twin, with 95% visibility down to at least Tier three levels, and 99% of our semiconductor supply chain down to Tier five level. The opening of a new engineering technical center in Chennai, India, to support our growing software and services business, and further optimization of our manufacturing footprint through the consolidation of seven facilities in North America, EMEA, and Asia Pacific. All of which enabled us to deliver record financial performance, including the impact of headwinds associated with tariffs, FX, and commodity prices, further complemented by disciplined capital allocation, which Varun will talk about in more detail shortly. Moving to slide five to review our new business bookings. As expected, customer awards were strong in the fourth quarter, leading to a record second half of the year bookings, bringing full-year new business awards to $27 billion, short of our target of $31 billion, a result of customer awards shifting to 2026 as we previewed in the last quarter. Customer awards were strong across each of our segments and were highlighted by awards in the China market totaling $5 billion, of which almost $4 billion was with the leading local China OEMs. Awards with Japanese and Korean OEMs that totaled $3 billion, representing a mid-single-digit increase over the prior year. And new business bookings in the rapidly growing India market, which increased significantly to over $800 million. We exited the year with a large and growing pipeline of commercial opportunities and expect 2026 bookings for total Aptiv, including Versagen, to increase to over $30 billion. Let's now review each segment in more detail. Moving to Slide six to review fourth quarter and full-year highlights for our Intelligent Systems segment. A couple of notable program and product launches in the quarter include numerous launches of local China OEMs across our product portfolio, including a Gen seven radar launch with a time to market of just four months, a smart camera launch also leveraging Wind River VX Works, and launches that leverage local China for China solutions for SoCs and software. The launch of an interior sensing system for a leading commercial vehicle OEM incorporating advanced biometric and attention monitoring software features, the launch of new ADAS software features on an existing system for a leading European OEM, and the introduction of next-generation radar solutions as well as the Wind River Cloud Platform for AI-ready private cloud applications. Moving to new business bookings, which were principally driven by strong demand for our active Gen six ADAS system award spanning multiple models and variants for a leading Indian commercial vehicle OEM that includes the full software stack and Gen eight radar solution. A next-generation high-performance compute solution spanning multiple platforms developed in partnership with a top global OEM. And a full-stack ADAS system for a large Korean OEM, incorporating Aptiv software and sensors reflecting the continued expansion of our technology partnership. In addition, we announced multiple new partnerships, featuring integration with our innovative sensing solutions such as Pulse, advanced compute, and Wind River Software Suite. With Vecton Robotics to co-develop next-generation autonomous mobile robots, or AMRs, enhancing safety, intelligence, and cost-effectiveness across warehouses and factories. And robust AI, to co-develop AI-powered cobots accelerating innovation in warehouse and industrial automation. We're encouraged by the momentum we have in the robotics sector and look forward to sharing further developments during 2026. Lastly, Wind River established a strategic partnership with a leading global cybersecurity provider to jointly pursue next-gen software tech stack opportunities in the automotive market. Moving to slide seven to review the fourth quarter and full-year highlights for our Engineered Components segment. Our product and program launches, as well as our new business awards, validate the strength of our product portfolio and operating capabilities across multiple end markets. Notable new product program launches during the quarter include the light-speed single-pair Ethernet technology for applications across increasingly connected and space-constrained end markets, such as industrial automation and next-gen mobility. A compact connector featuring high-speed data interfaces for seamless integration with sensors for Japanese OEMs' SUV models. A next-generation safety-critical rapid power reserve for a local Chinese OEM's all-electric SUV and a high-voltage connector launch for European OEM's global EV platform. New business bookings included a modular connector award for a major European OEM, enabling scalability across platforms, to support next-gen architectures, an award from a leading North American OEM on their top-selling truck and SUV platform, including high-speed interconnects, connectors, and terminals. And a ruggedized high-performance interconnect award for use in marine applications, validating the lightweight, flexible, and highly durable nature of our products. Turning to slide eight to review our Electrical Distribution Systems segment. New program launches reflected the strength of our new business awards over the past few years, including a launch for a high-volume SUV program for the leading North American-based global electric vehicle OEM. The launch of a BEV and extended range EV for a local China OEM that are planned for export markets. A launch for a major India OEM's premium SUV, and a complete low-voltage commercial vehicle launch for next-generation high-performance agricultural vehicles. Moving to new business awards, which span all major geographic regions and include an award with a leading China-based global electric vehicle OEM for production in Europe, serving as a key enabler of their regional manufacturing expansion. An award with a leading European-based global OEM on their new software-defined vehicle architecture, an award for low and high-voltage content across brands, models, and powertrains for a Korean OEM, and lastly, an award for a high-efficiency energy storage solution engineered for grid optimization. In summary, we executed well throughout 2025, finishing the year with strong momentum in the fourth quarter. Each of our three segments is enhancing their market positioning, deepening their customer engagement, and broadening their revenue mix. The penetration of new end markets and regions. The customer awards we've received validate our strategy and the investments we're making to capture the opportunity ahead. I'll now turn the call over to Varun to go through our financial results and our full-year and first-quarter guidance in more detail. Varun Laroyia: Thanks, Kevin, and good morning, everyone. Starting with our fourth-quarter financials on Slide nine. Aptiv delivered solid financial results in the fourth quarter, reflecting our continued execution focus on driving operational efficiencies and reducing costs across our business. Revenues totaled $5.2 billion, an increase of 5% on a reported basis and up 3% on an adjusted basis. Adjusted EBITDA and adjusted operating income margin rates were in line with our Q4 outlook and down only modestly on an absolute basis year over year. This was entirely driven by the impact of unfavorable foreign exchange and commodity, which amounted to a 160 basis point headwind to margin in the quarter. Excluding FX and commodities, our Q4 operating income margin would have been up 70 basis points versus the prior year, reflecting flow-through on volume and ongoing performance improvements. Earnings per share totaled $1.86, an increase of 6% from the prior year, reflecting the benefit of share repurchases and lower interest expense from capital deployment initiatives over the course of the year, partially offset by a higher tax rate. Operating cash flow totaled $818 million, a decrease versus the prior year owing to an increase in net working capital as we continued to invest in semiconductor inventory. As well as approximately $80 million in separation costs related to the upcoming spin-off of Versagen. Turning to the next slide and looking at fourth-quarter adjusted revenue growth on a regional basis. In North America, revenue grew 8% with double-digit growth in both Intelligent Systems and EDS. In Europe, revenue was down 1% in line with vehicle production in the region and relatively comparable across our segments. And in China, revenue was down 5% reflecting the continued impact of unfavorable mix. That being said, our performance versus the market in China improved further this quarter, a positive sign as the team works to further enhance our customer mix. End of note, approximately 80% of our China new business awards in 2025 were from the local OEMs. Moving on to our segment performance on Slide 11. Starting with Intelligent Systems, revenue of $1.4 billion increased 2% versus the prior year, predominantly driven by North America and the benefit of new program launches. Intelligent Systems operating income declined 17% reflecting three items. First, investments across both product and go-to-market capabilities as we continue to expand into non-auto markets. Second, the timing of engineering and commercial credits and commercial recoveries, and third, unfavorable FX. For Engineered Components, revenue of $1.6 billion increased 1% versus the prior year. Operating income increased 8% and margin expanded 60 basis points driven by flow-through on volume and continued performance improvements. This more than offset the impact of unfavorable FX and commodities, which were driven by higher copper, gold, and silver prices. And lastly, for our EDS business, revenue of $2.3 billion increased 5% principally driven by North America. EDS operating income declined 2% year over year, and margin contracted 90 basis points. This was driven by a significant headwind from FX and commodities as well as unfavorable labor economics, which are partially offset by performance improvements across manufacturing, material, and volume flow-through. Now let's turn to cash flow before we discuss guidance. Starting with Slide 12, we generated $818 million of operating cash flow in the fourth quarter. The decrease versus the prior year was primarily owing to unfavorable net working capital with investments to build semiconductor inventory. In some cases, this inventory build has been customer-required and has yielded dividends with our ability to mitigate supply chain issues that have emerged in the industry. In addition, as we get closer to the spin, we incurred approximately $80 million of separation costs in Q4, bringing the year-to-date total to approximately $180 million. Nevertheless, our full-year operating cash flow remained robust at well north of $2 billion, which led to an elevated year-end cash balance of $1.9 billion. Our capital allocation efforts in 2025 were twofold. First, retiring $1 billion in debt to reduce our leverage following the accelerated share repurchase program. And in Q4 specifically, we retired $150 million in debt through open market repurchases. And second, deploying $400 million towards share repurchases in the third and fourth quarters. This includes repurchasing 3.9 million shares in Q4, deploying approximately $300 million. As a reminder, since 2024, with the accelerated share repurchase program, we have deployed approximately $3.5 billion towards share repurchase, reducing our share count by 20%. And we remain committed to returning excess cash to our shareholders. Let's turn now to our 2026 financial outlook. Our full-year 2026 financial guidance includes a view on total Aptiv, which we believe is important for continuity and comparison, as well as views on each of NuAptiv and Versagen on a pro forma basis to provide visibility into our future state following the spin expected to be effective on April 1. Starting with NuAptiv, we forecast revenue in the range of $12.8 to $13.2 billion, up 4% at the midpoint, reflecting the benefit of new program launches, the abatement of certain headwinds that weighed on 2025 revenue growth, as well as improved end-market and product mix. EBITDA and EBITDA margin are expected to be $2.42 billion and 18.6% at the midpoint. This includes approximately $50 million in stranded costs for the full year and $35 million of engineering and go-to-market investments we are making across our businesses as we continue to grow our non-auto revenues. Excluding stranded costs, NuAptiv pro forma margin would be up 30 basis points year over year, reflecting the benefit of volume flow-through and performance improvements primarily in manufacturing and material. EBITDA margin will also reflect continued improvement in our business mix, specifically faster growth in software and services. Adjusted earnings per share is estimated to be in the range of $5.70 to $6.10, which assumes an effective tax rate of 18.5%. Please note that our NuAptiv EPS guidance does not incorporate the benefit of returning capital to shareholders through repurchases. However, it does incorporate the expectation that we will pay down approximately $1.9 billion in debt in 2026, funded principally from the Versagen spin dividend proceeds of approximately $1.6 billion, with the remainder funded with cash on hand. Subsequent to this, both NuAptiv and Versagen gross leverage is expected to be in the range of two to 2.5 times, in line with what we outlined at Investor Day. Free cash flow, measured as operating cash flow less capital expenditures, is estimated to be $750 million at the midpoint. This is net of approximately $250 million in separation costs associated with the EDS spin to be settled in 2026 and a further $200 million investment in semiconductor inventory build. As we mentioned at the beginning of last year, we have worked diligently to strengthen the resiliency of our supply chain and invested to build semiconductor inventory coverage to approximately twelve weeks. This has positioned us well given the heightened concerns over an industry-wide DRAM shortage. And we see minimal impact to us from a supply perspective in 2026. While we are confident of our ability to build inventory and work on long-term solutions with our customers and suppliers, we do expect to see higher input costs related to semiconductors, which we will pass on to our customers. Moving on to Versagen. We forecast revenue in the range of $9.1 to $9.4 billion, an increase of 2% at the midpoint versus a backdrop of vehicle production down 1% in 2026. We expect EBITDA and EBITDA margin of approximately $990 million and 10.7% at the midpoint. On a year-over-year basis, margin expansion is expected to be driven by flow-through on volume and manufacturing and material performance improvements, offsetting headwinds from labor economics, FX, and commodities. And lastly, free cash flow is expected to be $250 million at the midpoint, reflecting continued investments in footprint rotation and manufacturing automation that we discussed at Investor Day. Moving now to our first-quarter guidance and expected cadence through the course of 2026. As a reminder, given the expected effective spin date of April 1, our first-quarter results will be reported as total Aptiv. We expect first-quarter revenue for total Aptiv of $5.05 billion at the midpoint, reflecting adjusted growth of approximately 1%, with NuAptiv slightly above this range and EDS slightly below. Q1 revenue growth is below the full-year range, primarily owing to the cadence of expected global vehicle production in 2026. IHS forecasts vehicle production to be down 4% in Q1, which equates to down 2% on an Aptiv-weighted market basis. We expect adjusted EBITDA and EBITDA margin of $740 million and 14.7% at the midpoint. This includes a 120 basis point headwind associated with FX and commodities. And earnings per share of $1.65 at the midpoint, and this reflects an effective tax rate of 20.5%. For total Aptiv, the increase in the effective tax rate from 17.2% to 20.5% is attributable to the implementation of the Pillar two global minimum tax. Though the cash tax rate is expected to be lower than the ETR by approximately 300 basis points. Finally, as I close, I'd like to reiterate that with our resilient business model and relentless focus on optimizing performance, we remain confident in our ability to drive strong execution and financial results, as well as enhance shareholder value. And with that, I'd now like to hand the call to Joe Liatine for his thoughts on Versagen. Joe Liatine: Thanks, Varun. Great to speak with all of you again. Since we last spoke, we've continued to work diligently to ensure a smooth transition ahead of our first day of trading as an independent company on April 1. As Kevin shared, EDS had a very good year in 2025. We posted solid revenue growth and expanded our EBITDA margins through continued progress on our operational initiatives and drove another year of strong bookings, laying the foundation for future growth. We have momentum heading into 2026, and as an independent company with a strong financial profile, we're confident in our ability to deliver value for shareholders. And I look forward to meeting with many of you in the coming months. I'll now hand it back to Kevin and Varun to complete the call. Kevin Clark: Thanks, Joe. As I wrap up today's call, I want to provide additional context on 2025 and our outlook for 2026. Let me start by level setting on where we've been. During 2025, we continued to enhance the resiliency of our business model with the introduction of a broad range of market-relevant products and solutions, the continued increase in bookings with target customers across regions and end markets, and the ongoing enhancement of supply chain and manufacturing capabilities. During the year, we also illustrated our ability to execute in a dynamic environment. We navigated changes in geopolitical trends and global trade policies, as well as customer-specific challenges, and delivered earnings growth in the face of FX and commodity headwinds that were significantly larger than we had initially anticipated. As we look ahead to 2026, we expect the macro environment to continue to remain dynamic. But with the strength of our operating model, we're confident that we're well-positioned to execute our strategy. We're poised to capture commercial opportunities that are higher growth and higher margin across multiple end markets, and we'll continue to invest in our product portfolio and go-to-market capabilities to execute on these opportunities, while also continuing to further optimize our cost structure and eliminate the stranded costs associated with the spin. 2026 is a very exciting year for both Aptiv and for Versagen as we unlock value through the formation of two independent, optimally positioned public companies. Our team remains relentlessly focused on navigating the challenges and opportunities ahead while also serving our customers and delivering strong financial results to enhance shareholder value. Operator, let's now open the line for questions. Operator: Thank you. Signal by pressing star 1 on your telephone keypad. If you're using a phone, please make sure your mute function is turned off to allow your signal to reach our equipment. We request that you limit your questions to one initial with one follow-up so that we may take as many questions as possible. Again, press star 1 to ask a question. We'll pause for just a moment to allow everyone an opportunity to signal. Dan Levy: Hi, good morning. Thanks for taking the questions. I wanted to start first with a question on your memory exposure because I think that's top of mind for a lot of folks. You said that this wouldn't really be an issue into 2027. Maybe you could just give us a little more insight into what percentage of your COGS memory is of RemainCo, and when your contracts reset in 2027, what magnitude of impact this could be, and what is the line of sight to fully recovering all of those higher costs. Kevin Clark: So it's Kevin. Let me start with just sizing it. So to put it in perspective, memory, the purchase value is roughly $175 million as we sit here in 2026. And the majority of that is DRAM three and DRAM four. So those are the categories. Pricing or price increases for us in calendar 2026 are low double digits, and that's the result of the supply chain management strategy that we've been implementing over the last couple of years and included higher inventory levels as well as longer-term contracts with our semiconductor suppliers. As we head into 2027 or look at 2027, those negotiations actually had started months ago. So we're well ahead of kind of the current outlook for overall price increases. And we're confident that we'll be able to come in at a level consistent with 2026. We'll be higher, but a level that is certainly below the 100 to 120% price increases that you're hearing thrown around today. As it relates to whatever that price increase ends up being, we've been successful in the past, obviously, pushing through price increases or cost increases associated with various aspects or various inputs, semiconductors. I think this is an area we've already had conversations with all of our OEM customers. They understand the situation. And not that we won't have to have some difficult conversations, but we're highly confident we'll be able to push those cost increases through to our OEM customers. Dan Levy: Thank you. And just a reminder, you recovered 100% of your semi-inflation from the 2021 chip crisis? Kevin Clark: Yeah. A little less than 100%, but pretty close. Dan Levy: Great. Thank you. As a follow-up, I wanted to ask about the guide for new Aptiv into 2026. You're guiding to an adjusted growth of 4%. It is at the low end of the range of the 4% to 7% that you talked about at Investor Day. Maybe you could just give us a sense of what's a little lighter in '26 versus what accelerates into the out years? Varun Laroyia: Yeah. Hey, Dan. Good morning. It's Varun Laroyia. Listen. With regards to RemainCo guide, if you go back to Investor Day, the four to seven points growth that we had talked about through 2028, that remains intact. Right? It really starts with RemainCo still having about three-quarters of its business in the auto industry. And as you think about where expectations are for global vehicle production in 2026, and then in '27, '28, which it gets back to some level of growth. That's kind of the starting point number one. And then the second point I'd like to highlight is with regards to our non-auto revenues. Those are growing strongly. On a full-year basis, 2025 non-auto grew about eight points. And in the fourth quarter, other industrial revenue growth grew faster than our commercial vehicles revenue grew for NuAptiv. So that continues to grow and grow well. But again, it's about a quarter of the business. So in the outer years, with the investments we're making in both product but also in go-to-market, we expect that business to come through strongly. And finally, our Software and Services business continues to grow at mid-teens, which we are pleased with. Kevin Clark: If I could just augment what Varun just talked about, it really comes down to vehicle production and assumption. If you look at where we were and IHS was for the 2026 calendar year back in October, November, and then the average weighted market basis, our outlook was vehicle production up 1%. As we sit here today, our outlook and where IHS actually sits is actually, for, on a comparable basis for vehicle production to actually be down 1%. So it's that swing in global vehicle production and the weighting by market. Dan Levy: Great. Thank you. Operator: We will move next to Emmanuel Rosner with Wolfe Research. Emmanuel Rosner: Great. Thank you so much. Good morning. Continuing on this the outlook for the new Aptiv, I was wondering if you could just frame for us some of the puts and takes in the EBITDA outlook for 2026. Margins, basically, stable at midpoint, but obviously pretty decent organic growth. And then you have some puts and takes in terms of one-time costs, inflation, and some of the offsets. So if you could just give us a sense of what that walk looks like, landing you around stable margins. Varun Laroyia: Yeah. Emmanuel, it's Varun Laroyia. As we think about new Aptiv 26 versus 25, here are some kind of key elements, just to highlight for you. The first is just in terms of revenue growth. The volume that comes through associated with that and obviously the EBITDA. And that will kind of pick up just over a point. Okay? Commodities are expected to be a negative in 2026 for RemainCo. Again, it's a far smaller number associated with RemainCo versus Versagen. So about 50 bps is what we currently forecast with regards to EBITDA margin hit associated with that. We have our usual net price downs, so think about the one to one and a half points of what we typically have with net price downs. So that will be another negative associated with that. And then we've talked about investments to grow our non-auto side of the business. This includes go-to-market and also engineering. But again, and stranded cost as I mentioned also, which is about 40 basis points, about $50 million. Offsetting this are other performance items such as manufacturing, material, and also labor economics that we see. From a RemainCo perspective that will kind of help offset some of those pieces. So net-net, as you think about it, outside excluding stranded costs, we do expect on a pro forma basis, new Aptiv margins moving up on a year-over-year basis. Emmanuel Rosner: That's super helpful. And then as a follow-up, would you be able to provide a similar framework for Spinko? Varun Laroyia: Yes. Most certainly. Listen. From a Spinko perspective, overall, 26 versus 25 margins are up. And if you were to take them at a midpoint basis, on a pro forma basis, up about 40 basis points. Right? And it really starts with the volume associated with the growth that's anticipated. So obviously, Versagen, EDS, had a terrific 2025, finished the year strong, tremendous momentum in the business, great bookings coming through. And so from a growth perspective, roughly about the volume growth that comes through and the volume flow-through that comes through is a positive. On the flip side of it, as I mentioned, commodities are expected to be a negative, roughly about 50 basis points. Net price downs about 60 basis points and then finally, some stand-alone costs, which are roughly about $15 million that we talked about at Investor Day. And again, offsetting these elements are performance items such as manufacturing material, which will add back the better part of about 130 basis points of positive EBITDA, and that kind of are the key elements to think through from a bridge perspective twenty-five to twenty-six. Emmanuel Rosner: Great. Thank you. Operator: We'll go next to Itay Michaeli with TD Cowen. Itay Michaeli: Great. Thank you. Good morning, everybody. Just to follow-up on the last question. Curious how you're thinking about just the FX commodity impact on new Aptiv kind of beyond 2026? I think the targets for 2028 assume the minimal impact in the 200 bps of EBITDA margin expansion. Do you think that's kind of recoverable beyond this year? Or kind of how should we think about the kind of longer-term impact? Kevin Clark: Yeah. Definitely. I mean, we're still confident in our ability to expand margins at RemainCo by 200 basis points and, obviously, to do the same in Versagen. Versus your business, 2026, as it relates to RemainCo, there's the impact of stranded cost that Varun talked about. There's some incremental investment in engineering go-to-market capabilities that he walked through. Those are more 2026 related than they are 2027, 2028. Stranded costs obviously, will come out of the system in 2027 and be gone by 2028. There's a bit more that comes out in 2027 than in 2026. As we sit here today. So we remain very confident in our ability to expand margins by 200 basis points. Itay Michaeli: Terrific. Very helpful, Kevin. And then as a quick follow-up, hoping you can give us a little bit of a high-level view of how you see your revenue performing regionally this year. You've had very strong outperformance in North America. You mentioned China also improved sequentially. Hoping to get a little bit more color as to kind of how you see regional revenue progress this year. Varun Laroyia: Yeah. Itay, it's Varun Laroyia. Great question. And really what I'd point you towards is how we performed in 2025. You think about North America, certainly global vehicle production versus what our initial estimates were and where it finally ended up certainly provided a tailwind for North America. But I think importantly, as you think about our non-auto revenue growth, software and services, predominantly in North America. So from that perspective, I would probably share with you that North America will continue to lead the way. Then from a European perspective, based on where GDP is roughly flat to slightly down. And then from a China perspective, our overall mix continues to improve with the China local OEMs, number one. The second piece I kind of highlight about Asia Pac and China in particular is we will end up lapping a couple of programs in Intelligent Systems we had called out in the second quarter. Those will lap, and so we will expect to see a better second-half number come through from China. And finally, I'd say is, and Kevin referenced this in his prepared comments, the growth that we are seeing with Japanese OEMs, the Korean OEMs, and also in India, that again is strong coming through. And so as you think about 'twenty-six, North America, APAC, and then I'd say Europe will be flat to slightly down. Itay Michaeli: That's very helpful. Thanks so much. Operator: We will go next to Mark Delaney with Goldman Sachs. Mark Delaney: Good morning. Thanks very much for taking the question. You said that the S&P outlook for the production cadence this year is being consistent with your view that 1Q growth is slower than growth picks up beyond the first quarter. Can you speak more to what you're seeing with OEM schedules and how much visibility Aptiv has into that pickup starting in 2Q? Kevin Clark: Yes. It's Kevin. I'll start and Varun will provide you with more details. Obviously, as you look at the first quarter, at least four to six weeks out, we're on customer schedules. Now we have forecasts from most of our OEMs out for the full year. And as we sit here today, the schedules report a relatively weak year-over-year market in the first quarter. Right? So vehicle production being down, you know, roughly 4%. We're seeing weakness or we see weakness in China in line with what IHS is forecasting at this point in time. Beyond that, the forecast we receive from our customers, we see continued strengthening into Q3, Q4. Those are schedules that are locked in at this point in time, but as the order continues to evolve, we'll get increasing visibility and, you know, to the extent we're out communicating in the open market, we'll share updates to investors in terms of what we're seeing from a market outlook. But right now, we would say it very closely mirrors exactly what we're forecasting from a 2026 vehicle production standpoint. Mark Delaney: Thanks for that, Kevin. My other question is on the bookings, and you had spoken last quarter about the potential for some timing to shift into '26, which came through. But maybe just talk a bit more on the broader bookings environment in terms of the consistency of some of the programs that did shift. Anything in common that led to that? Is it more regionally driven or any commonality by powertrain type that may be behind some of that shifting? And when you look at your win rates, you know, to what extent is that tracking in line with your expectations and supportive of that longer-term growth that you laid out at the Investor Day? Kevin Clark: Yeah. Win rates continue to be strong. The shifting we saw in the fourth quarter related to programs in North America and Europe. We're well-positioned. We're confident that those are programs that will be awarded a matter of timing. I think when you're in markets like we've been over the last year or so with the dynamics of trade, with tariffs, with for some products, shortages, or tightness for some OEM customers if they're having specific unique supply chain issues. The focus of the procurement organization tends to shift to managing those situations versus awarding business. But, ultimately, if they don't want to impact SOPs, business needs to be awarded that engineering organizations can start working on those programs. Mark Delaney: Thank you. Operator: We'll go next to Joe Spak with UBS. Joe Spak: Hi, Joe. And, sir, your line is open. You may want to check your mute button. Joe Spak: Sorry about that. Good morning, everyone. Just going back to the '26 outlook, and Varun, I appreciate all the puts and takes. I just want to maybe dive in on a couple more things, specifically on the top line. Like, for Versagen, like, how much is copper helping the top line in that growth number? Maybe FX for each company as well? And then, you know, we also saw some big numbers put out by some automakers in terms of, you know, cash they're gonna give to suppliers for canceled programs or lower volumes. Is any of that baked into your outlook? And if not, is that something you are those conversations you're having and something you think you could expect to receive over the course of the year? Kevin Clark: So let me start with the last, and then Varun can walk you through your first few questions. Listen. As it relates to commercial recoveries, that's an active in your dialogue that quite frankly, is going out with customers all the time as it relates to various whether they're distinct or unique programs that are canceled or other items. As it relates to some of the larger decisions principally in North America as it relates to EV programs. Those are discussions that are underway now at this point in time. Certainly, the resolution of those is factored into our 2026 outlook. I wouldn't consider it wouldn't upside to our overall operating performance. They still need to be negotiated and finalized. I think some of the larger programs with some of the OEMs that we deal with especially in North America, I would say there's strong agreement that the situation needs to be resolved, and they need to support the supply base. So I don't think it's a matter of negotiating those recoveries. It tends to be how much. So, yes, they're in our outlook. At a level that we have high confidence in. But, Joe, there's you know, the nature of this business is there's an amount of that activity that goes on year in and year out, and it could be things like labor economics, program cancellation, program delays, commodity pricing, things like that that maybe there is a contractual mechanism to deal with that need to be dealt with separately. Varun Laroyia: And let me pick up the first part of your question, Joe. With regards to commodities, and essentially from our perspective, for Versagen, it's primarily copper. We expect copper as of now, we've budgeted that at $5.5 a pound. Versus a $4.51 number in actuals 2025 that leads to close to $200 million from a top-line revenue perspective. Though I do want to share with you and clarify, when we talk about a 2% growth at the midpoint for Versagen, that is adjusted growth. So that excludes the impact of any FX or commodities. Kevin Clark: Perfect. And the other thing, just from a mechanism standpoint, the way that works, Joe, is copper's index, so roughly 70% of our overall activity where we sell copper and principally in the EDS business, it's index. That price increase is passed on to the customer. Typically, sometimes it's six months, but more often than not, roughly on a three-month sort of delay. So that's how it effectively plays out from a reimbursement standpoint and pricing standpoint. Joe Spak: Okay. Maybe, just one more. I know this sort of changed over the years, but it's something that's come into more focus of late with is the peso. Because I know you used to hedge a lot of that, then I think you started to let more of it flow. Can you just remind us sort of what the current status of that is and maybe the sensitivity to the peso as well? Varun Laroyia: Yeah. This is so Joe, no, thanks for raising that. Again, listen, as we think about FX, with the weakening U.S. Dollar and our lack of an operational hedge primarily for our Versagen business, that's where the peso hurts. As that, if you're going to go back to a year ago when we gave guidance for 2025, the peso was just shy of 21 to the US dollar. I think we had flashed a 20.75. And if you see where it's currently tracking at sub 18, that certainly causes a ton of OI impact. Having said that, obviously, do have hedges in place. And then for 2026, in particular, we essentially hedged about 95% below 18. Okay? And so that's certainly less the impact up to a certain point. But clearly, in 2025, given the volatility from the start of the year to where it ended up, it certainly was a big driver of the impact that we certainly called out, and you know, were transparent in terms of what that was. Joe Spak: Okay. So much for the call. Operator: If you did have a question, it is star one. We will move next to Colin Langan with Wells Fargo. Colin Langan: Great. Thanks for taking my question. I think there was some concern heading into guidance about Versagen being, you know, down given, you know, EVs, particularly in North America, are expected to be down a lot. I mean, what are you assuming in terms of EV volume? And then so what is actually keeping that growth positive if EV is sort of an underlying headwind within there? Kevin Clark: Yeah. Our outlook for EV growth as a company is roughly 15% year on year. The majority of that growth is driven in China. And it's a mix of Bev and slightly faster growth rate in plug-in hybrids and hybrids. So very low growth here in North America, moderate growth in Europe, and then stronger growth in Asia Pacific, principally China. So I think we're roughly Colin, I think we're roughly five or six points from a growth rate assumption standpoint below where IHS sits today. Colin Langan: Okay. Great. And then Intelligent Systems margins were surprisingly weak in Q4. Particularly since normally a quarter where you get a lot of engineering recoveries. Any color on the weakness? And I guess more importantly, how should we think about margins into '26 as they kind of bounce back? Kevin Clark: Yeah. On a full-year basis, margins in Intelligent Systems were up 30 basis points if you exclude foreign exchange. So strong year-over-year growth. In the quarter, I think we had three impacts. Varun talked about foreign exchange. So we were impacted from a foreign exchange standpoint significantly. I think it's roughly 170 basis points that we show on our chart. Then there are two aspects from a timing standpoint. One, engineering credits actually were not as heavily weighted in the fourth quarter. I think in our Q3 earnings call, we made some commentary with respect to the timing of engineering credits. And then the second thing, just Varun mentioned, we've accelerated the investment in some engineering areas in and around technologies and solutions or bringing technologies and solutions into the robotics market. So we have incremental investment in the fourth quarter that will increase and that will continue into the first quarter of this year and, you know, through the balance of 2026. So those are the three drivers of the year-over-year margin degradation for the Intelligent Systems business. Colin Langan: And I guess FX and the into Q1, the engineering investment continue. So those would be incremental headwinds as we think about. Kevin Clark: Yeah. There's some headwind for FX and commodities, much lower based on where we sit today than what we had in the fourth quarter. And then the engineering investment will continue. Colin Langan: Got it. Alright. Thanks for taking my questions. Operator: We'll go next to James Picariello BNP Paribas. James Picariello: Hi, everybody. I just wanted to clarify first on the stranded costs that's embedded in the pro forma outlook because, yeah, adding the EBITDA midpoints of new Aptiv and EDS. Right? There's a like a $75 million difference. Does that account for both the RemainCo's $70 million in stranded costs? Well, based on the Analyst Day as well as the stand-up costs that EDS will have as a separate entity? Thanks. Varun Laroyia: Yeah. James, it's Varun Laroyia. Yes. You know, we called out about $70 million in stranded costs at Investor Day. What we obviously, we've made progress both from a headcount and non-headcount actions those have been layered in. Some of those actions have already begun. But $50 million impact in the first full year on a pro forma basis. For NuAptiv, that's the 50 small, I call it public company, setup costs for Versagen, roughly about $15 million. And then the other piece, as we called out, were some of the investments from a go-to-market perspective and product perspective that we're making in RemainCo across both intelligence systems and engineered components. Those are kind of the key elements to think about from that perspective. James Picariello: Perfect. That's very clear. And then my follow-up is on Wind River and its potential with respect to robotics and just how you foresee that, you know, the future end market demand, tied to AI and robotics, humanoid robotics. Does Wind River have, you know, have a TAM there and a place to play? Thanks. Kevin Clark: Yeah. So Wind River, I would say, is from a software standpoint, the tip of the spear. So they serve multiple markets, including the robotics market. Today with Linux solutions, with RTOS solutions, and other software products. So, it's a TAM that we estimate to be about $6 billion. When you look at the, you know, a comparable to our content per vehicle that we use for the automotive sector. It's roughly 4 to $5,000 of content. On a rollout when we look at sensor solutions, when we look at so that could be vision or camera as well as radar. When we look at the software tech stack. And then when we look at the interconnect and the cable or wire harness solutions. So we view it as a very attractive market. The partnerships that we've announced today, making meaningful progress with. We think during the first quarter we'll have more commercial relationships or partnerships that we'll be announcing that will show the traction that we have in place. And that's what quite frankly, gives us the confidence to increase the investment, targeted that specific market just given the opportunity. James Picariello: Thank you. Operator: And that was our final question. That will conclude today's question and answer session. I will now turn the call back to Mr. Kevin Clark for any additional or closing remarks. Kevin Clark: Thank you, everyone, for joining us today. We really appreciate your time and we look forward to speaking with you and meeting with you over the coming months. Have a nice day. Operator: Thank you. Ladies and gentlemen, that will conclude today's call. We thank you for your participation. You may disconnect at this time.
Operator: Good morning, and welcome to the IDEXX Laboratories Fourth Quarter 2025 Earnings Conference Call. As a reminder, today's conference is being recorded. Participating in the call this morning are Jay Mazelsky, President and Chief Executive Officer, Andrew Emerson, Chief Financial Officer, and John Ravis, Vice President, Investor Relations. IDEXX would like to preface the discussion today with a caution regarding forward-looking statements. Listeners are reminded that our discussion during the call will include forward-looking statements that are subject to risks and uncertainties that could cause actual results to differ materially from those discussed today. Additional information regarding these risks and uncertainties is available under the forward-looking statements notice in our press release issued this morning as well as in our periodic filings with the Securities and Exchange Commission, which can be obtained from the SEC or by visiting the Investor Relations section of our website, idexx.com. During this call, we will be discussing certain financial measures not prepared in accordance with Generally Accepted Accounting Principles or GAAP. A reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measures is provided in our earnings release, which may also be found by visiting the Investor Relations section of our website. In reviewing our fourth quarter 2025 results and 2026 financial outlook, please note all references to growth, organic growth, and comparable growth refer to growth compared to the equivalent prior year period unless otherwise noted. To allow broad participation in the Q&A, we ask that each participant limit their questions to one, with one follow-up as necessary. We appreciate you may have additional questions, so please feel free to get back into the queue. And if time permits, we'll take your additional questions. Today's prepared remarks will be posted to the Investor Relations section of our website after the earnings conference call concludes. I would now like to turn the call over to Andrew Emerson. Good morning, and welcome to our fourth quarter earnings call. Andrew Emerson: Today, I'm pleased to review our Q4 and full year 2025 financial results and the company's outlook for 2026. In terms of highlights for 2025, IDEXX delivered excellent financial performance in Q4, driven by double-digit top-line gains. Revenue increased 14% as reported and 12% organically, supported by 10% organic growth in CAG Diagnostics recurring revenues. We achieved record premium instrument placements in Q4, with strong gains across our major platforms, including over 1,900 IDEXX InVue DX placements, supporting a 69% organic year-over-year expansion of our CAG Diagnostic instrument revenues. Strong revenue growth delivered $3.08 in EPS, up 17% on a comparable basis while advancing planned investments in our commercial and innovation capabilities. IDEXX execution drove solid full-year revenue expansion, with benefits from organic revenue growth supporting strong financial performance aligned with our long-term potential. IDEXX achieved 10% overall organic revenue growth for the full year, driven by 8% organic growth in CAG Diagnostics recurring revenues. Our global premium instrument installed base expanded 12% year over year, including benefits from nearly 6,400 InVue DX instruments. Full-year operating margins reached 31.6%, an increase of 90 basis points on a comparable basis supported by solid revenue expansion and productivity gains. Full-year EPS of $13.08 per share was up 14% year over year on a comparable basis from strong operational performance. These results were achieved through successful advancement of our innovation-driven growth strategy, including new platform launches, creating a solid foundation to build upon as we enter 2026. We'll discuss our 2026 financial expectations later in my comments. Let's begin with a review of our 2025 results. Fourth-quarter organic revenue growth of 12% reflected solid gains across IDEXX's major business segments, including 13% organic growth in CAG, 10% organic growth in Water, and 4% organic gains in LPD. Worldwide CAG Diagnostics recurring revenue increased 10% organically in the fourth quarter, including solid benefits from volume growth and average global net price improvement of 4%. US CAG Diagnostics recurring revenues increased 9% organically in Q4, including approximately 4% net price improvement and approximately 5% volume growth. Volume benefited from sustained new business gains, aided by high customer retention levels and expanded utilization including benefits from IDEXX Innovations. In the fourth quarter, IDEXX achieved a revenue growth premium compared to US clinical visit growth levels of approximately 1,100 basis points. Pressure on clinical visits remains a headwind to the sector with US same-store clinical visit declines of approximately 1.7% in Q4 and 1.9% for the full year 2025. Wellness and discretionary visits remain more pressured than sick patient visits, with wellness visits down 3.6% in Q4 while early signs of an aging pet population and benefits from IDEXX Innovations contributed to diagnostic frequency and volume utilization gains per clinical visit. International organic CAG Diagnostics recurring revenue growth was 12% in Q4 with gains from net price realization and solid volume growth enabled by new business reflected in our double-digit year-over-year growth of our international premium instrument installed base. International regions have maintained strong growth throughout the year, highlighting the significant global opportunity and strong demand for diagnostic solutions. IDEXX VetLab consumable revenues increased 15% organically in the quarter, reflecting strong double-digit gains in The U.S. and international regions. Consumable gains benefited from a 12% increase in our global premium instrument installed base, reflecting solid advancement across our Catalyst premium hematology, CetiView, and InVueDx platforms. In the fourth quarter, we placed 6,567 premium instruments, up 42% from the prior year. Quarterly placement results included strong gains in NVDX and SETIVAEU while sustaining Catalyst placement levels worldwide. For the full year 2025, we achieved approximately 22,500 premium instrument placements with excellent quality, reflecting significantly expanded EVI metrics bolstered by new and competitive catalyst placements nearly 6,400 NVDx instruments. The successful launch of NVDX contributed over $75 million in instrument revenue for the full year, supporting approximately 200 basis points of overall company growth. Rapid Assay revenues declined 3% on an organic basis in Q4. Rapid assay results were constrained by pressure on U.S. wellness visits and continued transition of pancreatic lipase to our Catalyst slide which had an estimated 4% headwind to Q4 revenue growth. Global Reference Lab revenues expanded 9% organically in Q4. Reference lab results in the quarter were supported by solid volume growth across regions and net price improvement. Volume expansion included new customer growth along with continued traction of innovations like IDEXX CancerDx in North America reaching nearly 6,000 customers. CAG veterinary software services and diagnostics with results supported by 12% recurring revenues Imaging revenues increased 13% organically in Q4, with momentum from our vertical SaaS strategy including double-digit growth in our cloud-based PIMs recurring revenue. In other business segments, water revenues increased 10% organically in Q4, with double-digit international revenue growth and solid gains in The U.S. Livestock, poultry, and dairy revenues increased 4% organically in Q4, supported by solid gains in The Americas. Turning to the P&L, Q4 operating profits increased 21% as reported and 17% on a comparable basis from the prior year including gross margin gains and modest operational expense leverage. Gross profit increased 15% as and 13% on a comparable basis, achieving 60.3% in Q4. This is an improvement of 60 basis points comparably adjusting for approximately 10 basis points of negative foreign exchange impact. Gross margin gains were aided by strong consumable growth and benefits from higher reference lab gross margins, offsetting headwinds from business mix on strong instrument revenue levels. Operating expenses were up 11% as reported and 10% year over year on a comparable basis in the quarter, reflecting increases in R&D and commercial investments aligned with advancing our innovation roadmap including recently announced expansions of IMVUDx, and CancerDx platform capabilities, the completion of our global commercial expansions. For the full year 2025, operating margins were 31.6%, an increase of 90 basis points on a comparable basis net of approximately 180 basis point benefit related to lapping a now concluded litigation expense. On a full-year basis, there was immaterial margin impact from foreign exchange effects. Q4 EPS was $3.08 per share, up 17% year over year on a comparable basis. In Q4, EPS benefited from strong operational results and a lower effective tax rate, including 7¢ per share in tax benefit from share-based compensation. Foreign exchange provided a $0.09 per share tailwind to the quarter net of hedge effects. Full-year earnings per share was $13.08, an increase of 14% on a comparable basis. EPS results were driven by strong operational performance in the year and include a combined $0.64 benefit from an accrual adjustment during 2024-2025 related to a now concluded litigation, a 10¢ positive impact from currency changes, and 35¢ in tax benefits from share-based compensation activity. Foreign exchange had an 80 basis point full-year revenue growth benefit and increased operating profits by $10 million and EPS by $0.10 per share, net of $1 million in hedge losses. Full-year free cash flow was $1.1 billion for 2025 or 100% of net income, aligned with our third-quarter guidance and ahead of our long-term goals with capital spending of $125 million or approximately 3% of revenue. We allocated $1.2 billion to repurchase 2.4 million shares at an average cost per share of $500.06, supporting a 2.7% year-over-year reduction in diluted shares outstanding. Our balance sheet remains in a strong position and we ended 2025 with modestly lower leverage ratios of 0.5 times gross and 0.4 times net of cash. Turning to our full-year 2026 financial outlook, IDEXX is planning to deliver solid organic revenue growth and profit gains building on strong commercial execution and extensible new platforms. We're providing initial guidance for revenue of $4.632 billion to $4.72 billion, an increase of 7.6% to 9.6% on a reported basis, reflecting 7% to 9% organically. CAG Diagnostics recurring revenues are expected to grow 8% to 10% organically for the year, representing an increase of approximately 100 basis points at midpoint compared to our 2025 results. At current exchange rates, we expect foreign exchange to have an approximate 60 basis point benefit to full-year revenue growth largely in the first half of the year. At midpoint, our 2026 organic CAG recurring revenue growth outlook incorporates expectations for global net price realization of approximately 4%, reflecting a modestly lower net price realization than 2025. In The US, we anticipate net price improvement of approximately 3.5%, and have incorporated declines in U.S. same-store clinical visit growth of approximately 2%, similar to the full year 2025 given ongoing macro and sector constraints. Andrew Emerson: These targets incorporate continued solid global growth from IDEXX execution and innovation drivers including new customer gains and increases in testing utilization. The higher end of our CAG Diagnostic recurring revenue growth outlook captures the potential for improved sector and same-store growth trends, while the lower end of the range calibrates for further potential effects of macro and sector end pressures. We're planning for solid placement levels for full year 2026 across our premium instrument installed base categories, including 5,500 InVue DX instruments. We expect declines in CAG instrument revenues in 2026 as we lap the rapid expansion of IDEXX MUDX instrument placements and anticipate regional revenue mix dynamics. Our 2026 reported operating margin outlook for the full year is 32% to 32.5%. On a comparable basis, this reflects an outlook for 30 to 80 basis points of improvement year over year net of approximately 30 basis point benefit for foreign exchange and an approximately 20 basis point headwind from lapping a prior year now concluded litigation accrual adjustment in 2025. We're planning for solid gross margin gains on a comparable basis supported by growth in CAG Diagnostics recurring revenues, benefits from lab and operational productivity initiatives, and expansion of our high-margin cloud-based software business. We've captured impacts of tariffs under current laws in our outlook and we remain well-positioned to maintain supply continuity to our customers. Our 2026 EPS outlook is $14.29 to $14.80 per share. This reflects an increase of 10% to 14% on a comparable basis net of a 1% reported growth headwind from comparison to the prior year now concluded litigation accrual adjustment. Our EPS outlook includes $34 million of net interest expense at prevailing rates and a foreign exchange benefit of approximately 22¢ year over year at rates disclosed in our earnings release, net of established hedge positions. We're planning for a consistent year-to-year tax rate when excluding share-based compensation effects. In terms of sensitivities to changes in foreign exchange rates, we project a 1% change in the value of the US dollar would impact full-year reported revenue by approximately $16 million and operating income by approximately $5 million net of hedge effects. Our 2026 free cash flow outlook is for a net income to free cash flow conversion ratio of 85% to 95%, aligned with the long-term potential and reflects capital spending of $180 million or approximately 4% of revenues. The outlook incorporates capital deployment towards share repurchases to support a 1% to 2% year-over-year reduction in diluted shares outstanding while maintaining leverage ratios similar to the past couple of years. Regarding our Q1 outlook, we're planning for overall reported revenue growth of 11.5% to 13.5%, including approximately 2.5% growth benefit from foreign exchange at rates outlined in our press release. Organic revenue growth of 9% to 11% includes approximately 1% to 1.5% growth benefit from CAG instrument revenues supported by ongoing momentum in IVDX analyzer placements. As noted, growth from capital revenues is projected to become a headwind to overall growth over the balance of the year as we lap the launch of InVueDx. We expect Q1 CAG Diagnostic recurring revenue growth of 8.5% to 10.5%, which includes approximately 50 basis point benefit from equivalent days at midpoint and US clinical visit trends and pricing expectations aligned with the full-year guidance levels. Our Q1 reported operating margins are planned for 31.4% to 31.9%, reflecting solid expansion of comparable margins in the quarter aligned with our full-year expectations, net of approximately 90 basis point headwind from lapping a discrete litigation accrual adjustment in the prior year quarter and approximately 30 basis point benefit from year-over-year foreign exchange impacts. We're well-positioned entering 2026 with an expanded global field team and innovative platforms aimed at solving customer challenges. This concludes our guidance update, and I'll now turn the call over to Jay for his comments. Thank you, Andrew, and good morning. IDEXX delivered a very strong fourth quarter closing a year marked by exceptional execution across the organization and meaningful strategic progress towards our long-term potential. In many respects, 2025 was a defining year for our company. We successfully scaled multiple transformative innovations, expanded our commercial presence in key international regions, and continue to demonstrate the resilience and durability of the IDEXX business model pressured by broader economic uncertainty. Our performance reflects the strength of that model, one built on customer-centric innovation, high-quality, durable, recurring revenue, and solutions deeply embedded in the daily workflows of veterinary practices. This year, through significant innovations like InVueDx, CancerDx, VEL, and Catalyst Cortisol, our solutions provided valuable insights in the productivity lift sought by our customers. The human-animal bond continues to deepen and pet owners remain committed to providing a high standard of care, given amid what for many of them, may be challenging household economics. This commitment is especially evident in the aging pet population. Owners and veterinarians alike are prioritizing early detection, proactive screening, and longitudinal monitoring. Early signs of aging pets with solid visit growth for canines five-plus years old more weighted to non-well supported a second consecutive quarter of improving visits in this important segment. Additionally, in the fourth quarter, Jay Mazelsky: diagnostics frequency, the percentage of visits that include diagnostic testing expanded highlighting the structural demand for advanced diagnostics and the role it plays in driving the broader veterinary care envelope. Our commercial organization continues to be a core competitive advantage for IDEXX. In Q4, we completed the targeted expansion of our commercial footprint in geographies where we see significant long-term opportunity to increase diagnostics adoption and utilization. These new team members were fully onboarded and trained and are now active in their respective territories in Germany, The United Kingdom, and Australia. Alongside an expansion in The United States. By enhancing commercial capabilities in these markets, we meaningfully reduce the number of accounts assigned to each representative. This enables more frequent higher quality interactions with clinics and supports deeper integration of diagnostics into everyday care protocols. Our experience consistently shows that increased engagement leads to higher utilization, stronger customer satisfaction, and better medical outcomes. CAG Diagnostics recurring revenue growth in the quarter was driven by a combination of strong volume gains, adoption of new innovations, and continued success in premium instrument placements. Diagnostics frequency and utilization per visit remained important contributors, benefiting both patient care and clinic economics. Customer retention remains in the high nineties for our global CAG Diagnostics business. This level of loyalty underscores the value veterinarians place on the reliability, consistency, and clinical performance of IDEXX Solutions, and the strength of the partnerships our teams build over time. Our commercial team delivered an exceptionally productive year, achieving record instrument placements, and sustained double-digit economic value growth, including contributions from 6,200 Catalyst placements while delivering on our AVUDx agenda. We continue to see solid momentum in both competitive convergence and greenfield accounts. For the full year, we delivered double-digit growth at our premium instrument installed base, which now includes nearly 78,000 catalyst analyzers globally. Expanding the premium instrument installed base provides multiple future growth vectors for the business, including benefits from higher diagnostics, utilization, and new menu additions over time. We recently announced several new innovations including expanding the IDEXX CancerDx panel to include canine mast cell tumor detection with availability expected midyear 2026 in North America. This builds off a successful start to canine lymphoma commercialization, where we crossed an important milestone last quarter. Now more than half of lymphoma tests submitted are for screening versus as an aid in diagnosis. Building off the successful start in North America, we are on track for the next stage of expansion, a Q1 international rollout of IDEXX CancerDx. Getting back to mast cell tumors, they are among the most common cancers in dogs, yet they can be difficult to identify early. These lumps and bumps may go unnoticed, particularly in dogs with long coats, often resembling benign lesions even when detected. This creates uncertainty for clinicians and pet owners alike and underscores the need for tools that support earlier, more confident assessment. Building on the strong momentum of the CancerDx panel, mast cell tumor detection will be added at no additional cost, with no change to specimen requirements or workflow and sustained two to three-day turnaround in The United States. This expansion allows veterinarians to screen at-risk dogs for approximately a third of the most common cancer types during routine wellness visits and to evaluate symptomatic patients when mast cell tumors are suspected. Importantly, it integrates seamlessly into existing workflows, reducing friction while expanding clinical insight. We believe this enhancement further strengthens CancerDx as a foundational tool for early detection and informed decision-making. We have also seen exciting new developments with the first cancer DX marker for canine lymphoma. Evidence shows that we could detect lymphoma signals up to eight months prior to the clinical manifestation of the disease. This means crucial months of earlier detection and treatment potential. As patients undergo treatment, the lymphoma test has also been proven to be useful for repeated testing to monitor remission during shock chemotherapy, a common treatment for canine lymphoma. With this treatment monitoring use case, using reasonable assumptions, we see an addressable opportunity for canine lymphoma monitoring with 130,000 tests per year in North America alone. As is the case with the broader diagnostics category, the more we test, the more we learn. IDEXX InVue DX continues to be a transformational platform, redefining point-of-care cell cytology across several high-volume use cases. The rollout of InVue DX represents one of the most successful product launches in IDEXX history, and the fourth quarter reinforced that trajectory, bringing InVue DX placements for the year to nearly 6,400. This performance was driven by strong customer demand, operational readiness, and highly positive clinician feedback, exceeding our initial expectations. In December, we reached an important milestone with a controlled launch of fine needle aspirate or FNA on NVUDX. While the initial menu is for mast cell tumor detection, we view the FNIC capability as a platform of its own. As with all new platforms, this will be a controlled launch that builds over time ensuring that the testing performance and customer experience are exceptional within the real-world environment of a veterinary practice. FNA is a critical diagnostic technique used daily to evaluate masses and skin lesions. Historically, this process has been manual, time-intensive, and dependent on specialized expertise and external lab interpretation. By automating key steps and applying AI-powered analysis, InBioDX allows technicians to prepare a sample and receive results within minutes while the patient is still in the clinic, with the option of a one-click pathologist evaluation for additional expertise and review of FNA images and results. The initial FNA rollout focuses on mast cell tumor detection, one of the most clinically significant canine cancers. Together with CancerDx, these innovations will give clinicians confidence at every step from screening to diagnosis so they can act sooner and faster, growing cancer in or out with certainty. Our Catalyst platform continues to reflect IDEXX's technology for life strategy, delivering sustained value to disciplined menu expansions that enhance diagnostic confidence and efficiency at the point of care. In 2025, we built on this strategy with growing adoption of Catalyst pancreatic lipase and the launch of Catalyst Cortisol, both of which enable veterinarians to make faster, more informed decisions during the patient visit. Catalyst pancreatic lipase introduced in late 2024 saw broad uptake throughout 2025 as practices incorporated it into routine workflows to support timely pancreatitis assessment. The test provides rapid quantitative results for both dogs and cats, with reference lab quality helping veterinarians address clinically challenging conditions with greater confidence. Adoption across tens of thousands of practices supported diagnostic frequency gains and improved patient outcomes. We extended this momentum with the launch of Catalyst Cortisol in the third quarter, making the third Catalyst menu expansion in under a year. When including Catalyst QC, this test delivers real-time cortisol measurements to support endocrine diagnosis and ongoing disease management, allowing clinicians to move quickly from testing to action. Early adoption exceeded expectations and contributed to solid consumable growth in the second half. Together, these high-impact menu additions underscore platform benefits of our robust installed base and Technology for Life strategy. We're able to rapidly expand new specialty tests like these across a large global installed base of approximately 78,000 catalysts. For example, in North America, over 50% of Catalyst users adopted the pancreatic lipase test in the first twelve months. Our software ecosystem remains an important growth driver and a source of strategic differentiation. IDEXX software is deeply integrated across diagnostics, imaging, client communication, and practice operations, helping clinics fully realize the value of their diagnostic investments. In 2025, we saw strong performance across our practice information management systems, as well as continued momentum in pet owner engagement tools such as Velo. Our EasyVet and Neo platforms delivered double-digit installed base growth, with particular strength among multi-location practices and corporate customers. We closed the year with record quarterly bookings, reflecting contracted future ARR signaling strong momentum for IDEXX's software solutions. Clinics continue to choose our cloud data platforms for their modern interfaces, diagnostics interpretation, and ability to scale efficiently across locations with centralized workflows and data. Velo continues to expand, growing its users over 40% from last quarter, and nearly tripling last year. Clinics using Velo report improved communication with pet owners, increased visit frequency, and better compliance with diagnostics and treatment plans compared to practices relying on more basic engagement tools. We see VEL as a powerful complement to diagnostics, helping clinics translate clinical insight into action. We also made exciting progress in our diagnostic imaging business, where we launched in early January the most advanced radiography system in veterinary medicine, one that combines superb image quality at the lowest dose of radiation, an important consideration where seventy-five percent of technicians are women of childbearing age. Our solution enables a connected diagnostic imaging workflow for veterinary professionals, where AI-powered viewer automates key clinical measurements, and customers can now submit and review telemedicine cases directly through Webhacks. As we close out 2025, IDEXX remains firmly committed to creating long-term value for our customers, employees, and shareholders. Over the past year, we strengthened our commercial foundation, scaled impactful innovations, and reinforced our leadership in diagnostics and software. We enter 2026 with confidence in our strategy, our teams, and the opportunities ahead. The human-animal bond continues to deepen, and expectations for quality veterinary care continue to rise. IDEXX is uniquely positioned to support this evolution by delivering diagnostic and digital tools that enhance productivity, improve outcomes, and support sustainable practice growth. I want to close by thanking our 11,000 employees around the world. Your dedication to innovation, quality, and customer partnership is what enables IDEXX to deliver consistent performance year after year. We're excited about the year ahead and look forward to continuing to build on this momentum. With that, I'll open the line for Q&A. Thank you. Operator: A question, please say go. If you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. A voice prompt on the phone line will indicate when your line is open. Please state your name and company before posing your question. Again, press star 1 to ask a question. And our first question is going to come from Chris Schultz. Please go ahead. Chris Schultz: Great. Thanks so much for the question. I just want to start on the vet visit side. We're obviously seeing a pretty wide divergence between wellness and non-wellness visits. Sounds like part of that from your perspective is the pandemic puppy starting to age here. But I was just interested to see how you're thinking about this evolving in 2026 as we think about wellness versus non-wellness visits in that negative two percent overall number. And maybe just related to that, on price, I know you're targeting a bit less price this year. What are you seeing at the vet practice level in terms of price increases? I guess, are you seeing any signs of some of these corporate practices starting to moderate price at all this year as well? I'm just trying to get some my hands around some of those dynamics. Thanks so much. Jay Mazelsky: Yeah. Good morning, Chris. Yeah. Just in terms of let me start with the vet visit profile first. We have seen some headwinds more on the wellness side. We think that's at this point, really macro probably in the lower end economic demographic households where there's obviously some financial pressures. Less so on the non-wellness side, obviously, and we have seen some green shoots now, two quarters in a row with those pets five years plus starting to grow. So we think that's positive. We think that likely reflects the pandemic adoption boom and these pets aging. And we'll likely continue going forward. In terms of 2026, we just kept that baseline of about 2% decline until, you know, I think until we have clear evidence that that's gonna improve with that that was a, you know, an appropriate path to take. From a vet inflation standpoint, you know, maybe on the vet services side or from the corporate perspective, we have seen some moderation. It's still running hotter than CPI. And I think that will come down over time. What we say is this, I think the corporate practices recognize that that may be an obstacle to getting care with some of their clients, and they're interested in being more aggressive and driving demand and patient traffic into their practices. So I think more to come as that develops. Andrew Emerson: Yeah. And Chris, I'd just add on the visit dynamic, you know, just in terms of both the non-well and the wellness visits. We continue to see a really nice quality of visits overall. The frequency and utilization continues to expand in both categories. And so even in those, you know, groups in terms of the wellness and discretionary types of visits, when they are coming into the clinic, you know, we're continuing to see really positive momentum for the use of diagnostics, which I think is a key part of our strategy overall. Jay Mazelsky: Yeah. Keep in mind that the non-wellness visits, you know, represent about sixty percent of the visits, but seventy to seventy-five percent of the diagnostics revenue. So this combination of what you know, Andrew put his finger on, which is they're using more diagnostics when they come in, so we call that frequency. But also it's more intensive. I think, an important factor to keep in mind just from a through a diagnostic lens. Thank you. Operator: And our next question is going to come from Erin Wright from Morgan Stanley. Erin Wright: So could you speak a little bit about the underlying drivers of the consumables growth? How should we be thinking about continuing mid-teens growth into 2026 or the cadence that we should be thinking about things here? What are the components of this? What will you lap? And then also, you know, I assume that InVue isn't necessarily directly contributing all that much in terms of meaningful consumables flow through as yet. So is there more to come on that front? What are you seeing in terms of that consumables flow through? And then if not, like, how do you think about when you enter into these contracts with placing an InVue, how is that translating into consumables growth across the entire portfolio? Thanks. Jay Mazelsky: Yes. Let me just maybe set this up from an innovation standpoint and then I'll hand it off to Andrew who can provide some additional specifics. The approach that we take with putting platforms out in the market and growing our installed base with this overlay of technology for life has proved very successful in terms of driving relevant consumables testing. So if you think about Catalyst, with these three tests, over the last year plus with SmartQC, pancreatic lipase, and cortisol. We now have almost 78,000 catalysts on a global basis. And keep in mind, the way we incent our sales organization is really on quality of premium instrument placement. Catalyst being obviously an important one. But really across the board. So they're looking to make sure that we seasoned customers who are gonna use them and who have higher utilization patterns. So in terms of driving the consumables growth, it really is a combination of being able to grow our installed base of premium instruments and increase utilization intensity through innovation. And for InVue, that's part of the story of course, with cell cytology, blood morphology, ear cytology, and now FNA for lumps and bumps. And so that's tracking to, you know, plan in terms of consumables use itself. You know, in combination, it's all these things that are driving the type of performance we've seen in 2025 and incorporated into 2026 guidance. Andrew Emerson: Yeah. Maybe just to add a couple of specific metrics there, you know, both for the full year and Q4. The install base actually expanded by about 12%, overall. So I think a really solid, economic, you know, view here of the expansion of the install base to Jay's point. That's supporting the consumable growth. You know, we also had a really exceptional new and competitive Catalyst placements in the fourth quarter. So we did over 1,350 new and competitive placements from a catalyst perspective on a global basis. We did over about 360 in North America. So yeah, really nice trajectory there. And, you know, we see rapid uptake of the new innovations that we deliver. You know, InVue, I think, you know, can sit can to be more the $3,500 to $5,500 per instrument. We're tracking well to that. That includes FNA, which will launch later this year as we previously announced, and, you know, we're excited by, you know, the expansion of that controlled rollout. Erin Wright: Okay. And then just quickly on Reference Lab, you mentioned new growth. Is that U.S. Market or is it international? Where are you seeing the tangible market share gains? And then is it innovation that's really changing the game in terms of you winning business in that inherently competitive category? Thanks. Jay Mazelsky: Yeah. We think we're doing really well on a global basis, and there have been a number of factors involved in seeing that reference lab growth. You know, first, we've invested heavily in the network, the reference lab network, so the customers get the type of service that they expect. You know, next day and in most cases, we've invested heavily in enabling infrastructure, whether it's lab information, systems and VetConnect plus localized outside The US. That's been important. Of course, the innovation story. Really across the board, whether you look at fecal antigen and, you know, our vector-borne disease. But cancer also has got a lot of attention both in terms of differentiation and having customers who don't use us as their primary reference lab send us samples. So in terms of competitive submissions, we're approximately 18% now. That represents, in many cases, a complete break for workflow. Veterinarians and customers really focusing and prioritizing on the patient, not who their primary reference lab provider is. They start with cancer as part of a panel and then, you know, we believe over time will give us more of their business. So I think it's all of those things in combination, which is, you know, created really strong differentiation in the reference lab business, and we're just seeing good growth as a result of that. Operator: And our next question is going to come from Mike Ryskin from Bank of America. Mike Ryskin: Great. For the question. I wanna ask sort of a big picture one on innovation. You guys had a really strong year for InVue placements in 2025. You know, beat all of your targets as you went through the year. I think you called out $75 million revenue contribution, in '25. Any way you could quantify what CancerDx was or what sort of total innovation contribution in '25 was? And what I'm getting at is, would be great to get a sense of how you think about InVue and CancerDx, what the dollar contribution for '26 would be. Just so we can look at the year-to-year comparison. Thanks. Jay Mazelsky: Yeah. Mike, let just I'm gonna keep this high level, and, you know, Andrew may provide some specifics. The way we think about innovation, this direct economic contribution is obviously, you know, InVue revenue and consumable usage and sales as a result of that. But there's also a tremendous leveraged impact indirect economic benefits when you place capital. And it's very often placed through an IDEXX 360 type program inspires usage of our broader portfolio and including reference labs and software and anything that is part of that program. So we've seen, I think, as a result of innovation and overlapping innovation, cancer being a great example with FNA and IDEXX CancerDx with mast cell that's coming in 2026. A leveraged impact, a multiplier impact across our entire portfolio. I think customers feel like it all works better together. It optimizes their workflow. They're able to really focus on what they want to focus on, which is the patient, of course. And we take care of everything else. Andrew Emerson: Yeah. I think Jay hit it well just in terms of a couple specifics. Yeah. We haven't broken out the CancerDx component of that. But I would say it's a direct revenue contribution, but it's modest. You know, I think the standalone test pricing is about $60. And when it's included in a broader diagnostic panel, which we're seeing an increasing percent of the test being done that way, it's about $15. So the direct contribution here isn't super large. But to Jay's point, I think it's really the opportunity, yeah, to continue to see broader adoption of our screening and core blood work. And over time, I think, you know, it'd be really compelling, you know, to see the direct contribution as well. You know, we believe that for CancerDx, you know, the, you know, opportunity to expand that panel or profile is about $1.1 billion over time. So yeah, it's a really meaningfully large category that, you know, we continue to advance, you know, through the innovation, including the launch of mast cell tumors, as Jay highlighted. Jay Mazelsky: Yeah, one way to think about the innovation impact. If you take a look at Catalyst One, and we began shipping that in late 2014, and you compare its economic value ten plus years later as a result of coming out with all the slides and the innovation we have. It's about two and a half times as impactful from an EV standpoint. And so that's always been our strategy, the testing, you know, drives differentiation, not just within that modality, but across the enterprise. And that the instruments that we have placed in the case of Catalyst nearly 78,000, they're just they're used more. And they're therefore, worth more to the company. Okay. Okay. Mike Ryskin: And then, if I could follow-up on price. You guys are talking about 4% total company next year, 3.5 in The U.S. It seems like you're bringing that down as you had previously said to be back within the LRP. I'm just curious what the conversations with vet clinics have been on pricing power the last couple of years. I know that in '21 and '22, it was sort of understood that with inflation, what it was, you know, everyone's gonna be taking a lot more price. Are you having more conversation with vets on that? Is there any pushback? Is there any dialogue with you on how to manage that? I know, you know, you have your long-term contract and relationships but just wondering if that's becoming a more common discussion point with your customers. Jay Mazelsky: Yeah. Thanks. You know, it hasn't been a big flashpoint with customers. They recognize that during the period of high inflation, they and their partners need to take a little bit more in price. The cost went up. They wanted to invest back in their practices, their staff, and I, you know, I think that's normal. If you take a look at over the last four plus years, we've remained pretty close to where the CPI is. A bit above, but not much above. I think what we've seen now is more volume-based recovery in our business. And so, you know, it's more balanced. We're getting back to, you know, I think a volume-driven top-line growth profile, which is healthy. Inflation has subsided. It's a little bit under 3%. So I think it just reflects getting back to more of a historical baseline of what we've seen in the business. Alright. Thank you. Operator: And our next question is going to come from Jon Block from Stifel. Jon Block: First one, pretty straightforward. Second one, not so much, but just on the first one, you know, Jay or Andrew, any thoughts or color on the 2026 international CAG Dx recurring revenue growth rate versus The U.S.? Just as we sit here and sort of contemplate the year to tie to the worldwide, I know you've got some of those commercial investments going on in international markets and arguably, of the innovation is more in an infancy stage. Relative to The U.S. So any color there would be great. And I'll just ask a follow-up. Jay Mazelsky: Yeah. So, you know, we think the international region offers and we've shared sort of the assumptions behind this profile. A bit of a higher growth profile than The U.S. over time. Part of that just comes back to where they are in terms of diagnostics usage, how often it's included, it's more of a sick patient testing market. We've made some very substantial investments over time, not just in that commercial piece as important as that is, we've shared that we invested in Germany and UK, Ireland, and Australia. But also the reference lab network, all the enabling infrastructure, which is important from a just a customer success standpoint. So we do think the international opportunity is a bit higher. From a CAG Diagnostics recurring growth rate. It obviously still requires sector development, but all the pieces are in place. And so what we've seen is that we've sustained double-digit growth now for multiple years. And I think that's just the result of the pieces that we've put in place and the focus that we have but also the inherent customer opportunity. Okay. Thanks for that. And then I maybe the more detailed one. Andrew, Jon Block: can you help me out with this if I've got these numbers correct? So the 1Q26 CAG Dx recurring revenue growth guidance of 9.5% at the midpoint is off of 4.5 comp. So the two-year stack for the first quarter is 14%. And that includes a 50 bps days tailwind, if I heard you correctly. The full year '26 guide for CAGDX recurring is nine at the midpoint off what you did in eight. So a 17% stack. So can you just talk to why the 1Q guidance is a decent discounted full year on the stack basis? Maybe tell us what you saw in the first month of the year, with some weather challenges that seem to be out there. Any color there would be helpful. Thanks, guys. Andrew Emerson: Yeah. Thanks, Jon. So I think just in terms of Q1, the performance that we had outlined, what I would highlight is really consistent with the full-year outlook overall. Certainly, are picking up some days benefit, which I think, you know, would be captured in that, 4.5% metric that you quoted. We had a bit of a days' headwind last year, and so we're picking that back up to some degree. So when you normalize for those, I think it's a relatively more consistent story. Certainly, I think, you know, from a clinical visit, you know, pressure, you know, it's an area that we wanna make sure that, you know, we continue to understand. In Q4, we saw about a 1.7% decline in overall clinical visits. So we're planning for about 2% for both Q1 and the full year. So it's a metric we'll continue to watch as well as, you know, some pricing dynamics as we get into '26. There's a bit of a headwind into the full-year math here. So I think the way we look at it is it's actually a relatively consistent story, and, you know, we're really focused on executing against the innovation that we have. But there's nothing I'd call out specific to, you know, January at this point. You know, we won't get into, you know, kind of a week-to-week or month-to-month, you know, metric here, but we feel good about, you know, the Q1 positioning overall. Jon Block: I'll follow-up more offline. Thanks, guys. Operator: And our next question is going to come from Daniel Clark from Leerink Partners. Daniel Clark: Great. Thank you so much. Just had a question on InVue placements. Where are we sort of in terms of placements into the larger corporate practices? And how are you thinking about placements into those groups in the 26 guide? Jay Mazelsky: Yeah. We're not placing InVue into corporate practices. As I've shared in the past. It tends to be a little bit longer sell-in cycle. They like to do the pilots, and then they wanna make sure that there's both clinical and economic benefits. So they approach it a little bit differently than independent practices, but we're now well into the sell-in and placement within the corporate groups. Daniel Clark: Gotcha. Thanks. And then just one on sort of divergence in wellness and non-wellness visits. When we think about the relative stability of non-wellness heading into 2026, if that does hold, like, would it be fair to kinda take the second half of '25 run rate for non-wellness and extrapolate that forward, or, like, how should we think about kind of that run rate into '26 in the context of the two percent overall visit decline guide that you gave? Thank you. Jay Mazelsky: Yeah. So the, you know, the two percent for '26 is the baseline, and that includes both well and non-well, you know, roughly within what we saw in '25. What I would say is the non-well is more resilient to the macro pressures. Obviously, you know, pets are getting sick. They need to come into the practice. So I think, you know, that they tend to be a bit more resilient. We also expect that the pandemic, you know, a dog and cat puppy and kitten boom will, you know, continue and those green shoots that we've seen will continue to modestly grow over time as these pets age and require more health care. So, you know, I think it's reflected at this point in the 2% decline guide for '26. And, you know, hopefully, as time progresses, that improves. Operator: And our next question is going to come from Brandon Vazquez from William Blair. Brandon Vazquez: Excuse me. Thanks for taking the question. Maybe you can start pivot us a little bit. We spent a lot of time talking about the good innovation on the hardware side. You can spend a couple of minutes talking about the software, especially some of the pet owner-facing ones like Velo. You know, I don't think we've gotten a good update on those. How are they contributing to results? And then more specifically, are they really helping you offset any of this weakness we're seeing in end markets? Are you any accounts with it or using things like Velo, are you seeing a better pull through of the portfolio? Jay Mazelsky: We are. You know, the software piece is a very, very important strategic business within the overall IDEXX business. It's a great business. In and of itself, software business. It's growing strongly. We see good profitability. There's a nice leverage impact in terms of diagnostics. We've grown our cloud-based PIMs placements at double digits. So we're a leader within cloud-based within the North American market, something that we think is very important. With that, from just an ARR standpoint, we see competitor engagement, application, Velo, is getting excellent traction. We shared some statistics both quarterly from a sequential basis and year on year. We know that those customers who use our software solutions use more of our diagnostics with specifically with reference to Velo we see fewer no-shows or clinical visits, more diagnostic usage, all the things that you would expect. So it is an important part important offset. Now it's still relatively small, compared to our total installed base of customers who used diagnostics. But we're very bullish on it. And we think it's an important element of really driving a solutions portfolio. Andrew Emerson: We saw solid double-digit growth in software on a recurring basis in the fourth quarter. And to Jay's point, yes, I think he had highlighted Velo expanded users by about 40%. So, we're seeing some nice traction there, and, you know, we're gonna continue to build off of that momentum. But there's strong demand, I think, from a customer perspective, you know, to continue to move to this vertical SaaS orientation that I think we're amplifying through the different offerings that we have. Brandon Vazquez: Okay. And as a follow-up here, you know, as we're a little early playing with the numbers still this morning, but it looks like to get to the 26 guidance, you don't really need to push your utilization metric too much. Even when you back out price next year to kind of be within the midpoint of that range. But I also hear you making comments about how FNA is in controlled launch, and you maybe haven't even really gotten into the corporate accounts in with InVue yet. Correct me if either of those are wrong, especially on the latter. But I guess the question being, one, is that correct? Like, is utilization largely consistent through '26? And then two, are some of these opportunities to maybe push utilization even higher? You get to see some of the benefits of innovation in the utilization bucket. Thank you. Andrew Emerson: Yeah. So, Brandon, just in terms of the '26 guide, you know, one thing that I would highlight is, you know, if you look at the midpoint from a comparability on the 8% in 2025. You know, where midpoint is about 9% for 2026. So about a 100 basis point improvement, you know, year to year. A lot of that is driven by volume. And certainly it comes with the expansion of our customer base but also just maintaining and growing strong utilization metrics overall led by some of the innovation benefits that we have. So I think you captured the controlled launch correctly, you know, from an FNA standpoint, you know, that'll be something that helps us in 2026. We've captured that in our outlook already. And as Jay just highlighted, you know, I think we are placing InVue into corporate accounts at this point. So, that's an area that, you know, we've been working towards and, you know, typically takes a little bit longer than, you know, independence. But we feel good that we have a nice momentum there. We're targeting about 5,500 InVue placements, for 2026 as well. So, you know, feel really good about the innovation and continuing to help our customers drive growth. You know, I think we're just being cautious, you know, relative to the macro environment and the sector trends that we've seen on areas like clinical visits that, you know, continue to be more muted. But overall, the business is performing quite well despite that. Operator: And our last question is going to come from Andrea Alfonso from UBS. Andrea Alfonso: Hi. Good morning, everyone. Thanks for taking my question. So I just was curious about the dynamics underpinning the gross margin mix in the quarter. It looks like pricing growth was pretty stable sequentially, although you did cite some pressure from mix. And I guess as we think about the 2026 margin expansion of 30 to 80 basis points organically, how do we think about your gross margin improvement stacking versus that 30 to 80 bps? I think you mentioned the moderation in pricing in The U.S. and obviously still calling out the mix impact. And then I guess the other part of that algorithm is how do we think about SG&A growth recognizing some of the ongoing commercial investments you're making. Thanks so much. Andrew Emerson: Yes. Thanks, Andrea. Just in terms of what we saw in Q4, we did have modest pressure just from strong instrument revenues in the quarter. Yes, I think we had highlighted that on the call. But we still delivered about 60 basis points comparably from a gross margin expansion standpoint. So quite solid on the improvement that we see on gross margins. And then for the quarter, we also saw about 120 basis points of operating margin improvement as well. So quite solid there as well. That included investments that we were making. Jay had highlighted we completed some of the expansions that we're expecting to be announced about midyear. So that was factored certainly into the overall SG&A growth as well as continued investment in areas like innovation, the strong R&D number as well. So that's how the quarter played out. I think that was largely in line with our expectations. You know, I think the implied midpoint was right around, you know, those same metrics. As we think about 2026, you know, our guidance for operating margin improvement is the thirty to 80 basis points that you'd highlighted on a comparable basis. That's largely gonna be gross margin led. Yeah. I think we continue to see benefits from a gross margin perspective there as we invest back into the business for the longer term. So we expect most of that would likely be gross margin led overall and we'll be we feel good about, you know, kinda where that positions us as we invest back into long term. Jay Mazelsky: Okay. Thank you for the questions. We'll now conclude our Q&A portion of this morning's call. It's been a pleasure to review another quarter and full year of strong IDEXX results. So thank you for your participation this morning. And we'll now conclude the call. Operator: And this concludes today's call. Thank you for your participation. You may now disconnect.
Lauren: Welcome to The Walt Disney Company First Quarter 2026 Financial Results Conference Call. My name is Lauren, I will be your moderator today. After today's presentation, there will be an opportunity to ask questions. Please note that today's event is being recorded. I would now like to turn the call over to Carlos A. Gomez, Executive Vice President, Treasurer, and Head of Investor Relations. Please go ahead. Carlos A. Gomez: Good morning. It's my pleasure to welcome everyone to The Walt Disney Company's First Quarter 2026 Earnings Call. Our press release, Form 10-Q, and management's posted prepared remarks were issued earlier this morning and are available on our website at www.disney.com/investors. Today's call is being webcast, and a replay and transcript will be made available on our website after the call. Before we begin, please take note of our cautionary statement regarding forward-looking statements on our IR website. Today's call may include forward-looking statements that we make pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements, including regarding the company's future business plans, prospects, and financial performance, are not historical in nature, are based on management's assumptions regarding the future, and are subject to risks and uncertainties. Including, among other factors, economic, geopolitical, operating, and industry conditions, competition, execution risks, the market for advertising, our future financial performance, and legal and regulatory developments. Refer to our Investor Relations website, the press release issued today, and the risks and uncertainties described in our Form 10-Ks, subsequent Form 10-Qs, and other filings with the SEC for more information regarding factors and risks that could cause results to differ from those in the forward-looking statements. A reconciliation of certain non-GAAP measures referred to on this call to the most comparable GAAP measures can be found on our Investor Relations website. Joining me this morning are Robert A. Iger, Disney's Chief Executive Officer, and Hugh F. Johnston, Senior Executive Vice President and Chief Financial Officer. Following introductory remarks from Bob, we will be happy to take your questions. So with that, I will now turn the call over to Bob. Robert A. Iger: Thank you, Carlos, and good morning, everyone. We are pleased with the start of our fiscal year and our achievements reflect the tremendous progress we've made. Beginning with our entertainment segment, our film studios generated more than $6.5 billion in global box office in calendar year 2025, making this our third biggest year ever and our ninth year as number one at the global box office over the past decade. Avatar: Fire and Ash became our latest release to cross the $1 billion threshold, joining Zootopia 2 and Lilo and Stitch to mark $3 billion titles in 2025. Zootopia 2 also became Hollywood's highest-grossing animated film ever, and one of the top 10 highest-grossing films of all time, earning more than $1.7 billion and firmly establishing itself as a popular new franchise. This builds on a rich legacy of both creative and box office for Disney. To date, 37 films have come from our studios, out of the 60 films that have hit this mark industry-wide. That's four times more than any other studio. Great storytelling generates value across our interconnected businesses with hits like Zootopia 2 lifting viewership of related titles on Disney Plus and fueling global interest in our parks and consumer products. The film also became the highest-grossing foreign film of all time in China, where the franchise is an important driver of attendance at Shanghai Disneyland with our Zootopia-themed land one of the most popular areas of the park. Looking ahead to our upcoming slate, we are excited about numerous titles coming to theaters this year, including The Devil Wears Prada 2, The Mandalorian and Grogu, Toy Story 5, the live-action Moana, and Avengers: Doomsday. Turning to streaming, our performance in the quarter reflects the strength of our content and continued technology improvements. We are seeing encouraging results from our investment in local content as we continue our focus on international growth. We're also rolling out product enhancements to elevate the user experience on Disney Plus. And we're layering in additional ways to engage audiences by developing new vertical and short-form experiences. Plans to introduce a curated slate of Sora-generated content on Disney Plus following our recently announced licensing agreement with OpenAI. We also took a major step forward with the launch of ESPN Limited, and while still early days, we're pleased with the adoption and engagement we've seen with the new app. ESPN is the industry leader in sports, offering fans the most compelling portfolio of live sports, studio shows, and original content with multiple ways to watch. And in Q1, ESPN delivered outstanding ratings across our portfolio of live sports. Highlights include ESPN's most-watched college football regular season since 2011, with ABC achieving its best college football season since 2006. Monday Night Football delivered its second-highest viewership in twenty years. And season to date, ESPN has delivered its third most-watched NBA regular season ever. Including the linear rights, we also just closed our transaction with the NFL to acquire NFL Network and other media assets, further bolstering ESPN's offering with an even richer content experience for football fans. Turning to our experiences segment, we had a solid start to the fiscal year with quarterly revenue exceeding $10 billion for the first time. We have expansion projects underway at every one of our theme parks, and next month, we're excited to welcome guests to the new world of Frozen at the completely reimagined Disney Adventure World at Disneyland Paris. This milestone marks the beginning of a bold new era for Disneyland Paris, nearly doubling the size of the second park. At Disney Cruise Line, we recently launched the Disney Destiny, which has received outstanding reviews from guests. We're also preparing for the launch of the Disney Adventure next month, which will be our first ship home-ported in Asia, bringing immersive Disney storytelling to more people globally than ever before. Overall, our results this quarter reflect our hard work and strategic investments across each of our priorities. And I'm incredibly proud of all that we've accomplished over the past three years to set Disney on the path of continued growth. And I'm inspired and energized by the opportunities ahead for this wonderful company. With that, we will be happy to take your questions. Carlos A. Gomez: Thanks, Bob. In order to get to as many questions as possible today. With that, operator, we're ready for the first question. Lauren: Thank you. Our first question comes from Robert S. Fishman from MoffettNathanson. Please go ahead. Robert S. Fishman: Hi, good morning. Bob, you've made some significant IP deals for Disney over the years. So I'm wondering as you watch from the sidelines, the value being ascribed to Warner Brothers and HBO, does that change or impact any of your strategies to better monetize or unlock the value of all Disney's premium IP? And then, Hugh, if I can squeeze in a quick one. The absence of subscriber disclosure, just wondering if you can help us better understand the drivers of SVOD's 13% subscription revenue growth. Any breakdown of US international or how you expect subscription and advertising revenue to trend over the rest of the year? Thank you. Robert A. Iger: Thanks, Robert. Look, if anything, the battle for control of Warner Brothers Discovery I think should emphasize or cause investors to appreciate the tremendous value of our assets, particularly our IP. It includes, obviously, all of our brands and our franchises. And, also, let's not forget ESPN. The other thing I'm reminded of is the deal we did for Fox in many ways was ahead of its time. We knew that we would need more volume in terms of IP, and we did that deal actually announced it in 2017, closed it in '19. And I also as I look at it, I think it was extremely well priced. Considering what's being offered for the Warner Brothers Discovery asset. We have a great hand as I, you know, look across for instance, what our experiences business is currently building. I think more than anything, it illustrates the value of that IP beyond the big screen. But you also have to look at what we've done on the big screen with $6 billion movies just in the last two years and $37 billion movies over time. Those throw off a tremendous amount of value and very long-term value. As if just as a, for instance, the lift Disney Plus that Zootopia 2 and Avatar: Fire and Ash have created is enormous in terms of first streams and in terms of hours engagement. And I've already talked about our parks, but, you know, we're opening Frozen Land in Paris in just a couple of months. We, obviously, have Star Wars present. The Zootopia land in Shanghai is enormous in terms of both its size and its value. The percentage of people that go to Shanghai Disneyland just to go to Zootopia land is very high. So I think we have a great hand. I don't really feel that we have a need to buy more IP. We're just gonna continue to create our own, and we've got an unbelievable bedrock of stories already told to grow from. Hugh F. Johnston: And then, Robert, on the subscription side, revenue growth was driven by a couple of factors. First, of course, was pricing, second, both North America and international growth, and third was bundling, the duo, the trio, and the max bundles all doing well and driving both engagement and revenue realization. Carlos A. Gomez: Thanks, Robert. Operator, next question, please. Lauren: The next question comes from Steven Lee Cahall from Wells Fargo. Please go ahead. Steven Lee Cahall: So Hugh, last quarter, there was a lot of focus on the domestic park trends. It looks like you saw some improvement there. Maybe even a bit of a snapback at attendance and per caps domestically. Could you give us any more color on how Walt Disney World did within there? I think you've spoken to some specific trends there more recently. And any commentary on the bookings pacing to the extent that you think that's a helpful indicator of where demand goes from here? And then just on the guidance, a couple of detailed questions there. No mention of fiscal '27 adjusted EPS growth in the earnings release. Should we assume that's something that's still double-digit or something that you're going to revisit? And same question on CapEx. Thank you. Hugh F. Johnston: Sure, Steve. Couple of notes on that. One, Walt Disney World had a very good quarter. Obviously benefited from the overlap of the hurricane. But in addition to that, saw strong attendance performance as well as strong pricing performance. As far as bookings for the full year, bookings are up 5% for the full year. Weighted more toward the back half. So certainly trending very positively in that regard. And then last, regarding '27 guidance, no update on that. You should assume that we're not changing any of that or we would have an update. So no change there. Carlos A. Gomez: Thanks, Steve. Operator, next question, please. Lauren: The next question comes from Jessica Reif Ehrlich from Bank of America. Please go ahead. Jessica Reif Ehrlich: So one for Bob and one operational. Bob, when you took over for, you know, you're coming towards the end. I should start with that. Towards the end of your reign as CEO. And when you took over from Michael Eisner, you quickly took many steps that had a huge impact on profit growth for years. Like, just two examples were moving Monday Night Football from ABC to ESPN, so you had a dual revenue stream for the first time. And then making peace with Steve Jobs, the obvious acquiring, you know, subsequently acquiring Pixar. So as you prepare to hand over the reins, do you see any areas your successor can really kind of jump start that would really drive the business for the long term? And then I guess just on an operational level, you mentioned that you just closed your deal with NFL. How do you see the relationship and the business evolving with the NFL, including the likely early renewal you guys may maybe a year later not sure. Robert A. Iger: Well, Jessica, first of all, thank you for noting some of the steps that I took when I became CEO. That's a long time ago. And I'm certainly proud of those as I am proud of a lot of the other things that we did thereafter. I think what is noteworthy is that when I came back three years ago, I had a tremendous amount that needed fixing. But anyone who runs a company also knows that it can't be about fixing. It has to be about preparing a company for its future and really putting in place taking steps to create opportunities for growth. So while I don't want to really either sound get too nostalgic or spend too much time on, you know, possible transition or the probable transition. I you know, the good news is that the company is in much better shape today than it was three years ago. Because we have done a lot of fixing. We've also put in place a number of opportunities including the investment across our experiences business to essentially expand in every location that we do business and on the high seas. I also believe that you know, in a world that changes as much as it does, that that in some form or another trying to preserve the status quo was a mistake, and I'm certain that my successor will not do that. So they'll be handed, I think, a good hand in terms of the strength of the company. A number of opportunities to grow, and, and also the exhortation that in a world that changes, you also have to continue to change and evolve as well. This your second question regarding the NFL, you know, we're really happy that we were able to close it. When we did. That enables us to get started sooner than we actually had anticipated. And so the upcoming NFL season, which will end in ESPN's first Super Bowl, is a huge opportunity for ESPN, not only in terms of its ability to manage the NFL network and Red Zone, but also with more NFL inventory. And we know how valuable that is. It's how valuable it will be, particularly for ESPN's streaming business. I'm not gonna comment at all about the future of ESPN's relationship with the NFL except to say that the NFL has an opt-out in the current agreement in 2030, and I think it's just premature to speculate what might happen at that point. Carlos A. Gomez: Thanks, Jessica. Operator, next question, please. Lauren: The next question comes from Thomas Yeh from Morgan Stanley. Please go ahead. Thomas Yeh: Thanks so much. Quick one on the streaming side. I wanted to ask about the progress on new bundle initiatives. I think you mentioned the pace of ESPN Unlimited sign-ups. Are you seeing the uptake coming through maybe less on the bundled side versus the authenticated? PTB side, and what's expected to drive that next leg of adoption? And then if you could give us an update on the plans around the Hulu integration, the key steps that you plan to take this year on that front, that'd be helpful. Thank you. Robert A. Iger: Well, Thomas, look, we've made huge progress turning the streaming business into a profitable business. Developing the technology tools to improve both the user experience and to improve results, and also developing programming across the globe. And I think it sets the business up to lean into accelerated growth you'll probably be hearing about more in the future. The things you have to look at in terms of the components of growth are one, continuing to deliver exceptional content. Particularly on the international front. Two, advancing the technology improvements that I just cited. Three, answering your question, delivering a unified app experience. And then the fourth would be introducing new features such as vertical videos, storage generated content, etcetera, which we've talked about. So far, the integrated experience that we've already offered with Disney Plus and Hulu has resulted in a reduction in churn, and that's the same is true for the bundle with ESPN, that the bundled subscribers churn out less. And we know that reducing churn is a critical component to improving the bottom line or to creating growth. And so we are hard at work on the technology front to create the one app experience even though consumers will always be able to buy Disney Plus or Hulu on its own. But by and large, we believe the farm great majority of consumers will buy both and it will be a fully integrated experience. I would guess that that would be coming sometime the end of the calendar year. Carlos A. Gomez: Thanks, Thomas. Operator, next question, please. Lauren: The next question comes from David Kunoff from JPMorgan. Please go ahead. David Kunoff: Thank you. With the OpenAI agreement, Bob, can you discuss how you plan to curate and deploy user-generated AI content across your platforms? Would this be entirely for vertical video? And then what would be your expectation for how a ramp in AI content might impact the downstream demand relationship for new programming or archive from your franchises? Thanks. Robert A. Iger: Well, good question. First of all, what the deal actually covers is a license agreement between ourselves and OpenAI to enable people to prompt Sora to create thirty-second videos of about 250 of our characters that do not include a human voice or face. And it's a that that is a that's a three-year agreement. Then we we are getting paid for. In addition, we will have the ability to use those videos, those sort of created videos in a curated form on Disney Plus. We have, for a while, wanted to include or add a feature on Disney Plus as ESPN did, by the way, in its new offering. That is both user-generated, but more importantly, short form. ESPN's a short form. Because we have obviously noticed the huge growth in short form and user-generated content on other platforms such as YouTube. So what this deal does is by giving us the ability to curate what has been basically created by Sora onto Disney Plus is it jump starts our ability to have short form video on Disney Plus. Additionally, it's our hope that we will use the Sora tools to enable subscribers of Disney Plus to create short form videos on our platform. Through Sora. And so it's all, I think, a positive step in terms of adding a feature that we believe will greatly enhance engagement. The second part of your question about its impact on other programming needs, is I don't really see that it will have any impact at all. You know, we view AI as having a number of obviously, possible advantages or opportunities for the company. One is as a tool to help the creative process. So creativity. Another is productivity, which is simply being more efficient. And the third, I'll call connectivity, which is creating basically a more intimate relationship with the consumer. Enabling the consumer and enabling us to with the consumer just to have a more engaged more effective relationship. Carlos A. Gomez: Thanks, David. Operator, next question, please. Lauren: The next question comes from Kannan Venkateshwar from Barclays. Please go ahead. Kannan Venkateshwar: So you maybe one for you in terms of drag of some of the streaming business. I mean, you've been investing in this business both in terms of unifying the interface and you know, as well as international content and so on. Would be good to understand how much of a drag this is and you know, to that extent, how much operating leverage could be extracted out of it as you go into next year and beyond? And then, Bob, from your perspective, you know, as you plan your transition, do you think the org structure is more or less in place in terms of leaders of different divisions and you know, how the company is operated on a day-to-day basis. Or is that something that's also part of the transition plan? To the extent you can share? Thank you. Robert A. Iger: Hugh, I'll take the first I'll take the second part and then I'll give it to you on the org structure. And one of the things that I did when I came back three years ago was to reorganize the company and the primary goal was to create more accountability on the streaming side. Our studio and our television organization basically spent the most money obviously, generating content. For streaming. And I felt strongly that those people that were investing the most needed to have much more skin in the game in terms of the impact of their spending on the bottom line. And so by putting streaming in the hands of Alan Bergman and Dana Walden, those that run our movie and TV business globally, there was a direct connection between their investments and ultimately, the bottom line of the streaming business. Three years ago, that business I think it lost about a billion five in the last quarter before I came back, and I think almost $4 billion last year. And you see the results this quarter and what we've managed to do in the last year where it's making more than a billion dollars and we're on a path to turning into a far better business. That reorganization worked. I can't I'm not gonna speak for my successor in terms of how the company will be organized, but I do believe strongly that it's very important that any organization that's created is created with an eye toward creating and maintaining accountability. Hugh F. Johnston: Dan, I'll jump in on the streaming question. You're right in that we were certainly investing in the business. At one point a few years ago, in fact, we were losing $1 billion a quarter. That number improved substantially. Bob laid out a goal for us. To return or to get streaming to profitability and then to get it to double-digit margins. Recall last year, we got it to a 5 margin, and we stated we have a goal this year and guidance this year to achieve a 10 margin. In terms of the quarter, we delivered 12% revenue growth and about a little over 50% earnings growth. So from that perspective, we are dropping a lot of operating leverage out of the business. And we would certainly expect to continue to drive operating leverage going forward even while we invest in international content and invest in technology. To make the product better. The balancing act, of course, is we want to continue to grow at a rapid rate while driving operating leverage. We talked last call about a goal of achieving double-digit revenue growth. And in fact, we did do that on the first quarter. And that's something we aspire to continue to do. Carlos A. Gomez: Thanks, Kannan. Operator, next question, please. Lauren: The next question comes from Michael C. Morris from Guggenheim. Please go ahead. Michael C. Morris: Thank you. Good morning. Wanted to ask first about the Entertainment segment and just maybe unpack the drivers a little bit of the second quarter guidance for comparable operating income and then, of course, the full year getting to double digits, certainly with the acceleration in the back half. Can you just talk about what's different in 2Q and then how that will change in the back half of the year for the guide? And then on the Sports segment, if I could, the 4% decline from fewer subscribers is clearly a meaningful improvement from the seven to 8% that you had in prior periods. Was that all driven by the launch of the ESPN streaming service or are you seeing any improvement in the bundle trend as well? Thank you. Hugh F. Johnston: Sure. Happy to talk about both of those. The big difference in terms of entertainment and in the quarters is really around the various product launches we have. On the network side, Q2, we have a couple of shows launching versus nothing to speak of last year. So from that standpoint, that's what's driving the change. In the back half of the year, we have a really strong theatrical slate between The Devil Wears Prada 2, The Mandalorian and Grogu, and Toy Story 5. And live-action Moana. So it's really that that's driving the big differences. And, of course, that slate is terrific both from an operating performance and in the current year, but also with that new IP sets us up well for both consumer products and for the parks downstream. Robert A. Iger: Hugh, let me just add that both Zootopia 2 and Avatar: Fire and Ash will also be on the streaming service at some point. Between now and the end of the year. And I referenced this earlier, but first streams on Disney Plus for the prior Zootopia and Avatar movies approached a million first streams. And second, the number of hours consumed of the first Zootopia movie and the first and second Avatar movies is in the hundreds of I think it's a couple of almost a couple of 100 million new hours consumed. And so when you look at putting those two films on Disney Plus between now and the end of the fiscal year, obviously, that's going to have significant value for the streaming service. Carlos A. Gomez: Thanks, Mike. Operator, next question, please. Lauren: The next question comes from John Christopher Hodulik from UBS. Please go ahead. John Christopher Hodulik: A couple of quick ones. First, a follow-up on the Sora commentary. Bob, when do you envision the user-generated content showing up on the Disney Plus platform? When can we expect to see that? And do you expect over time it to grow beyond the thirty-second videos, in the current agreement? Then a follow-up for Hugh. You know, the letter calls out lack of visibility on international visitation in the parks. I guess, the 5% increase in bookings. Just is that international visitation, is that incremental to what we've been seeing? And then any color you can give us on bookings for the adventure would be great too. Thanks. Robert A. Iger: John, we're not being specific about sort of timing. We're working through all the technical details of that. I imagine it'll be sometime in fiscal 2026. And for now, we're sticking to the thirty-second limit on videos created. Down the road, not sure, but we're not really focused on that at this point. Hugh F. Johnston: Right. And in terms of international visitation, international visitors do tend to stay in Disney hotels less, we do have a bit less visibility on that front. That said, we were able to read it from other indicators. And as a result of that, we pivoted our marketing and sales efforts, promotional as well as marketing efforts to a more domestic audience and were able to keep attendance rates high from that perspective. Carlos A. Gomez: Thanks, John. Operator, next question, please. Lauren: The next question comes from Peter Lawler Supino from Wolfe Research. Please go ahead. Peter Lawler Supino: Hi, good morning. On the subject of the entertainment segment disclosure, change, I wondered if you could help us understand how the new disclosure aligns better with how you think about that business' future and how you think about managing it, what allows you to do or communicate differently that that makes your life and ours better. Thank you. Hugh F. Johnston: Sure. Happy to talk about that. Look, the reality of it is we manage the entertainment business as a single entity. The notion of talking about linear networks separate from streaming, separate from theatrical I think really creates a lot of complexity. That's just not reflective of the reality. If you think about the networks versus streaming, really what that is is a product of consumers choosing to pivot from one form of distribution channel to another form of distribution channel. So for us to kind of get into a lot of depth in terms of what's happening there, I don't think it's terribly informative to investors. And it's not reflective of the way that we create or distribute content. We create content, and we basically put it across all of our distribution channels. So I think it's just a level of nuance that may have been relevant in the past. But just isn't relevant anymore, and that's why we made the change. Carlos A. Gomez: Thanks, Peter. Operator, we have time for one last question. Lauren: The final question today comes from Jason Bazinet from Citi. Please go ahead. Jason Bazinet: Had a question for Mr. Iger. When you first became CEO, I remember investors would lament your parks business as the worst business in the portfolio. And now I chat with investors, everyone says, oh, you know, the majority of Disney is really the parks business, you know, 60 odd percent of the EBIT. My question is, you've got sort of two vectors going on. You are in the early stages of the streaming pivot. You're showing good progress there. The other hand, even committed to invest a lot of capital in the experiences business. If you went out five years, seven years, ten years, pick your horizon. Do you think the EBIT mix will be more balanced at Disney going forward? Or do you think it will still be an experiences-driven company? In terms of the quantum of profits? Thanks. Robert A. Iger: Thanks, Jason. Look. If you go all the way back to 2005 when I became CEO, the return on invested capital in the then parks and resorts business was not impressive. And actually not acceptable. And we also had not that much building in progress, meaning there wasn't much expansion, but maybe for good reason because the return on invested capital was so low. As we added IP to our stable, including Pixar in '06 and Marvel in '09, and Lucasfilm Star Wars in '12 and then ultimately Twentieth Century Fox. We gained access to intellectual property that had real value in terms of parks and resorts and enabled us to lean into more capital spending because of the confidence level we had in improving returns on invested capital due to the popularity of that IP. And when you look at the footprint of the business today, it's never been more broad or more diverse. And the projects that we have underway are gonna make it even more so. Yeah. As I said, we're expanding in every place we operate. And additionally, having been in Abu Dhabi just two weeks ago, was reminded of how great the potential is to build in that part of the world. Not only is it strategically located, to reach a huge population that have never visited our parks, but we built in one of the most modern and technologically advanced ways. So you know, as I look ahead, I actually am very, very bullish on that business and its ability to grow because of everything that I just cited. In addition, though, because of what you said about the trajectory of our streaming business and what we know is in the pipeline in our movie business, I you know and also looking back just a few years, when our movie business was suffering from COVID and the streaming business was obviously in not an acceptable place, it's clear that the future of both of those businesses or let's call it our entertainment business is also bright and is going to grow. So we have a healthy competition now at our company in terms of which of those two businesses is going to essentially prevail as the number one deliver driver of profitability for the company. But I'm confident that both have that ability. Meaning, both have the ability to grow nicely into the future giving all the investments that we've made and the trajectory that we're on. Carlos A. Gomez: Thanks, Jason, and thanks to everyone for your questions today. We wish you all a good rest of the day. Take care. Lauren: This concludes today's call. Thank you for joining everyone. You may now disconnect your lines.
Operator: Good morning, ladies and gentlemen, and welcome to NAPCO Security Technologies Fiscal Second Quarter 2026 Earnings Conference Call. [Operator Instructions] Also note that this call is being recorded on Monday, February 2, 2026. And I would like to turn the conference over to Francis Okoniewski, Vice President, Investor Relations. Please go ahead. Francis Okoniewski: Thank you, [Sylvie], and good morning, everyone. This is Fran Okoniewski, Vice President of Investor Relations for NAPCO Security Technologies. Thank you all for joining today's conference call to discuss financial results for our fiscal second quarter 2026. By now, all of you should have had the opportunity to review our earnings press release discussing our quarterly results. If not, a copy of the release is available in the Investor Relations section of our website, www.napcosecurity.com. On the call today are Dick Soloway, Chairman and CEO of NAPCO Security Technologies; and Kevin Buchel, President and Chief Operating Officer; as well as Andrew Vuono, our Chief Financial Officer. Before we begin, let me take a moment to read the forward-looking statement as this presentation contains forward-looking statements that are based on current expectations, estimates, forecasts and projections of future performance based on management's judgment, beliefs, current trends and anticipated product performance. These forward-looking statements include, without limitation, statements relating to growth drivers of the company's business, such as school security products, recurring revenue services, potential market opportunities, the benefits of our reoccurring revenue products to customers and dealers, our ability to control expenses and costs and expected annual run rate for our SaaS recurring monthly revenue. Forward-looking statements invoke risks and uncertainties that may cause actual results to differ materially from those contained in the forward-looking statements. These factors include, but are not limited to such risk factors described in our SEC filings, including our annual report on Form 10-K, Other unknown or unpredictable factors or underlying assumptions subsequently proved to be incorrect could cause actual results to differ materially from those in the forward-looking statements. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, level of activity, performance or achievements. You should not place undue reliance on these forward-looking statements. All information provided in today's press release and this conference call are as of today's date, unless otherwise stated, and we undertake no duty to update such information, except as required under applicable law. I'll turn the call over to Dick in a moment. But before I do, I want to mention the schedule of investor outreach in the coming months. On February 17, we're participating in the Barclays 43rd Annual Industrial Select Conference in Miami Beach, Florida. We're also attending Citigroup's Global Industrial Tech and Mobility Conference also in Miami Beach, Florida on February 19. In March, our engagements include the Raymond James 47th Annual Institutional Investors Conference in Orlando, Florida on March 4. We will attend Cantor Fitzgerald's Global Technology and Industrials Conference in New York City, March 10 and 11. And finally, we'll cap off this busy period by attending our industry's largest trade show, ISC West, at the Venetian Expo in Las Vegas, March 23 through March 27. If anyone is interested in attending, please reach out to me, and I will arrange to get you a pass. Investor outreach is a vital part of NAPCO's strategy, and we'd like to extend our gratitude to everyone who contributes to the success of these events. With that out of the way, let me turn the call over to Dick Soloway, Chairman and CEO of NAPCO Security Technologies. Dick, the floor is yours. Richard Soloway: Thank you, Fran. Good morning, everyone, and welcome to our conference call. We appreciate you joining us as we review our fiscal second quarter 2026 performance. Our second quarter results, which reflect record Q2 revenue is a continuation of the momentum we reported from Q1 and is evidence of our focus on long-term growth. Our strong financial results continue to be fueled by our recurring revenue model, which delivers steady growth while maintaining its substantial profitability. Our equipment revenue has shown consistent growth as our pricing and market strategies have yielded double-digit increases in equipment revenue for consecutive quarters, bolstered by our door locking as well as double-digit growth in our Intrusion and Alarm segment. The first half of fiscal 2026 delivered strong financial results and we are confident in our ability to continue the momentum through the end of the fiscal 2026 and to execute on our plan to provide enhanced shareholder value and growth. In addition to our financial performance, we are pleased with the recent addition of our Chief Revenue Officer, Joe Paczynski. With his 35-plus years as a business development executive, he will provide the company with strong leadership, vision and the ability to help NAPCO achieve even stronger revenue growth. Now I'll turn the call over to our President and Chief Operating Officer, Kevin Buchel, who will comment on some operational and financial performance highlights. Following Kevin's remarks, our CFO, Andy Vuono, will go through the financials in more detail, and then I will return to delve deeper into our strategies and our market outlook. Kevin, the floor is yours. Kevin Buchel: Thank you, Dick. Good morning, everyone. I'm going to take a few minutes to highlight our performance for the second quarter, which marked another strong period of execution for the company. We are extremely pleased with the results this quarter, which reflect disciplined execution, strong demand across our portfolio and the continued focus of our teams on driving profitable growth. Total revenue for the quarter was $48.2 million, and that represents a Q2 record, and it's an increase of 12.2% compared to last year's second quarter. This performance underscores the momentum we are seeing across our business. Within that total, equipment revenue was $24.3 million, and that's up 12% year-over-year. We're particularly pleased with this result as it demonstrates the continued strength and durability of our distributor and dealer relationships as well as the impact of the price increases implemented at the end of fiscal 2025, which are contributing as expected. Equipment gross margin continued to improve, reaching 28%, and that compares to 24% in the prior year and 26% from the previous quarter. This improvement reflects ongoing pricing discipline, operational efficiency and favorable product mix, and we are very satisfied with the progress we are making. Recurring revenue continued its strong performance, growing 12.5% over last year's Q2 and maintaining a strong gross margin of 90.2%. We're very encouraged by the consistency and the quality of this revenue stream with StarLink commercial fire radios, again, representing a significant portion of the mix. We also saw continued momentum in our recurring revenue base with the prospective annual run rate increasing to $99 million, and that's based on January 2026 recurring revenue. And that represents an increase of approximately $4 million from the $95 million run rate we reported last quarter. And we are pleased with this steady progress we are making in building long-term high-margin revenue. From a profitability standpoint, operating income for the Q2 increased 32% year-over-year to $14.8 million. Net income increased 29% to $13.5 million, and that represents 28% of revenue for the quarter. Adjusted EBITDA increased 26% to $15.3 million, and that resulted in an EBITDA margin of 32%. These results demonstrate strong operating leverage, and we are pleased with the level of profitability achieved this quarter. Our balance sheet remains a significant strength. Cash and marketable securities continued to grow and totaled $115 million as of December 31, 2025, and that gives us substantial flexibility to continue investing in the business while also returning capital to shareholders. Given our strong financial performance and cash position, our Board approved another increase to our quarterly dividend raising it to $0.15 per share, which represents a 7% increase. This decision reflects our confidence in the business and our commitment to delivering shareholder value. Overall, this was another outstanding quarter. We are very pleased with our performance through the first 6 months of fiscal 2026. And while there is still more work to do, we believe the company is well positioned to continue executing at a high level. With that, I will turn the call over to our CFO, Andy Vuono, for a deeper look at the financials. Andy? Andrew Vuono: Thank you, Kevin, and good morning, everyone. Net revenue for the quarter increased 12.2% to $48.2 million as compared to $42.9 million for the same period a year ago. Net revenue for the 6 months ended December 31, 2025, increased 12% to $97.3 million as compared to $86.9 million for the same period a year ago. Recurring monthly service revenue continued its growth, increasing 12.5% in Q2 to $23.8 million as compared to $21.2 million for the same period last year. Recurring monthly service revenue for the 6 months ended December 2025 increased 11.8% to $47.3 million as compared to $42.3 million last year. Our recurring service revenue now has a prospective annual run rate of approximately $99 million based on January 2026 recurring service revenues, and that compares to $95 million based on October 2025 recurring service revenues, which we reported back in November. The increase in net service revenue was due to increase in the number of our cellular radio communication devices activated during the period. We expect radio sales to continue to be a key contributor to our overall equipment sales, which leads to continued growth of our highly profitable recurring service revenue. Equipment revenue for the quarter increased 12% to $24.3 million compared to $21.7 million last year. The increase in net equipment revenue was primarily attributable to the impact of pricing increases and increased volume in our door locking product lines. revenue for the 6 months increased 12.1% to $50.1 million as compared to $44.6 million for the same period last year. The increase was primarily due to increased volume of our door locking products as well as increased prices. Gross profit for the 3 months ended December 2025 increased 15.3% to $28.2 million with a gross margin of 58.6% as compared to $24.5 million with a gross margin of 57% for the same period last year. The gross profit for the 6 months increased 14.2% to $56.1 million with a gross margin of 57.6% as compared to $49.1 million with a gross margin of 56.5% a year ago. Gross profit for recurring service revenue for the quarter increased 11.1% to $21.5 million with a gross margin of 90.2% as compared to $19.4 million with a gross margin of 91.3% last year. And gross profit for recurring service revenue for the 6 months increased 10.6% to $42.7 million with a gross margin of 90.3% as compared to $38.6 million with a gross margin of 91.2% last year. Gross profit from equipment revenues in Q2 increased 3.2% to $6.7 million with a gross margin of 27.6% as compared to $5.1 million with a gross margin of 23.6% last year. Gross profit for equipment revenues for the 6 months increased 27.4% to $13.4 million with a gross margin of 26.8% as compared to $10.5 million with a gross margin of 23.6% for the same period last year. The 160 basis point increase in overall gross margin is due to the continued highly profitable recurring revenue and overall improved margins on equipment revenue. The decrease in gross profit margin from service for both the 3 and 6 months period ended December 2025 was a result of a onetime credits reducing royalty expense in the comparative periods and marginal increases in data costs to run our network operations center. The increase in gross profit and gross margin from equipment revenue for both the 3 and 6 months ended December 2025 is attributable to improved manufacturing overhead absorption due to increased production, the impact of price increases in addition to lower sales discounting. Research and development costs for the quarter increased 11.8% to $3.5 million or 7.2% of revenue as compared to $3.1 million or 7.2% of revenue for the same period a year ago. R&D costs for the 6 months ended December 2025 increased 8.9% to $6.7 million or 6.9% of revenue, and that compares to $6.2 million or 7.1% of revenue for the same period a year ago. The increase in research and development for the 3 and 6 months is primarily the result of increased labor and benefit costs related to expanding our engineering staff. Selling, general and administrative expenses for the quarter decreased 1.9% to $10 million or 20.8% of revenue as compared to $10.2 million or 23.8% of revenue for the same period last year. SG&A expense for the 6 months ended December '25 increased 5.3% to $21 million or 21.5% of revenue for that, and that compares to $19.9 million or 22.9% of revenue for the same period last year. The decrease in SG&A cost for the quarter was primarily due to decreases in legal fees, which are net of insurance reimbursements and accounting fees offset by increases in wages and bonus compensation and sales commissions. The increase in SG&A costs for the 6 months ended December 2025 was primarily due to increases in legal fees, commissions and wages and bonus compensation, offset by decreases in accounting fees and stock-based compensation. Operating income for the quarter increased 32.1% to $14.8 million as compared to $11.2 million for the same period last year. Operating income for the 6 months ended December 2025 increased 23.3% to $28.4 million as compared to $23 million for the same period last year. Interest income for the quarter decreased 4.7% to $884,000 as compared to $921,000 for last year. And for the 6 months, interest income decreased 6.9% to $1.7 million compared to $1.9 million last year. The decrease for both the 3- and 6-month periods was primarily due to lower interest rate yields on our cash and short-term investments. The provision for income taxes for the 3 months increased 37.6% to $2.2 million with an effective tax rate of 14.2% as compared to $1.6 million with an effective tax rate of 13.4% last year. For the 6 months ended December 2025, the provision for income taxes increased 36.8% to $4.7 million with an effective tax rate of 15.5% as compared to $3.4 million with an effective tax rate of 13.7% last year. The increase in the provision for the 3 and 6 months ended 2025 was due to higher pretax income as well as a larger portion of the company's taxable income being attributable to U.S. operations and the remeasurement of certain deferred tax liabilities due to tax rate changes enacted in the One Big Beautiful Bill Act. Net income for the quarter increased 29% to $13.5 million or 28% of revenue or $0.38 per diluted share as compared to $10.5 million or 24.4% of revenue or $0.28 per diluted share for the same period last year. Net income for the 6 months increased 18.5% to $25.7 million or 26.4% of revenue or $0.72 per diluted share and compares to $21.7 million or 24.9% of revenue or $0.59 per diluted share for the same period last year. Adjusted EBITDA for the quarter increased 26% to $15.3 million or $0.43 per diluted share as compared to $12.2 million or $0.33 per diluted share for the same period a year ago and equates to an adjusted EBITDA margin of 31.9% this year compared to 28.4% last year. Adjusted EBITDA for the 6 months ended December 2025 increased 22.6% to $30.3 million or $0.84 per diluted share and compares to $24.7 million or $0.67 per diluted share for the same period last year and equates to an adjusted EBITDA margin of 31.1% this year compared to 28.4% last year. Free cash flows for the quarter increased 17.4% to $14.5 million as compared to $12.4 million for the same period a year ago and equates to a free cash flow margin of 30.1% this year compared to 28.8% last year. Free cash flows for the 6 months increased 9.5% to $26 million as compared to $23.7 million for the same period a year ago and equates to a free cash flow margin of 26.7% this year compared to 27.3% last year. Continuing on to our balance sheet. As of December 2025, the company had $115.4 million in cash and cash equivalents and marketable securities as compared to $99.2 million as of June 2025, a 16.3% increase after paying $10 million in dividends during the 6-month period. The company had no debt as of December 2025. Cash provided by operating activities for the 6 months ended December 2025 increased 4.7% to $26.7 million compared to $25.5 million last year. And working capital, which is our current assets plus current liabilities, was $158.8 million as of December 2025 as compared to working capital of $138.4 million at June 2025. The current ratio was 8:1 at December 2025 and 6.8:1 at June 2025. Our capital expenditures for the quarter totaled $600,000 compared to $1.1 million in the same period last year and for the 6 months amounted to $800,000 compared to $1.8 million last year. That concludes my formal remarks. I would like to return the call back to Dick. Richard Soloway: Thank you, Andy. As you've heard today, our second quarter and first half of fiscal 2026 reflect another period of strong execution and meaningful progress against our long-term strategy. Record Q2 revenue of $48.2 million, double-digit growth across both equipment and recurring service revenue, expanding margins and strong operating leverage all reinforce that our business model is working exactly as intended. At the core of our strategy is our recurring service revenue platform, which continues to deliver consistent high-margin growth. Recurring service revenue now represents nearly half of our total sales, supported by sustained gross margins of over 90% and our annualized run rate has reached approximately $99 million. This steady high-quality revenue stream provides predictability, strong cash generation and long-term value creation. StarLink commercial fire radios remain a key driver and have become the industry standard for commercial fire communicators with continued healthy demand across both new installations and our expanding installed base. On the equipment side, we are equally encouraged by the momentum we're seeing. Equipment revenue increased 12% over year to $24.3 million, supported by strong performance in our door locking solutions and in our intrusion and alarm product segments. Pricing actions implemented late last fiscal year are having the intended impact, contributing to improved equipment gross margins, which expanded 28% in the quarter. These results reflect disciplined pricing, operational efficiency and favorable product mix, all of which we continue to actively manage. Profitability remains a major strength of the company. Operating income, net income and adjusted EBITDA all grew at significantly faster rates than revenue, demonstrating strong operating leverage. With EBITDA margins now exceeding 30%, we are generating substantial cash flow while continuing to invest in innovation, infrastructure and growth initiatives. Our balance sheet further differentiates us. With $115 million in cash and marketable securities and no debt, we have exceptional financial flexibility. This allows us to invest organically, pursue strategic opportunities where appropriate and continue returning capital to shareholders. The Board's decision to increase the quarterly dividend to $0.15 per share reflects our confidence in the sustainability of our cash generation and our ongoing commitment to shareholder value. In addition to our strong financial performance, as I mentioned earlier, we are pleased to announce the appointment of Joseph Paczynski as Chief Revenue Officer, a newly created executive role. In this position, Joe will oversee NAPCO's revenue organization, including sales, channel strategy, pricing and go-to-market execution across the company's full product portfolio. This appointment underscores our continued focus on accelerating equipment revenue growth, expanding recurring service revenue, maximizing operating leverage and strengthening customer and dealer engagement. For more than 35 years of experience in revenue leadership and business development, Joe brings deep experience and a strong execution mindset, and we believe his leadership will further position NAPCO to capitalize on new market opportunities, deepen dealer and customer relationships and accelerate our long-term growth strategy. Operationally, our team continues to execute at a very high level. We are managing inventory tightly, investing in product development, compliance, automation and infrastructure and returning capital through dividends, all while maintaining a debt-free balance sheet. Our manufacturing facility in the Dominican Republic remains a key competitive advantage, providing cost efficiency, stable logistics and low tariff exposure compared to many competitors operating in higher tariff regions. Looking ahead, we remain optimistic about the remainder of fiscal 2026 and beyond. Demand across our product portfolio remains strong. Our recurring service revenue base continues to expand and our operating discipline remains firmly in place. We've diversified our distribution base, implementing pricing actions and continue to enhance the Starlink platform while investing in automation and technology designed to sustain growth and expand margins. One area where NAPCO continues to make a meaningful impact is school security, one of the most critical challenges of our time. We are proud to partner with school districts nationwide, providing integrated solutions that include our Trilogy and architect [locksets] and enterprise scale access control systems. These platforms are secure, scalable and aligned with strict industry standards. What truly differentiates NAPCO is our ability to integrate locking, access control and alarm technologies into a unified interoperable platform protecting students and staff every day while driving future growth. At the same time, we continue to expand recurring service revenue opportunities through innovation. A great example is our MVP cloud-based access control platform, which integrates seamlessly with our locking hardware. MVP introduces a new subscription-based revenue stream to both NAPCO and our dealers and is offered in 2 configurations: MVP Access, an enterprise-grade solution supporting unlimited users and MVP EZ, a mobile-first solution for locksmiths and smaller facilities. We believe MVP has the potential to be a game changer, extending our leadership into hosted access control and reinforcing our strategy of pairing innovative hardware with cloud-based services to drive high-margin recurring service revenue. Beyond education, our Alarm Lock and Marks hardware lines continue to gain traction in health care, retail, multi-dwelling applications and airport infrastructure upgrades. Additionally, as the transition away from legacy copper phone lines accelerates, our StarLink radios operating on AT&T, Verizon and now T-Mobile networks are well positioned to capture additional market share across millions of commercial and residential buildings. While external market and regulatory conditions remain fluid, we remain focused on what can be -- what we can control, driving innovation, executing with discipline and expanding our base of recurring service revenue. In summary, we have begun fiscal 2026 with solid momentum, a clear strategic focus and a stronger financial foundation than ever. I'm incredibly proud of our team and what it has accomplished and excited about the opportunities ahead. And I want to thank all of you for continued support and confidence in NAPCO. Our formal remarks are now concluded, and we'd like to open the call for the Q&A. Operator, please proceed. Operator: [Operator Instructions] First, we will hear from Jeremy Hamblin at Craig-Hallum. Jeremy Hamblin: Congrats on the strong results. I wanted to start by just getting into the dealer channel. and what inventory levels look like. You saw a really strong improvement in your gross margin, obviously, getting a little bit of benefit from the price increases that were taken last year. But wanted to just understand, it looks like you may have a little bit better inventory situation in the channel and getting that better gross margin flow-through. But I wanted to see if you could add a little bit of color on how things shape up here in calendar 2026. Kevin Buchel: Okay. Thanks, Jeremy. So the channel is much more normalized than it was last fiscal year. when there was chaos about tariffs, when there was chaos about certain distributors not wanting to do quarter-end buys. It seems to have become stable. And one of the things we did see in Q2 was a more normal buying pattern. They would buy throughout the quarter, not wait until the very end, some distributors, not all. But what that does for us is that helps reduce the discounting that has to go on. And that's reflected somewhat in the gross margin. Gross margin was helped by a bunch of things, less discounting, price increases, mix. Locking remains strong, that gives us tremendous margins. And when you discount less and you wind up with a price increase like we've done, that bodes well. So we wound up having almost a 28% gross margin on revenue that was $24.3 million. Obviously, we want to see that revenue go much higher. And with it, we think we'll get towards our goal, which is to get the hardware margins, the equipment margins back into the 30s where it used to be and where it belongs. So that's when I said earlier, we have more work to do. That's one of the things we're working on. We think margins could go even higher, and we think they will as this fiscal year progresses. Jeremy Hamblin: Great color. Since we -- you mentioned the strength in the locking segment. I wanted to see if we could dive a little bit deeper into the MVP access platform. I know that you've been rolling that out, looked like pretty good response at ISC East in November. But can you give us a sense for what the uptake is on this product? And when you think that it could contribute meaningfully to your recurring service revenues? Is that something that's kind of a second half of calendar '26? Or at what point do you think that, that might be contributing to the run rate? Kevin Buchel: The first -- we knew the first half of our fiscal year was not going to be a major contributor from MVP. But we are very encouraged. We are getting recurring from it. It's not something we have to disclose. It's more of a second half of calendar '26 story. So maybe by Qs 1 and 2 of fiscal '27, we'll start to see more meaningful contributions. But what we are pleased with is the reception. And you were at ISC East, you saw a lot of dealers all over our booth, and we're still seeing a lot more of that interest. It takes time, new concept new concept for locking dealers, but they're getting love it because now they're going to get recurring revenue like the alarm people get. And so they're going to have a business that has equity, and that's what the alarm guys have. So locking guys are next. The opportunity is tremendous. There's much -- many more doors than there are buildings, just got to get there. So we're working hard to get to that point. We're going to show it again at ISC West in March, end of March. And then I think by calendar -- by the end of -- beginning of fiscal 2027, second half of calendar '26, we should start to see some meaningful contributions. Jeremy Hamblin: Last one for me. Just wanted to check to see, obviously, the magnitude of kind of the storm activity has had some impact on -- certainly on construction work and completion of getting some businesses kind of open here in Q1. I wanted to see if it's had any impact at all from a supply chain perspective or otherwise for your business. Kevin Buchel: No. No other than our containers, which we get from the Dominican every week, takes about 6 days on the water, other than maybe taking 7 days instead of 6, something like that. Other than that, we've seen no impact. It's -- we just keep rolling along, no problems. Operator: Next question will be from Jim Ricchiuti at Needham & Co. James Ricchiuti: Just on the hardware growth that you saw, it looks like you saw growth in both areas of the business, and you talked about price. Going forward, how much an additional benefit could we see from the pricing actions in Q3 versus Q2? In other words, has the bulk of the pricing benefit been realized? Or is there still more to come in the current quarter versus the December quarter? Kevin Buchel: Andy, can you take that one? Andrew Vuono: Sure. So product pricing has been adjusted throughout the portfolio. So that was effective the beginning of Q2. So there's no additional price increases other than some one-offs expected through the end of the year. So that should be fully baked in for the year as far as our price increases go. We did not see the full lift in Q1, I think we discussed. And we had maybe a few trailing things in Q2 on some locking back orders. But going into Q3 and Q4, all the pricing has been fully adjusted and is baked in for the balance of the period. James Ricchiuti: Got it. Just on the strength that you saw in the door locking device business, was there -- how would you characterize the larger projects business? I know that can be lumpy at times, and it does create some year-over-year variability. But I was just wondering what are you seeing in that area of the business? Kevin Buchel: Bunch of projects, school projects, other type projects. nothing that's going to make a comp difficult for next year at $24.3 million, that's not a difficult comp for next year. So we just keep working. I wish we could talk to you about some of these projects because we're not allowed to, especially with schools, they don't want to be known what's going on. But we continue to have projects as a key part of this. But no difficult comps, no difficult comps really coming up in the balance of this fiscal year either, which bodes well for our comparisons as we get to Q3 and Q4. Operator: [Operator Instructions] And next, we will hear from Peter Costa at Mizuho. Peter Costa: Could you just provide an update around the ADI partnership? How is penetration at the end dealer level going? And are you still getting incremental new introductions from ADI? Could you just provide an update around the ADI partnership? How is penetration at the end dealer level going? And are you still getting incremental new introductions from ADI? Kevin Buchel: ADI relationship has been great, probably a couple of years now. And we've talked about how they've made introductions to some of the largest dealers in the world, and they continue to do that. And it's one of the benefits of having them -- having the relationship with them because they have entree to certain dealers who only, for whatever reason, even though they're large, they like to go through distribution. And so ADI continues to help us every day with that. And ADI stats are very good. ADI buys a lot of fire radios. We want to get ADI to the point where they're a locking contributor also. We're not seeing that part. And we want that. Can you imagine how they do so well with us on the intrusion side. We can get them really cooking on the locking, that would be tremendous. So we're working hard on that. So we're not just sitting back and saying everything is great with ADI. There's more work to be done with them as well. Richard Soloway: What's interesting -- this is Dick Soloway. It's interesting about the ADI relationship as we get introduced to large dealers, both national and international dealers, but we make products for all North America. We have an engineering department that's been expanded to 80 engineers. We do everything internally, hardware development, software, all kinds of app work. So the special projects that we do for the large installation companies are very important because it works into their automation systems, and we give real hands on service. We do all of our development in Amityville that is for these type of specialized accounts, and it ties us closer together. And we bring a lot of innovation. They bring a lot of ideas. So it's a great collaboration with these introductions, and it makes for solid growth, and we're going to see a lot more of this in the future. Peter Costa: And then maybe just one more on pricing. Is there any need for incremental actions in the second half just to offset any raw material pressures? And were you definitively price/cost positive in the quarter? Kevin Buchel: I don't believe that we have any need to do that right, Andy? Andrew Vuono: Yes. No, we're monitoring our component costs continually. And if we have to make any adjustments in pricing, we will, but we are not seeing any incremental inflation in our component costs, and we were -- our pricing increases were positive as it pertains to the tariff increases and any incremental cost out of components through the 6 months. Operator: [Operator Instructions] Next question will be from Lance Vitanza at TD Cowen. Lance Vitanza: I wanted to start with a question regarding the schools and door locking remote access. And I understand that you can't name names, but could you give us a sense for what the sales funnel and the pipeline is looking like? And I guess, specifically, is NAPCO in the running for any new projects that you expect will be awarded over the back half of the year? And if you do get awards, how long of a lag before you start to generate revenue from those awards? Kevin Buchel: There's projects all the time, and they're different. Some projects, the revenue stream could start right away. Some are custom type projects where our engineers have to develop certain things that these projects require. And some projects go over a number of years. So they come in all sizes and shapes. And there's no real way to put it in any specific way. They're contributors, and we need them, and we're getting them. And our sales team is going out working with integrators to get more of them. Big area for us. We don't really disclose what they are. If it's a big school win, I would disclose it if they let us, but they don't typically. So just know that we're working hard on it. There's more of them. They will continue, and they're probably spread over a number of years. Lance Vitanza: Okay. Great. And then just on the equipment side, you had called out door locking sales in the press release and elsewhere, but it looks like radio sales had nice growth year-over-year in the quarter as well. Could you talk about the outlook there, in particular, as it feeds into recurring service revenue growth that you're expecting over the back half of the fiscal year? Kevin Buchel: Well, we were encouraged by the growth rate of the recurring year-over-year. We were encouraged by the run rate, up $4 million. There's a lot of buildings out there that still has to convert away from copper. We talk about this. we probably have about 1 million active radios. There's probably several more million buildings to go by 2029, which is kind of the date that the carriers have put as the -- we're not supporting it anymore after that date. So there's going to be a lot of action between now and then. We have a lot of relationships with very large dealers now that we didn't have several years back. We basically built the almost $100 million run rate that we have with a lot of small guys, guys you never heard of. Now -- and we love those guys, believe me, they like pennies add up to dollars. These are important guys. But now we're dealing with big guys, too. And that could bode well over the next 4, 5 years as the conversion continues. And then, of course, we put our StarLink radios in our products. So for new work, we make fire panels, control panels with radios in it. So we expect this -- this is the new norm. We expect this to go on forever. So we're very encouraged by what we saw this quarter. We think it will be very good for the balance of fiscal '26 and beyond. Lance Vitanza: Just one last one for me. And just one last one for me. On the balance sheet, the cash continues to build up to $115 million of cash and marketable securities now. I'm just wondering, is there sort of like a point at which you say, hey, maybe we don't want to be walking around with this much cash and we decide either to pull the trigger on an acquisition or maybe there's a special dividend or some sort of other return of capital. I'm just wondering how you're thinking about capital allocation in the context of the increasing cash build. Andrew Vuono: I would say all of the that you just mentioned is in our thought process. When we do an acquisition, we want to make sure it fits our criteria. being accretive from day 1. It's a product that our dealers install all the time and that the company is buttoned up enough so that doesn't cause disruption to our existing business, but it enhances our business. And if the company is manufacturing products, which are in foreign lands, because of the Dominican operation, we can manufacture it in our factory because we're completely vertically integrated there also from the components that come in to the finished product that goes out and then we get it in a week. So there are opportunities. But we don't want to do anything which could cause stress on our operation now. And there are opportunities out there. So we're looking at that very, very carefully. And all the other considerations of increasing our dividend and other things to pay back to shareholders is also on the table. So it's a position that we're very carefully contemplating about on how to do this because we expect the recurring revenue to keep on growing very, very strongly. And now we're piling on more recurring revenue with our locking product line. which is going to be -- it should be a fantastic addition because there are so many doors and there's so much monitoring of those doors that institutions want to do on a real-time basis. So -- and it's an equity builder for the access and the locksmith trade, which they don't have now. So we're very innovative and we're going to keep it up. Operator: [Operator Instructions] And at this time, it appears we have no other questions registered. I would like to turn the conference back over to Richard Soloway, CEO. Richard Soloway: Thank you, everyone, for participating in today's conference call. As always, should you have any further questions, feel free to call Fran, Kevin, Andy and myself for further information. We thank you for your interest and support, and we look forward to speaking to you all again in a few months to discuss NAPCO's fiscal Q3 results. Bye-bye. Have a wonderful day and a great week. Operator: Thank you, sir. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending. And at this time, we do ask that you please disconnect your lines.
Operator: Ladies and gentlemen, welcome to the Julius Bär 2025 Full Year Results Presentation for media and analysts. I am Sandra, the Chorus Call operator. [Operator Instructions] The conference is being recorded. The presentation will be followed by a Q&A session. [Operator Instructions] The conference must not be recorded for publication or broadcast. At this time, it is my pleasure to hand over to Alexander van Leeuwen, Head of Investor Relations. Please go ahead, sir. Alexander van Leeuwen: Good morning, everyone. Welcome to the Julius Bär Full Year Results Call. I am Alex van Leeuwen, Head of Investor Relations. We are joined today by our CEO, Stefan Bollinger and CFO, Evie Kostakis. Today, in addition to the financial results presented by Evie, Stefan will also provide an update on the execution of our strategy as promised back in June. Before starting, I would like to flag the important information provided on Slide 2 of the presentation. It's now my pleasure to hand over to Stefan for his introductory remarks. Stefan Bollinger: Thank you, Alex, and good morning, everyone. Thank you for dialing in for this full year results call and update on our strategy execution. Let me start by giving you my take on our 2025 results. Overall, 2025 was a good year with a strong underlying financial performance. It was also an important transition year for us as we redefined our strategy and started our transformation journey. And with all our efforts so far, I'm pleased that we are back to solid foundations with a positive execution momentum to deliver our midterm targets. First, a few comments on business performance. We're happy to report record high assets under management of more than CHF 520 billion, underpinned by solid net new money of CHF 14.4 billion, and that despite our ongoing derisking efforts. This further solidifies our position as the largest independent wealth manager internationally. On an underlying basis, operating income was up 6%, while costs were up only 1%, resulting in a 17% increase in pretax profit. Our underlying cost income ratio improved by a full 3 percentage points to 67.6%. This resulted in positive operating leverage for the first time since 2021. We also further bolstered our capital position with a CET1 capital ratio of 17.4%. Second, in 2025, we decisively addressed legacy issues and strengthened our foundations. We completed the credit review, upgraded our governance and renewed our leadership team. We also significantly simplified the organization, enhanced accountabilities and promoted disciplined entrepreneurship. And third, we successfully launched our new strategy and created great momentum in executing it. We empowered the organization front to back to fully focus on profitable growth, and we continue to improve operational efficiencies and advance on our technology priorities. We achieved what we planned for the year, and we are ready for the transformation ahead. I'll give you more color on the key milestones and the way forward a little later. And now I'd like to hand over to Evie for more details on the financials. Evie Kostakis: Thank you, Stefan, and good morning, everyone. As usual, before discussing the results, I'll start on Page 6 with an overview of some of the key market developments in 2025 that provide the backdrop and context to our results. In Swiss franc terms, despite the tariff shock in April, stock and bond markets were up by mid-single-digit percentages with the Swiss market outperforming global indices. And in terms of FX moves, I would highlight that the dollar weakened by 13% versus Swiss franc. We saw further rate cuts across the board with the Swiss National Bank reducing rates in the first half by another 50 basis points to 0 and the European Central Bank reducing the main refi rate by a further 100 basis points. The U.S. Fed kept its rates steadfastly unchanged in the first half, before reducing in three 25 basis point steps in the second half. The third set of graphs on the bottom left of the page shows that the shape of the key yield curves continued to normalize for European and Swiss rates throughout the year and the 1- to 5-year belly of the U.S. yield curve started to flatten again in the second half. Finally, stock market volatility saw a massive spike in early April after Liberation Day in the United States, but then swiftly normalized down to lower levels again during most of the rest of the year. Moving on to Slide 7, which shows assets under management up 5% to CHF 521 billion after having been down 3% in the first half as the positive effects of the CHF 14.4 billion haul in net new money and the CHF 57 billion uplift in markets were partly offset by the steep weakening of the dollar to the tune of CHF 38 billion as well as the sale and deconsolidation of our onshore Brazilian business in H1. Monthly average AUM, important for the margin calculations, grew by 7% year-on-year to CHF 499 billion, and total client assets, including assets under custody, were up 4% to CHF 614 billion. Proceeding to net new money on Slide 8. Against the backdrop of continued derisking of the client book, the net new money reached CHF 14.4 billion by year-end or just shy of 3% annualized, essentially in line with our guidance at the start of the year. In terms of regional contributions from key markets based on client domicile, I would highlight Asia, especially our key markets, Hong Kong, India, Singapore and Thailand, Western Europe with a strong contribution from the U.K. and Ireland, Germany and Iberia, and the Middle East, particularly the UAE. After releveraging came to a halt in the first half, there was an initial amount of releveraging in H2, adding 0.6 percentage points to the net new money pace in H2 and 0.3% for the full year. This marks the first year of client leverage coming back in earnest after 2021 and is consistent with the normalization of the shape of the yield curves we saw in the market backdrop slide. So now let's go to revenues on Slide 9. As a reminder, as of 2025, adjusted operating income now excludes M&A-related impacts, the same way we adjust on the expense side. On that adjusted basis, operating income was unchanged year-on-year at CHF 3.861 billion. However, as the comprehensive credit review led to a significant increase in loan loss allowances in 2025, excluding the resulting net credit losses from operating income would result in a more meaningful overview of the underlying revenue development. As a reminder, we announced a CHF 130 million increase in gross loan loss allowances in May, a further CHF 149 million in November for a total of CHF 279 million which after taking into account net recoveries at the end of the year was reduced to net credit losses for the year of CHF 213 million. If we strip out those CHF 213 million negative revenues in 2025, then the underlying operating income showed a year-on-year increase of 6% to almost CHF 4.073 billion. Looking at the revenue composition and starting from the largest contributor to our revenue base, we see that net commission and fee income was up 5% year-on-year to CHF 2.314 billion, largely driven by the year-on-year increase in average AUM. Moving beyond commission and fee income, we saw a CHF 252 million decline in net interest income being more than compensated for by CHF 326 million increase in net income from financial instruments or trading income. NII was strongly impacted by the year-on-year decrease in interest rates by a mix shift to lower interest rate Swiss franc-denominated loans and slightly smaller treasury bond portfolio, a weaker U.S. dollar and to a lesser extent, the further shrinking of the private debt portfolio, which is now virtually completely wound down. As a result, while deposit expense fell substantially by 22%, on the asset side, interest income on the loan portfolio decreased by 29% and interest income from the treasury portfolio fell by 11%, resulting in NII of CHF 125 million. Against that, net income from financial instruments at fair value through profit and loss improved by 25% to CHF 1.608 billion, essentially all on the back of a 51% rise in treasury swap income or quasi NII as we like to refer to it. This was the result of a 28% year-on-year increase in average swap volumes to CHF 27 billion as well as higher average spreads. While income related to structured products and FX trading initially grew in the first 4 months of 2025, especially during the market volatility spike following the liberation Day announcement in early April, it then normalized to lower levels in the remainder of the year. On Slide 10, we regrouped the IFRS revenue lines in an alternative way with the aim to better reflect the three key business drivers, i.e., recurring income, interest-driven income and activity-driven income. For the definitions on how we derive this alternative split from the IFRS view, please refer to the appendix, and I note that the treasury swap income figures we use are based on management accounts. What this alternative view shows clearly is how the CHF 252 million year-on-year decline in NII has indeed been more than compensated by CHF 358 million higher treasury swap income. In other words, what we call interest-driven income, which is the sum of accounting NII and treasury swap income, actually increased year-on-year by CHF 106 million or 10% to almost CHF 1.2 billion. Recurring income grew by 5% to over CHF 1.8 billion, while activity-driven income was unchanged at just over CHF 1 billion. On Slide 11, we show the same, but in gross margin terms. The slight 1 basis point decrease in underlying gross margin to 82 basis points is essentially the result of a small, almost 1 basis point increase in the interest-driven gross margin to 24 basis points. This was more than offset by a small, slightly more than 1 basis point decrease in the activity-driven gross margin to 21 basis points. The recurring gross margin remained at 37 basis points on a rounded basis. The exit gross margin in the last 2 months was 77 basis points, of which just over 37 basis points from recurring, slightly over 24 basis points from interest-driven income and around 15 basis points from activity-driven income, as client activity slowed down towards the end of the year from the more elevated levels seen in September and October. By the way, in the appendix, you can find an overview of the half year gross margin development, including on the basis of the IFRS revenue split. Now let's move on to operating expenses on Slide 12. While, as I showed earlier, underlying revenues were up 6% year-on-year, costs were up only 1% to CHF 2.808 billion, mainly driven by somewhat higher personnel expenses being largely offset by a decline in general expenses, partly as a result of internalizations of 184 formerly external staff. Costs include CHF 40 million cost-to-achieve related to this year's cost saving program, of which CHF 31 million in personnel restructuring costs compared to CHF 24 million included a year ago. Personnel costs increased by 4% to CHF 1.848 billion, in part due to a rise in incentive and performance-related costs, a small increase in pension fund-related expenses and the slightly higher severance payments. General expenses came down by 7% to CHF 714 million, while legal provisions and losses increased by CHF 12 million to CHF 56 million. Excluding provisions and losses, general expenses decreased by 9% to CHF 658 million, mainly on the back of stringent vendor management, leading to a reduction in consulting and legal fees and lower spend on external staff. Depreciation and amortization went up by 4% to CHF 246 million, following the rise in capitalized IT-related investments in recent years. As a result, the expense margin improved by 4 basis points year-on-year to 55 basis points and the underlying cost-to-income ratio by 3 percentage points to 68%. In other words, a satisfactory return to driving operating leverage in the business. As usual, we also show the approximate split of expenses by currency, and it is encouraging to see that despite the significant year-on-year strengthening of the Swiss franc, the share of Swiss franc denominated cost has actually come down year-over-year. The share is now 55%, whereas a year ago, it was 56%. The sensitivity to changes in the key FX rates is largely unchanged to what we showed last June. A 10% weakening of the dollar with ceteris paribus and not including any potential mitigating actions, impact our cost-to-income ratio by approximately 2 percentage points. On Slide 13, we provide some statistics on our now completed 2025 cost-saving program. As you may recall, last February, we announced we would extend the pre-existing program and aim to save another CHF 110 million gross in 2025. In the end, we overachieved on this by CHF 20 million and delivered CHF 130 million of gross cost savings on a run rate basis by the end of 2025, of which CHF 60 million were already reflected in the full year results. Furthermore, initially, we had budgeted around CHF 65 million of cost to achieve, whereas ultimately, we were able to limit that number down to CHF 40 million. And as a reminder, the main measures applied were the simplification of the organizational structure, the optimization of the front operating model as well as a significant reduction of non-personnel spend. And finally, just to reconfirm that in the strategy update, we also announced further structural efficiency improvements also for CHF 130 million with a phased implementation by 2028 and against estimated cost-to-achieve of around CHF 65 million. The incremental P&L benefit of these further measures will be back-end loaded as the cost-to-achieve will mostly be booked in '26 and '27 and the improvements realized mostly in '28. Slide 14 summarizes the profit development. IFRS net profit was impacted by the nonrecurring release of tax provisions in 2024, the increase in loan loss allowances following the completion of the credit review in '25 and the mostly noncash impact from the sale of Julius Bär Brazil earlier in 2025. But on an underlying basis, i.e., excluding M&A-related items and the net credit losses, it is pleasing to see meaningfully positive operating jaws with operating income up 6% and expenses up 1%, resulting in 17% year-on-year increase in underlying pretax profit to CHF 1.27 billion, and the underlying pretax margin improving by 2 basis points to 25 basis points. As the tax rate normalized from 2.9 percentage points in 2024 to 17.2%, underlying net profit was just CHF 1 million higher at CHF 1.05 billion. Due to a very significant buildup in capital, as we will see a few slides later, return on CET1 on this basis was 28% compared to 32% a year ago. Our forward tax guidance for the new strategic cycle is unchanged at between 18% and 20% and takes into account the currently expected impact of the implementation of the OECD minimum tax rate in different jurisdictions. On to the balance sheet on the next slide. Our balance sheet remains highly liquid with a loan-to-deposit ratio of 62% and one of the highest liquidity coverage ratios in Europe at 261%. As a large portion of the balance sheet are denominated in dollars, the year-to-date weakening of the dollar against the Swiss franc had a meaningful impact on how those balance sheet items developed in Swiss franc terms. For example, the loan book increased by 1% or CHF 0.5 billion to CHF 42.1 billion. But on an FX-neutral basis, the increase in loans was 5% or plus CHF 2.3 billion. And deposits declined by 3%, minus CHF 1.9 billion to CHF 66.8 billion. But on an FX-neutral basis, deposits actually increased by 3% or plus CHF 2 billion. Turning to the capital development on Slide 16. The Basel III final standard was fully implemented in Switzerland as of the 2025 financial year. And with this full implementation, the Swiss framework went significantly further than the ones currently applicable in, for example, the Eurozone, the United Kingdom and the United States. In the graph on this slide, we show for end of 2024, the CET1 capital ratio pro forma for Basel III final at 14.2%. And then the development from there to the 17.4% print at the end of 2025. CET1 capital grew by 10% to CHF 3.9 billion as the combined benefits of net profit generation and the continued OCI pull-to-par effect more than offset the impact of the dividend accrual. At the same time, risk-weighted assets decreased by 10% to CHF 22.7 billion, mainly on lower operational risk positions as the 2015 U.S. case dropped out of the calculation as well as lower credit risk positions, partly due to a decrease in the treasury portfolio and partly as a result of a further wind-down of the private debt loan book, which typically carries a risk weighting of 100%. So as a result, the CET1 capital ratio improved on a like-for-like basis by around 320 basis points to 17.4%, almost fully restoring capital levels to pre-Basel III final levels in the space of just 12 months. The risk density was 21% at the end of 2025. However, our risk density guidance for the new cycle is unchanged from the 22% to 24% range we gave in the June strategy update. In line with our dividend policy, where the dividend is the higher 50% of adjusted net profit or last year's dividend per share, the proposed dividend is unchanged at CHF 2.6 per share. And as we also discussed extensively last year, any additional capital distribution in the form of future buybacks remain subject to regulatory approvals from our home regulator, FINMA. We continue to have an active and constructive dialogue with them, but it is ultimately the regulators' time line. Finally, on Slide 17, a quick review of the development in the Tier 1 leverage ratio. As a result of the CET1 capital development and the net impact of the CHF 350 million AT1 call in June, and the $400 million A Tier 1 issuance in February, Tier 1 capital increased by 4% to CHF 5.5 billion. The leverage exposure increased by 3% to CHF 111 billion, basically in line with balance sheet growth. As a result, the Tier 1 leverage ratio was essentially unchanged at 4.9%, comfortably above the regulatory floor of 3%. With that, it is my pleasure to hand the microphone back to Stefan for an update on the strategy execution. Stefan Bollinger: Thank you, Evie. Let me start with a few comments on our financial results in the context of our 2026, '28 midterm targets. First, on net new money. Overall, there was positive momentum last year across all our regions and client segments. We aim to gradually improve the pace to 4% to 5% per annum by 2028. Second, on cost income ratio. We have made excellent progress last year with an improvement of over 300 basis points to 67.6%. We're starting our new strategic cycle with front-loaded investments for backloaded returns and remain committed to achieving a cost income ratio of below 67% by 2028. And third, on capital. We significantly improved our CET1 ratio to 17.4%. And given the capital generative nature of our business model, we reiterate our midterm target of a return on CET1 of above 30% with a 14% underpin. Overall, last year's results are a testament to the resilience of our franchise, the trust of our clients and the commitment of our people. This sets us well on course to achieve our midterm targets. Let's now look at 2025 in the context of our overall transformation journey. It was a crucial transition year for us. The focus was twofold. On one hand, to address pressure points and strengthen our foundations, and on the other hand, to define and start executing our new strategy. As I said in my introduction, we delivered on both of those objectives. To give you a few highlights. First, on strengthening foundations, we made significant progress in derisking. As part of that, we defined a new group risk appetite framework. We also upgraded our risk organization and carved out separate compliance function. And last but not least, we completed our credit book review, which allows us to turn the page and fully focus on our business. We enhanced our leadership structure with a smaller executive Board and the newly introduced global wealth management committee, including key leadership appointments. We also reinforced accountability and ownership across the bank by enhancing the first and second line of defense, introducing a new front operating model and the new compensation framework. Now on to strategy execution. We sharpened our high net worth and ultra high net worth client proposition, and we are launching a comprehensive growth agenda. More to come in a minute. On the cost and efficiency front, we implemented our cost program and overachieved the target set for 2025. And on technology, we launched the IT infrastructure renewal project in Switzerland and delivered on time our new global finance platform. Now looking ahead, let's talk about our new strategic cycle. This is what I believe matters most. It comes down to a few simple transformational imperatives. First, on profitable growth. It's about reviving our organic growth engine to our full potential. Second, on cost, the imperative is to instill everyday cost consciousness in everything we do. Third, on risk and compliance. It comes down to disciplined entrepreneurship fully in line with our core wealth management lane. On the technology front, it's about scaling and harmonizing our infrastructure to deliver the best digital experiences. And finally, it is critical to drive our culture transformation and promote performance and ownership. Over the last few months, we've been talking a lot about cost and risk. Today, I want to talk about growth. We have a comprehensive agenda which cover all the relevant dimensions: productivity, client propositions, product access and geographic footprint. And everyone has a role to play, regions, products and group functions. With everything we did last year, we have set the stage to execute on it. There are three main components driving that execution as we enter our new strategic cycle. First, it's about front productivity and growth mindset. We continue to operationalize our new front operating model, including processes and incentives. Under the umbrella of ease of doing business, we are streamlining processes supported by digital tools for relationship managers. A good example is the rollout of our new wealth navigator. And on the talent front, we're doubling down on internal mobility and career development programs. We are scaling up our associate relationship manager program and completed our first ever summer internship program. Second, on regional and product priorities, starting with our home market, Switzerland, we see significant further potential. It comes down to leveraging all the great capabilities and expertise we have on the ground and developing new client solutions tailored to local needs. Since the beginning of the year, we have strong leadership in place with Marc Blunier and Alain Kruger. On Region Asia, our second home market. This year marks the 20th anniversary of our local presence. We have a very strong position there and continue to grow, especially with ultra high net worth clients through our hubs in Singapore and Hong Kong. We are well positioned to also capture opportunities arising from a changing geopolitical landscape by leveraging our global scale, independence and Swiss heritage. An example is our Lat Am business, which delivered positive net new money for the first time in several years. And with the arrival of Antonio Murga to lead LatAm, we're looking forward to further grow this franchise. And now on products. Our new Global Products & Solutions unit as well as our independent CIO office are now fully operational and already creating tangible impact. We see strong traction on structured products with a significant increase in volumes. We're also expanding alternative investments and high-end advisory and discretionary mandates. Third, to deliver on our growth agenda, we need the regions, products and group functions to come together. To do so, we are launching a 3-year dedicated revenue and growth program to support execution and ensure focus on organic growth. We can't talk about growth without talking about clients. What we see is renewed energy, strong momentum and continuous engagement with our clients. It is clear when the regions, products and functions come together, we unlock the power of our franchise. I've seen this firsthand having personally met with more than 1,000 clients since I joined. In summary, our transformation is about striking the right balance across growth, cost and risk. On cost, we will further optimize our front-to-back operating model and simplify our processes and IT landscape. We'll also continue embedding cost consciousness and ownership in the day-to-day business. I'm convinced that our designated Chief Operating Officer, Jean Nabaa, with his track record in driving operational excellence will bring additional momentum to our efforts. On risk. We are just about to complete the rollout of our bank-wide culture and conduct awareness program. And our designated Chief Compliance Officer, Victoria McLean, will focus on operationalizing our new compliance function. Before we go into Q&A, let me reiterate my key takeaways. We have delivered a strong underlying performance, a testament to the strength of our franchise and overall transformation momentum. 2025 was a crucial transition year for us. We addressed legacy issues, strengthened our foundations and mobilized the organization around the execution of our strategy. We have a clear growth agenda focused on reviving our organic growth engine. We have a plan, we have momentum, and we are on track to achieving our midterm targets. With that, let's transition to Q&A. Operator: [Operator Instructions] Our first question comes from Amit Ranjan from JPMorgan. Amit Ranjan: The first one is on the dedicated 3-year revenue and growth program that you talked about, what are some of the key metrics that you are looking here to measure progress? And if you could also talk about the phasing of this? Is it mostly a 2028 measurement? Or there are some guideposts in between? And in that context, if you could please also talk about your net new money expectations for 2026 and adviser hiring expectations after the decline that we have seen in 2025? Evie Kostakis: Amit, thanks for the questions. Let me start with the second batch of questions on net new money and RM hiring. So first, on net new money. Last year, despite derisking and the year of, I would call it, transition, we were able to bring in CHF 14.4 billion of net new money or 2.9% on an annualized basis, pretty close to what we thought we would do and what we said we would do at the beginning of the year at 3%. When I look at 2026, we aim to do a bit better than that, but please do not forget that our midterm targets stipulate that we will gradually improve to the level of more than 4% by 2028. And then on the RM hiring front, last year, we hired 120 RMs on a gross basis. We intentionally shifted some of the hiring into early 2026 to align with both bonus cycles and onboarding readiness. You're right in that we did have a decrease in the net number of RMs. That's due to the sale of Brazil, the intensification of low performer management and natural attrition, so the net number ended up lower. However, we are planning to hire more than 150 RMs this year. And hiring momentum has picked up. In January, we saw 16 new RMs join with another 8 hires already signed. And as I said, we have the ambition to hire 150 plus this year, focused on our key strategic markets and always subject to strict quality criteria. I think we're quite confident in our ability to attract top talent. We've shown it again and again. We have a strong employer brand. We're dedicated to RM enablement, and I think people appreciate the performance-driven culture. Operator: The next question comes from Benjamin Caven-Roberts from Goldman Sachs. Benjamin Caven-Roberts: Just actually one for me, please, on the cost income. If you could talk a little about how you expect the cost income to develop into 2026. You mentioned the fact that there is the CHF 130 million of savings targeted with cost-to-achieve mostly front-loaded and savings largely back-end loaded. But I just wanted to check how should we think about progress on cost and efficiency there. Evie Kostakis: Good question, Ben, thank you, and good morning for the question. In the second -- I think we didn't answer Amit's second question. So Stefan, over to you. Stefan Bollinger: Yes. Amit, the revenue and growth program specifically addresses the organic growth dimension and provides a structural central framework for systematic sales management, pricing and product adoption, think discretion mandates, high-end advisory mandate, structured products, alternatives funds lending and so forth. If you think about how this is then going to play out, an obvious example is our existing seasoned RMs and giving them the tools to deliver growth. This will be a combination with the things I mentioned around products, but also ease of doing business is an important component of that. Evie Kostakis: And then going back to your question, what I would say is that based on an 80 basis point gross margin as an input factor and assuming the other key input factors provided at the strategy update in June, including reasonably normal market performance, AUM and no big change to the initial input factor of a dollar exchange rate at spot rate, we would from today's perspective expect to land at levels slightly higher than 2025 underlying, on track towards our target of less than 67% by 2028. The non-steerable cost growth as shown in the cost-to-income ratio walk for the '26 to '28 cycle on the strategy update is more front loaded. You might recall that was around 6 percentage points. The benefits of the further efficiency improvement program will be more back ended in 2028, plus the cost-to-achieve needed to realize those improvements will be booked mostly in '26 and '27 and then fall away in '28. And therefore, the resulting net benefits will normally only start to come through in '27 and more fully, I would say, in '28. So in short, in the near term, overall, a slight upward pressure on the cost-to-income ratio and then a clear drop towards 67% or lower in 2028. And as a reminder, again, this is based on an input factor of 80 basis points gross margin and a USD 0.80 exchange rate against the Swiss franc, and we're already about 4% weaker than that right now. Operator: The next question comes from Anke Reingen from RBC. Anke Reingen: Just one, please. Just on the buyback. Basically, your commentary says it's for FINMA to decide on the share buyback. Sorry to be wanting to be precise on the words, but does that basically mean you requested for the buyback and you're just waiting for FINMA to confirm? And then secondly, on client releveraging, so you saw a bit more pickup in releveraging here. Do you think that's something that's going to continue into the start of the year, obviously, a function of markets? Or is it like not something we can extrapolate? Stefan Bollinger: Thanks, Anke. On the share buyback question, you may recall that in November, we talked about some conditions still to have to be in place, and we pointed out things like the Chief Compliance Officer only arriving at the end of this month. So we're not yet in a position to ask for a share buyback. Evie Kostakis: And on the second question, Anke, we were pleased to see releveraging come back in earnest to the tune of CHF 1.7 billion in 2025. This was -- we saw some releveraging, particularly in the low-yielding Swiss franc, including from clients in emerging markets and Asia, but also on the euro side as well, less on the dollar where rates remain still quite high. We don't know now with the appointment of the new Governor for the Federal Reserve, whether rates will come down faster on the U.S. dollar than we have expected. But if we continue to see yield curves normalize, and if we continue to see relatively benign market action, then I don't see any reason why we shouldn't see a continuation of releveraging. But just as a reminder, in terms of our midterm planning, we have factored in stable loan penetration at current levels of around 8%. Operator: The next question comes from Hubert Lam from Bank of America. Hubert Lam: I've got three questions. Firstly, on RMs, I saw that you gave us a guidance on the gross RM hires. But can you talk about RM attrition? Are you seeing more turnover there? Are there -- has there been any unwanted departures and you should expect more to come this year as -- once bonuses are paid and new incentive schemes are put in place? Second question is, can you give us also an update on the timing of the Swiss IT project, the time line, implementation and the cost around that? And lastly, I have a question around flows and derisking. Evie, I know you gave guidance for this year around flows, but does that imply also some further client derisking? Or is that process largely over last year? Evie Kostakis: Hubert, thanks for the questions. Let me start with the RMs. I mean we did have a net decrease in RMs, as I mentioned in Amit -- to Amit's question earlier on. That was, to some extent, a result of the intensification of local management that was part of the cost program. We also had some regular attrition as we do on a yearly basis. We had the sale of Brazil as well, where 28 RMs left the platform. So I would say that last year was indeed a year of decline in RMs. But in our planning, we are factoring in a slight increase of RMs year-on-year from '26 to '28 going forward, including hiring about 150-plus RMs every year. On the IT project, time line, implementation and costs, as Stefan mentioned, we've embarked on this journey to replace our core infrastructure in Switzerland. We hope to do this in a time-boxed approach, so in the next 3 years, recognizing that there's always risks to delays and all the costs associated with that core infrastructure renewal are embedded in our cost-to-income ratio targets for 2028. And then I think your other question was on derisking. I mean, client risk management, as we have said in the past, is an ongoing exercise in wealth management, particularly as the geopolitical landscape evolves. So there will always be some client risk management that we do. And indeed, in the last couple of years, we've done more than you would do on a usual basis. As I said, we aim to do better than last year in terms of net new money this year and to gradually improve our net new money growth potential to 4% to 5% by 2028. Operator: The next question comes from Benjamin Goy from Deutsche Bank. Benjamin Goy: Two questions please from my side. So first on Asia, trends look actually very positive. So maybe you can comment a bit specifically on this important region for you. And then secondly, your cost/income ratio, as you mentioned, made significant progress in '25, and it was also better than expected. Clearly, there were some headwinds like currency. Nevertheless, just trying to understand where did you overperform versus initial expectations. Evie Kostakis: I'll take the cost/income ratio question. So I think we had said at the November IMS that we expected to land the year at less than 69% on an underlying basis. We ended up doing a little bit better than that. We ended at 67.6%. There was a pickup though in costs. So I think November to December, the cost-to-income ratio was around 75%. There are some seasonal costs that came in. They were just a little bit less than what we expected. So I would say that it's mostly a cost-driven beat compared to that initial guidance. Then Stefan, do you want to take the Asia question? Stefan Bollinger: Sure. Look, in Asia, we had a strong year, and I think there's a very positive momentum. As you know, there was a flurry of IPO activity, particularly in Hong Kong with over 100 IPOs last year. And in these IPOs, there's always a lockup period until clients actually get the liquidity, which will happen in the coming months and years, and this will bode extremely well for our business. And I feel we're very good, well positioned to capture those opportunities. Benjamin Goy: And do you see trading activity from clients improving as well? Evie Kostakis: I think -- I guess your question is what we've seen so far in January, right, with all the turmoil we've seen in the precious metals market. Benjamin Goy: Yes. Evie Kostakis: Well, indeed, we have seen a notable pickup in activity in January, as you would expect, given the turmoil in the markets. Operator: The next question is from Jeremy Sigee from BNP Paribas. Jeremy Sigee: These are both follow-ups actually. So the first one links to your last comment about transaction income. I just wanted to check, you mentioned the 80 bps sort of gross margin guideline or plan assumption. Are you still happy with that versus the exit rate that you mentioned, which was lower? Is 80 bps still a reasonable expectation? And then second clarification, again, on the adviser numbers, you said that on a net basis, you're expecting slight increases in RMs year-on-year in '26 onwards versus quite meaningful gross hires. So by implication, you're assuming quite chunky attrition or performance management of advisers. I just wanted to check that's the right understanding. Evie Kostakis: Jeremy, thanks for the question. Let me start with the second one. In 2025, we didn't indeed have higher overall attrition than we usually have on a year-on-year basis, and that was a result of all the factors that I discussed before. Of course, every year, we hire on a gross basis, but we also have some natural attrition. And that natural attrition is in the single digits percentage-wise on a normal basis. Then on the 80 basis points input factor, what I can say is that our recurring margin at 37 basis points is, I think, a pretty good starting point. It's going to be -- of course, we want to get that up, but it's going to be a slow grind towards 2028. Then assuming on interest-driven income, assuming stable balance sheet structure and stable AUM, we think 24 basis points is a reasonable assumption for interest-driven income. And then the hardest one to forecast always is activity-driven income. It was 15 basis points in November and December. For the half year, it was 19 basis points. For the full year, it was 21 basis points. In January, we've seen a strong start to the year. So I think that's kind of the piece that's the hardest one to forecast. Operator: The next question comes from Mate Nemes from UBS. Mate Nemes: I have two questions, please. The first one would be on net inflows. So it looks like in November, December, we've seen some acceleration from the July, October period. And given the derisking of client base, given the performance management in the RM side, you seem to be off set up actually for some acceleration in net new money in '26. I was just wondering, based on recent trends, where do you expect net new money to drive mainly the group numbers, where do you expect really good momentum in influence? That's the first question. The second question would be just a follow-up on the Sphere Swiss Core booking platform replacement and modernization. Could you give us a sense what part of the overall spending will be flowing through the P&L and what could be capitalized? Evie Kostakis: Thanks for the question. Let me start with the second one. Typically, we capitalize around 70% of our change the bank and expense the remainder. On net inflows, indeed, we did see an acceleration in November and December in that 2-month period, we annualized net new money at 3.2%. As I've said, I think, quite often in the past, the net new money is a very volatile time series. So you should not extrapolate any 2-month, 4-month or 1-month number. We do plan to do better than what we did in 2025 and 2026 and reiterate that we target a 4% to 5% increase by 2028. Operator: The next question comes from Stefan Stalmann from Autonomous. Stefan-Michael Stalmann: I have two, please. The first one on your new compensation framework. Could you maybe outline in general terms what has changed compared to the previous one? And maybe also if you had applied hypothetically this new compensation framework in 2025, would that resulted in higher or lower compensation expenses? And the second question on a regulatory topic. There's obviously quite a lot of debate in Switzerland, among others on the treatment of software assets in CET1 capital. And it now looks as if maybe the government is going to a potential outcome where there's partial deduction as opposed to full deduction on CET1. Would you expect that to actually have a benefit for you going forward? Stefan Bollinger: Thank you, Stefan. I would say on the compensation framework, the main purpose was twofold. First, to create accountability and ownership of the first line of defense and then make sure that they do the right thing from a risk point of view. Think about how we think about compensation for clients with higher reputational risk, more credit intensity and other things. And on the other hand, the revision of the compensation framework was done to incentivize our RMs to deliver organic growth. As you say, we are now going through this compensation cycle. And of course, time will tell what the results will be, but the early indications are very positive. Evie Kostakis: Stefan also from my side. I guess you're referring to the proposed amendment of the 2 big to fail regime. But let me remind you that's mainly directed to SIPs. As we aren't one, we do not expect any substantial impact on our regulatory capital and liquidity. We already treat software as an intangible asset. And consequently, we deducted from CET1 capital, as you know. Regarding DTAs, there's no tax loss carryforwards that we have remaining on the books as of today, which we -- which were previously deducted from capital. I would say our CET1 is, therefore, already of high quality. Operator: The next question comes from Nicholas Herman from Citi. Nicholas Herman: I have 3 questions left, please. Just firstly, on your targets, you said that you are firmly on track to achieve the 2028 or medium-term targets. Just curious, is that a reference to the much higher revenue power of the business on the back of higher AUM and strong markets last year? Or is it also a reference to the fact that you are ahead of your transformation process? Secondly, on risk density, other than deleveraging and maybe perhaps some increased investment into the treasury portfolio, are there any other factors expected to drive the risk density higher from here from 21% to the guidance of 22% to 24%? And then finally, on your swap volumes, I think you said CHF 27 billion, just curious how you expect that to trend from here, please? Evie Kostakis: Nick, thanks a lot for the questions. Let me start with the swap volume. So it was around CHF 27 billion in 2025, up from roughly around CHF 21 billion in 2024. That's primarily driven by our excess funding position primarily in dollar deposits. Sometimes there's some seasonality in that if we issue, for example, term deposit notes from our markets business. So I think you can sort of model how we think about that based on the 24 basis points interest-driven income guidance we've given and the interest rate sensitivity we show in the appendix of the presentation. On risk density, we do stick to our guidance of 22% to 24%. It's on the credit side of things, again, we're assuming stable lending penetration. So loan growth pretty much tracking AUM growth. Operational RWAs, we've had the big U.S. case drop out of the operational loss database at the end of 2025 and we don't see any other large cases dropping out before 2029. And then, of course, you have the markets RWA, which is more seasonally driven. So I think we stick to 22% to 24%. Yes, I would say that it's more likely to be closer to 22% than to 24%, particularly if you take into account the fact that we're also managing down the CHF 0.7 billion portfolio that we announced in IMS, which carries a higher risk density. Stefan Bollinger: And Nick, to your comment that we are firmly on track in terms of the midterm targets. What I was referring to is that when we announced our strategy last year in June, we still had a lot of wood to chop. We had to complete the credit review. We had to hire a new Chief Compliance Officer, implement a new risk appetite framework, new compensation framework and so forth. What I meant is that having made all these changes and entering our 2026, '28 strategic cycle, we feel very confident that we have made the changes necessary to have the right conditions to reach those targets. Operator: [Operator Instructions] The next question comes from Giulia Aurora Miotto from Morgan Stanley. Giulia Miotto: I have two. The first one, going back to the core banking system change in Switzerland. And when is the bulk of this project happening? So is it in '26 or '27? I'm referring to basically the migration of clients. When do you expect that to start? And then secondly, on the FINMA discussion, any color that you can share with us in terms of what FINMA is waiting for essentially? What are the next deliverables? And is there any time line? Would it be realistic to expect the second half of this year to see the end of this enforcement action? Evie Kostakis: On the second question, there's no migration of clients happening in '26 or '27, probably '28 if everything is on track. Stefan Bollinger: And on FINMA, look, we are just waiting for the enforcement proceeding to be completed and this thing can take time. I would say that our interaction with FINMA and all our other regulators is very active, proactive, transparent, and we feel we're making good progress. We will take a little bit more time. Operator: The next question comes from Nicolas Payen from Kepler Cheuvreux. Nicolas Payen: I have two questions, please. The first one would be on the credit recovery that we saw in H2. Just wondering if it's final or we should -- we could expect something more going forward? And then a follow-up on the net inflows contribution. Could we have the split between seasoned RM and newly hired RM, please? Evie Kostakis: Sorry, your second question was how many seasoned RMs versus RMs business case? Well... Nicolas Payen: Split regarding net inflows contribution between seasoned RMs and newly hired RMs, please? Evie Kostakis: Super. Thank you. So roughly about 70% of the net new money call came from RMs and business case with 30% coming from the seasoned RMs and RMs on business case represent roughly 31% of the population of RMs, which is the highest proportion of RMs on business case we've had in 6 years. So I think that bodes well at least for that portion of net new money generation in the coming quarters. And then on your question on credit recoveries, yes, the bulk of the credit recovery was from the 2023 largest private debt case. However, there were a few others. I would say that the vast majority of the 2023 case is already in the books. Operator: The last question comes from Tom Hallett from KBW. Thomas Hallett: Can you just remind us what your exposure to China is in terms of AUM and revenue, please? And then secondly, I'm just trying to reconcile the kind of strong performance in costs with your relatively downbeat assessment of the cost-income ratio. I was wondering if you could kind of bucket the moving parts in costs into kind of the underlying inflation rate, the cost saves and the investment rates and those related to compsn? Evie Kostakis: Tom, thanks a lot for the questions. Let me start with China first. So it's Chinese domicile clients are roughly more than 1/4 of our total AUM base. So you can make your assumptions on gross margin and work out revenues. This is something we don't disclose, obviously. The second point on cost-to-income ratio, you characterized as downbeat. I would not characterize it as downbeat. I would characterize it as realistic. So we said that some of the investments, the non-steerable investments that we talked about in the June strategy update will be front-loaded. And that was roughly 6% in cost-to-income ratio terms across the '26 to '28 cycle. Then we have non-steerable investments that will power the growth in terms of the revenue and growth program that were around 3.5 percentage points, leading to an uptick of 6 percentage points in terms of additional revenue and cost-to-income ratio terms for '26 to '28. What we said is that some of these non-steerable investments will be front-loaded in '26. And therefore, that's why we're giving realistic guidance on where we'll land on the cost-to-income ratio in '26. Stefan Bollinger: Just to clarify, our Asian assets are over a quarter, not just China. Operator: Ladies and gentlemen, that was the last question. I would now like to turn the conference back over to the management for any closing remarks. Stefan Bollinger: Thank you all very much for your engagement and your questions. Julius Bar is now stronger, simpler and fully focused on the future. We'll be back with our next update at the IMS in May. The IR team is available offline in case of further questions. Thank you all and have a great day. Operator: Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call, and thank you for participating in the conference. You may now disconnect your lines. Goodbye.
Operator: Good evening. My name is Michelle, and I will be your conference facilitator today. At this time, I would like to welcome everyone to the DaVita Fourth Quarter 2025 Earnings Call. [Operator Instructions]. Thank you, Mr. Eliason, you may begin your conference. Nic Eliason: Thank you, and welcome to our fourth quarter conference call. I'm Nic Eliason, Group Vice President of Investor Relations. And joining me today are Javier Rodriguez, our CEO; and Joel Ackerman, our CFO. Please note that during this call, we may make forward-looking statements within the meaning of the federal securities laws. All of these statements are subject to known and unknown risks and uncertainties that could cause the actual results to differ materially from those described in the forward-looking statements. For further details concerning these risks and uncertainties, please refer to our fourth quarter earnings press release and our SEC filings, including our most recent annual report on Form 10-K, all subsequent quarterly reports on Form 10-Q and other subsequent filings that we make with the SEC. Our forward-looking statements are based on information currently available to us, and we do not intend and undertake no duty to update these statements, except as may be required by law. Additionally, we'd like to remind you that during this call, we will discuss some non-GAAP financial measures. A reconciliation of these non-GAAP measures to the most comparable GAAP financial measures is included in our earnings press release furnished to the SEC and available on our website. I will now turn the call over to Javier Rodriguez. Javier Rodriguez: Thank you, Nic. Good afternoon, everyone, and thank you for joining the call today. As we evaluate 2025, the year represents the latest evidence of our differentiated capabilities, strategy and platform. We executed with discipline, met challenges head on and delivered on our commitments we set at the beginning of the year. At the same time, we continue to invest to enhance patient care and fuel growth in the years ahead. As a result, we're well positioned for 2026 and beyond with opportunities to deliver clinical and financial results consistent with our long-standing track record and guidance. Today, I'll review our fourth quarter results, share insights on our clinical strategy and wrap up with guidance for 2026. But first, as always, I will start with a clinical highlight. This quarter, I want to spotlight the clinical results achieved in our Integrated Kidney Care or IKC programs. Patients managed under our IKC models consistently achieve better outcomes than the broader dialysis population. Our IKC patients are 35% more likely to start dialysis with a permanent vascular access, resulting in a better patient experience and costs that are 3x lower during the first 180 days of dialysis. IKC patients also experienced fewer bloodstream infections, achieve higher vaccination rates and are more likely to choose home dialysis. We also see more than 10% improvement in treatment adherence with fewer missed treatments. Most importantly, these outcomes lead to what matters most, a better quality of life with fewer hospitalizations. Transitioning to our fourth quarter performance. We delivered results in line with our expectations. As anticipated, revenue per treatment accelerated in the quarter alongside strength in IKC. This was partially offset by higher-than-expected health benefit costs. For the full year, we achieved adjusted operating income and adjusted earnings per share in the top half of our guidance range despite the impact of cyber incident on our U.S. dialysis business. Let me elaborate briefly on our IKC performance. As we've noted previously, we analyze IKC results on a full year basis, given quarterly volatility driven by timing of revenue recognition. As we look back to our Capital Markets Day in 2021, we outlined a 5-year path to IKC profitability by 2026. Our strategy is centered on sustainable contract, physician partnership and a scalable care model supported by technology. With full year 2025 results, we're reporting our first profitable year in IKC, which is slightly ahead of schedule. This milestone reinforces 2 key learnings. First, our hands-on clinical models work as reflected in the outcomes I highlighted earlier, our dedicated IKC caregivers are delivering on the promise of value-based care by keeping patients healthier and out of the hospital. Second, we've proven there's a viable business model that is good for our patients, good for the health care system and can generate value for DaVita and our partners. The business will continue to evolve over time alongside changes in government policy, competitive dynamics and innovation. Building from this 2025 benchmark, we expect to deliver an incremental $20 million of IKC operating income growth in 2026. Looking more broadly at our business, we see significant opportunities ahead and believe DaVita is uniquely positioned to deliver on them. Before turning to those opportunities, let me provide some context on our journey to date. Over the past 5 years, we've navigated wide range challenges from macro events like global pandemic and inflation to supply chain disruption and cyber incident. And through it all, we delivered on our multiyear commitments. We provided high-quality care for our patients, built a solid foundation for the future and generated compound annual growth in line with our long-term target for adjusted operating income and adjusted EPS. This performance reflects the determination of our teammates and the resilience of our operating model. This experience also gives us the confidence as we look at the opportunities and challenges ahead of us. We're managing 2 near-term financial headwinds, continued pressure on treatment growth driven by elevated mortality and the revenue per treatment impact from the expiration of enhanced premium tax credits. Even with these headwinds and the reality of unknown challenges, we remain confident in our ability to sustain our track record of profit growth. That confidence starts with the most important driver of our long-term success, an unwavering focus on clinical excellence. We're executing a set of targeted initiatives designed to enhance patient care, reduce mortality and missed treatment rates and ultimately support higher treatment volume growth. I will highlight 4 specific examples. First is vaccination. For many years, we achieved flu vaccination rates above 90% for our patients and clinical teammates, and we're working hard to return to that benchmark. Our patients who received a vaccination early in this flu season have shown a 9% lower risk of hospitalization and a 27% lower risk of mortality compared to their unvaccinated peers. Protecting our vulnerable patients from the flu, COVID and pneumonia is a clinical imperative. Second is GLP-1 adoption and adherence. A growing body of evidence confirms that GLP-1s can reduce major adverse cardiac events and mortality for many dialysis patients. We're actively working with physicians to help our patients navigate the clinical, operational and financial complexities of these drugs. Third is advancing dialysis technologies to remove middle molecules. Innovations such as medium cutoff dialyzers and hemodiafiltration enable the clearance of a broader range of toxins from the body during the treatment. These technologies help the patients recover more quickly after dialysis and show promise of reducing mortality by as much as 20% or more. Finally, today, we announced a strategic clinical partnership with Elara Caring, a leading home care provider to establish an ESKD-focused offering. This model spans Elara's skilled home health, personal care and hospice service lines and is designed to lower hospitalizations and missed treatment rates while improving the overall patient experience. Joe will provide more details about the investment we're making alongside this strategic partnership. Together, these clinical initiatives demonstrate how our patient-centered strategy directly supports our business objectives. By improving quality of life, reducing hospitalization and advancing clinical outcomes, we continue to believe we're on a path back to at least 2% volume growth. In parallel, we maintain a diligent focus on cost and innovation to improve efficiency, continue sustainable U.S. dialysis margins and deliver durable financial performance. With that backdrop, we remain confident in our ability to deliver adjusted operating income growth over the next 3 years that is consistent with our long-term growth target of 3% to 7%. On adjusted EPS, with our current capital allocation program and removing the headwinds from our investment in Mozarc, we see an opportunity to exceed our long-term adjusted EPS guidance of 8% to 14%. Taken together, these priorities reinforce our ability to generate sustainable shareholder value and continued leadership in Kidney Care. I'll wrap up my comments with our guidance for 2026. We expect adjusted operating income within a range of $2.085 billion to $2.235 billion, which represents 3.2% growth at the midpoint. Our guidance for adjusted earnings per share is $13.60 to $15 even, reflecting a 33% growth at the midpoint. This guidance exceeds our long-term EPS targets, reflecting our expectation for another year of strong operating performance and the cumulative benefits of our capital allocation strategy. Finally, we expect to generate free cash flow between $1 billion and $1.25 billion. I will now turn it over to Joe to discuss our financial performance and outlook in more detail. Joel Ackerman: Thank you, Javier. First, I'll provide some detail on our fourth quarter and full year 2025 results and then share a detailed breakdown of our 2026 guidance. Fourth quarter adjusted operating income was $586 million, bringing full year adjusted operating income to $2.094 billion. Adjusted earnings per share from continuing operations for the fourth quarter was $3.40 with full year adjusted EPS from continuing operations of $10.78. Free cash flow was $309 million in the fourth quarter, which brings full year free cash flow to just over $1 billion. Starting with U.S. dialysis. Treatments declined about 20 basis points versus the fourth quarter of 2024. Although our total patient census growth during the quarter was as we expected, the timing of the census gain was back-end loaded in the quarter. For the full year, U.S. treatments declined by 1.1% versus 2024, in line with our expectations from the Q3 earnings call. Next, revenue per treatment growth accelerated in the fourth quarter as anticipated, up approximately $12 sequentially. Fourth quarter growth was the result of 4 primary factors: First, the resolution of aged receivables, consistent with what we forecasted on the Q3 call. Second, normal rate increases and improved yield. Third, private pay mix improved slightly after a dip in the third quarter. And finally, RPT benefited from the typical seasonal impact of flu vaccines. Full year RPT was approximately $410, up 4.7% for the year. As you think about RPT for the first quarter of 2026, keep in mind that Q1 bears a typical $5 or more RPT headwind due to patient responsibility amounts early in the year. Patient care cost per treatment increased by approximately $6 sequentially. The increase was primarily the result of seasonal increases, including health benefit costs and higher supply costs. PCCs per treatment finished the year 5.9% higher than 2024, near the top end of our revised range of expectations, but lower than our original guidance for the year. As a reminder, approximately half the year-over-year increase in PCCs was from binders in the bundle. Turning to our other segments. International adjusted OI was $21 million, resulting in full year adjusted operating income of $114 million. This reflects strong operating performance for our international business as we delivered positive organic growth and integrated the recent acquisitions in Latin America. In IKC, as Javier noted, we delivered our first profitable fiscal year. Q4 adjusted OI was $46 million and full year adjusted OI was $22 million. We saw strength across all 3 of the businesses within IKC and final reconciliations of our 2024 performance resulted in higher-than-expected shared savings revenue. Switching to capital allocation. During the fourth quarter, we repurchased 2.7 million shares, and we repurchased an additional 1.7 million shares since the end of the quarter. As is typical, a portion of these shares were repurchased from Berkshire Hathaway pursuant to the terms of our publicly filed repurchase agreement, which formulaically results in Berkshire's ownership remaining at or below 45%. For the full year 2025, we repurchased nearly 13 million shares for approximately $1.8 billion. At year-end, our leverage ratio was 3.26x consolidated EBITDA, down from the third quarter and at the midpoint of our target leverage range of 3 to 3.5x. With that, let me turn to 2026. As Javier said, we are guiding to an adjusted operating income range with a midpoint of $2.16 billion. At this midpoint, we have built in the following assumptions for U.S. dialysis. Treatment volume will be approximately flat to 2025. This assumes a flu impact consistent with what we saw in the 2023/2024 season. We are not assuming any improvement in non-flu mortality, though as Javier outlined, we are working on a number of initiatives to actively drive down mortality among our patients. Last, on admissions, we are assuming 2026 looks similar to 2025, excluding the impact of the cyber incident. To help with modeling our treatments by quarter, we have added a table to the press release showing normalized treatment days by quarter. This number adjusts for the mix of treatment days and holiday shifts, making it the most helpful number to model quarterly treatments. For example, you'll notice a year-over-year normalized treatment day headwind in Q1 2026, which drives our expectation for negative year-over-year U.S. dialysis treatment volume growth in the first quarter of this year. Moving on to RPT. For 2026, we are forecasting growth of 1% to 2%. The primary driver of this is typical rate increases. We also expect an estimated $40 million headwind from the expiration of enhanced premium tax credits for exchange plans, which is largely offset by the elimination of the $45 million headwind in 2025 from the cyber incident. We expect total U.S. dialysis costs to grow 1.25% to 2.25%, mostly driven by typical wage rate increases and G&A investments, partially offset by a decline in depreciation and amortization. The net impact of all this at the midpoint of our guidance is an increase in adjusted operating income for the U.S. dialysis business of approximately 1.5%. Also baked into the midpoint of our adjusted OI guidance range is an expectation for each of IKC and International to contribute approximately 1% to enterprise adjusted OI growth. Altogether, these results reflect our expectation for 3.2% adjusted operating income growth at the midpoint of our range versus 2025. For seasonality, we expect first quarter adjusted operating income will represent approximately 20% of our full year guidance. In other words, about $430 million at the midpoint. Below the operating income line, we expect positive other income of approximately $10 million for the year. This represents significant year-over-year improvement in this line item, resulting from no further losses from our investment in Mozarc since we have now recognized the cumulative losses equal to our investment. We expect debt expense to decline by $20 million to $40 million versus 2025. This is driven by lower interest rates year-over-year, both from the decline in rates and from our repricing and refinancing transactions, which lowered spreads. We expect noncontrolling interest to be approximately 16% of U.S. dialysis OI, and we expect effective tax rate to be in the range of 24.5% to 26.5%. Regarding capital allocation, related to Javier's comments, we announced the signing of an approximately $200 million minority investment alongside a majority investment from Ares' Private Equity Funds to acquire Elara Caring. After the transaction closes, which we expect to happen midyear, we expect this to contribute positively to our other income line. In addition, we will continue to repurchase shares in line with our typical framework, keeping in consideration our liquidity, leverage and the price of our stock relative to our view of intrinsic value. As a reminder, a significant portion of our repurchases will continue to come via direct purchases from Berkshire Hathaway as part of our ongoing repurchase agreement. At the midpoint of the range, we are guiding to adjusted EPS in 2026 of $14.30. This does not contain any unusual or nonrecurring items and is a good starting point from which to model future EPS. Our 2026 guidance represents a 33% increase over last year, which is the result of 2 familiar drivers: increased operating income and lower share count, plus the elimination of the headwind from our share of the losses at Mozarc, as I previously noted. Finally, on free cash flow, the midpoint of our guidance for 2026 is $1.125 billion, reflecting a resilient business with discipline in the deployment of our capital resources. That concludes my prepared remarks for today. Operator, please open the call for Q&A. Operator: [Operator Instructions] Kevin Fischbeck with Bank of America. Kevin Fischbeck: I wanted to get a little more color on the commentary around, I guess, the confidence in getting back to the 2% plus volume number. Obviously, I guess, this number you're looking for in the guidance for '26 is a little bit better than '25, but it's still well below that 2%. So is it all about executing on mortalities? Or is there something else that you're kind of pointing to that gives you that confidence? Javier Rodriguez: Yes, Kevin, this is Javier. I appreciate the question. The reality is it is a clinical story. And if you go back and you look at the time when the industry was at its peak of growth, many people thought it was the incidence, but the reality is, is that it was also a clinical story throughout, meaning mortality was improving year after year. And so to get to that 2%, you have to assume that the things that we outlined in our prepared remarks come to fruition. And we think, of course, there's a lag between all of the implementation clinically and the full effect. And so we think that you will start to see some benefits in approximately 2 years, and you probably see the full effect by '29 or so. Kevin Fischbeck: Okay. That's helpful to get that timely. I forget, you gave some kind of multiyear guidance ranges. Was it 3 years you said? Or was it 5 years that you were giving those OI and EPS comments? Javier Rodriguez: We didn't say a year, but we think of it in a 3-year or so time frame. Kevin Fischbeck: Okay. And then just last one on the free cash flow number. So I guess the way to think about it is that number, the $1.125 billion, that's before the $200 million investment. So like if we thought about share repo or so, we should take $200 million out of that to think about additional deployable capital? Or is there some other adjustment... Joel Ackerman: Kevin, that's the right way to think about it then. And I'd say the starting place would be with leverage level where we came out right in the middle of the range, obviously, with EBITDA growth, if we didn't increase leverage, we'd wind up in the lower half of the range. So that would be the other thing to consider when trying to figure out what's the right number to put in for share repurchases. Kevin Fischbeck: Okay. But there's no other like obvious use of capital that's kind of like the most likely use of capital after that $200 million? Joel Ackerman: That's right. Operator: And our next caller is Andrew Mok with Barclays. Andrew Mok: I appreciate all the color on 2026 guidance. Can you help us understand how missed treatments and mortality trended throughout the fourth quarter? And is there any connection or causality that you've been able to draw between those 2 items as you've dug into this issue further? Joel Ackerman: Yes. So nothing really to highlight on mortality during the quarter. Missed treatments were up, but typically, you'd see missed treatments up in Q4. And if you looked at Q4 '25 missed treatments, you wouldn't see much difference with Q4 '24 missed treatment. So year-over-year, not much of a change. I would say our clinical folks would say there absolutely is a correlation between missed treatment rate and mortality, but with some lag between those 2 metrics. Andrew Mok: Great. And can you provide more detail on how you expect the ACA headwind to play out this year? And maybe comment on how open enrollment performed against your expectations and what level of attrition you're expecting from here? Joel Ackerman: I'm sorry, Andrew, I missed the first part of the question. Andrew Mok: Can you give us more detail on how you expect the ACA headwind to play out this year from a cadence perspective? And maybe comment on open enrollment, how that played out relative to expectations and whether -- what level of attrition you're expecting on that ACA enrollment throughout the year? Javier Rodriguez: Thank you, Andrew. So the number that we gave, we said approximately $40 million this year, $70 million next year and $10 million the year after that. The reality is that we're seeing what you're seeing in the broader market, which is open enrollment performed better than forecasted by CBO or ourselves. And we're all waiting to see the real number, which is right now, we are measuring selection of a plan or enrollment of a plan. And then, of course, people are trying to see what the payment of the plan will be to see what the yield will be. We don't have any additional color than what you or the marketplace has on what that will be since it's the first time that these enhanced premium tax credits have gone away. But so far, it has been more resilient than people expected, and we will see once the bills start to come if people pay. We will say that our patients during the pandemic and at other time periods because they are so ill and needing of the health care system, are really sophisticated understanding their insurance needs. So on average, they will go out of their way to stay insured. And that's why last call, we said that there is basically 2 populations, our current patient population, which we think will be more resilient. And then you have the incoming population, which is, in essence, right now, a CKD population that might not value insurance as much as someone that's already had their kidneys failed, and that's why the number grows over time. But we will obviously be watching it during the quarter, and we will see once the payments go into effect. Andrew Mok: Great. If I could -- can I just ask a follow-up on that? Do you have a sense for how many of your ACA patients receive premium assistance? Javier Rodriguez: I do not because that obviously has a lot of categories from the enhanced premium tax credits to the normal ones and you get into the income levels and other things. So I do not break it down into more detail. Operator: Our next caller is Justin Lake with Wolfe Research. Justin Lake: A couple of things. First, on the ability to offset the exchange headwind with the tailwind or the kind of the nonrecurrence of that cyber headwind from last -- from 2025. My recollection was the last time you guys talked about this that the cyber headwind this year, while it hurt the second quarter, it was offset by some better collections and therefore, it wouldn't be as big a tailwind as it might have been in 2026. Did I remember that incorrectly? Or have you found other initiatives on the reimbursement side? Joel Ackerman: Yes. So let me try and lay out all the pieces for you, Justin here. So we called out a $70 million headwind from cyber. $25 million of that is volume, and most of that recurs because it's just census that was lost and we're not going to get back in 2026. The balance was $45 million, and that was an RPT headwind. We think that RPT headwind is offset in 2026, basically by the enhanced premium tax credit headwind. So you don't see a year-over-year growth problem in RPT because both years have a $40 million to $45 million negative. In terms of some of the other stuff we called out, in particular, around Q4 and the resolution of some older claims, there's really nothing in the year from that to call out. We have resolution of older claims every year. Looking back now, the 2025 number is roughly the same as what we saw in 2024. And the 2026 number, we would expect to be similar in 2025. So I wouldn't call that out as unusual in any year. What was unusual was the concentration in Q4 of '25, which is why we called it out last quarter. Justin Lake: Got it. And then going back to IKC, can you give us a little more color in terms of what drove the outperformance in 2024 versus what you had previously booked and the level of confidence you have that, that can continue and grow from there? Javier Rodriguez: Sure. Let me grab that one, Justin. It's Javier. A couple of things that we've talked about as it relates to IKC. So just a quick housekeeping reminder. I have to look at it on an annualized view because it moves pretty dramatically quarter-to-quarter. We think of it in 3 categories. The first one is dollars under management, you can think of it as volume, and that's been relatively flat. We talked about it last time. Secondly, the model of care cost and the G&A costs, which we've done a nice job of remaining flat there. And then the third category, which is the shared savings. And in that, of course, there is contracting and performance to what you're doing to add value to the system. As it relates to that 2024 reconciliation, we did better in that shared savings part that I just talked about. Is that help you? Justin Lake: Yes. Just how did you do better? What was it the inpatient admissions, outpatients? Just curious for a little more color there and what gives you confidence that, that number is going to continue at that level given how much. Javier Rodriguez: Well, I mean, look, there is a lot of little things, medication management, transitions of care, segmentation of patient population, having more access to patients earlier. We have new interventions and protocols. One of the difficulties of this business is, of course, understanding exactly what moves the needle, but rather the cumulative portfolio is working, and that's why we felt comfortable giving a plus $20 million for 2026. Operator: [Operator Instructions] A.J. Rice with UBS. Albert Rice: First, there's been a lot of discussion and even the talk about what you're doing with the IKC business about either people managing patients with CKD better and more effectively. And then obviously, there's drugs discussion about some of the drugs that could have an impact. And I wondered what are you seeing in disease progression with someone that has kidney disease time to get to dialysis? And then are they -- are you seeing them stay longer yet on dialysis? Or when do you think any of that would have an impact? Javier Rodriguez: Yes. Thanks for the question. The reality is we have not seen anything shift. But you would think that, that would take some time as we've talked about. When you talk about these drugs, they're not magic drug, but rather it takes some time of being on them to have the effect that you're talking about. So right now, it's too early to tell. And again, we've only been managing these population, the CKD populations for 5 years or so. So that will take longer to play out. Albert Rice: Okay. And then maybe a follow-up on the Elara Caring investment, how should we think about that? Is it just a financial investment from your side? Are you going to do things operationally that might make a difference for you? Can you describe a little more of what's going on with that? Javier Rodriguez: Sure. Our investment thesis has 2 pieces to it. One is, of course, we have to have a good capital return on that $200 million. We want to be disciplined. We think it's a good-sized investment, and we wanted to have good capital returns. The second one is to help our patient population. Roughly 1/4 of our population uses home health. And by having a specialized kidney protocol, we think we can reduce hospitalization and readmissions and then, of course, try to reduce missed treatments. So it is connecting back to this whole loop of trying to do more for our patients while we have them in our clinic and now outside of the clinic. Operator: Our next caller is Pito Chickering with Deutsche Bank. Pito Chickering: Can you talk about the international business for a little bit, how we should think about the top line growth, whether it's M&A and -- versus organic and how we should think about margins within that segment? Joel Ackerman: Yes. I think on international, generally, I would think about the growth, both top line and bottom line as half M&A and half organic. We would expect the margins to continue to improve as they leverage the kind of the fixed overhead, both at the international level as well as in the existing markets. So international has proven to be a good business for us, a relatively consistent performer and a contributor of about 1 point to OI growth over the last few years, and we're expecting more of the same in 2026. Pito Chickering: Okay. And then I'm going to ask Justin's question on IKC a little bit differently. But looking at the losses you guys had in '22 and '23 and '24 and just refresh us on those, if you could. I guess, why should we think about the rate of improvement in '26 sort of slowing dramatically? It just seems as though the losses have compressed quite significantly as you've gotten scale. And so I'm curious why we wouldn't see the benefits grow sort of levels that we've seen in the last couple of years. Joel Ackerman: Yes. So look, your math is right. I think if you go back over the last 3 years, the average OI improvement has been somewhere in the $40 million to $50 million per year, and now we're seeing -- we're calling out a slowing of that. I think it's just a natural occurrence as the business matures and gets bigger, there's just less opportunity to continue to drive the margins up. We're not expecting a high-margin business here. And so I think $20 million a year is a comfortable landing spot for us right now in terms of contribution to OI growth. Pito Chickering: Okay. And then last question here, just about new starts. I think you talked about new starts in the fourth quarter more back-end loaded. But as you think about new starts for 2026, how do you model that? And specifically, how do you break out the payer mix of those new starts versus, say, previous years as it relates to commercial or HICS or government patients? Joel Ackerman: Yes. So we're not calling out any dramatic change in new starts for next year, similar to mortality and to some extent, missed treatment rates. When we see those things improve, we'll start calling them out. But until then, we're comfortable with flattish. In terms of mix, look, new patients have always had a higher commercial mix than the average patient. It's just the natural evolution of a patient as they get older, they tend to migrate towards Medicare. I don't see any change to that pattern going forward. Pito Chickering: Okay. So just to be super clear, the new starts that we're seeing coming in are the same commercial mix we've seen for the last several years. Joel Ackerman: Yes, with the one call out around HICS and that changing. But other than that, I don't see any other new dynamic. Operator: Our next caller is Ryan Langston with TD Cowen. Ryan Langston: On the flu vaccine commentary in the prepared remarks, did you say that there was an actual change in the vaccination rates this fourth quarter versus other fourth quarters? Or was that just more related to seasonal sequential -- or seasonality sequentially? Javier Rodriguez: I believe what we said in the opening remarks is that in our high, we were in the 90 percentile, and we aspire to get back to that. And just to give you a bit of sense, right now, we're at 80%, which is, from a national perspective, quite healthy, but we could do better. Ryan Langston: Got it. And I know the dialysis... Joel Ackerman: The other thing I'd just point out is flu vaccines do go up in Q4 over Q3, and that does drive a little bit of RPT and a little bit of cost. So that's part of the Q4 over Q3 RPT dynamic as well. Ryan Langston: Yes, that makes sense. And then just last thing. I know the dialysis population is a bit different from individual MA population. But if the kind of flat advanced notice hold for 2027 and the final notice, I guess, is there any maybe just directional change in what we could assume for outlook in terms of growth for '27? Javier Rodriguez: Yes. Thanks for the question, Ryan. One of the things that is worthy of highlighting is that the ESRD population has its own funding pool in MA and that CMS has actually realized that there was an underfunding, so there was a catch-up. So the dialysis or ESKD population will receive a 6% increase in 2027, which from our perspective, reflects the reality and would put an MA plan in a position to want to add these patients to the risk pool. Joel Ackerman: And Ryan, the one thing I'd add to that is not only is the reimbursement different, but the whole coding regime is different. So the questions around V28 and rebasing and the higher coding intensity in a given year, those are not part of -- they're a much smaller part of the math for ESRD MA rates. And if you look at the notice from last week, you'd see it in there all as well. So it's all spelled out. Operator: At this time, I'm showing no further questions. Speakers, I'll turn the call back over to you for any closing comments. Javier Rodriguez: Thank you, Michelle, and thank you all for joining. I hope it is 100% clear that our energy and excitement around clinical opportunities are absolutely off the charts to expand the lives of our patients. We have a powerful alignment between our clinical ambitions and our financial goals. By fulfilling our mission to deliver the best care for our patients, we can also deliver returns for our shareholders. Thank you for your interest, and thank you for joining the call today. Have a good day. Operator: Thank you. This concludes today's conference call. You may go ahead and disconnect at this time.
Operator: Good morning, ladies and gentlemen, and welcome to the conference call of Intesa Sanpaolo for the presentation of the 2025 Results and Business Plan, hosted today by Mr. Carlo Messina, Chief Executive Officer. My name is Sandra, and I will be your coordinator for today's conference. [Operator Instructions] I remind you that today's conference is being recorded. At this time, I would like to hand the call over to Mr. Carlo Messina, CEO. Sir, you may begin. Carlo Messina: Good morning, ladies and gentlemen, and welcome to today's conference call on our full year results and our new business plan. This is Carlo Messina, Chief Executive Officer; and I'm here with Luca Bocca, CFO; Marco Delfrate and Andrea Tamagnini, Investor Relations Officers. Before starting our presentation, let me recap the main elements of our strategy. Over the last two business plan, we have delivered on our commitments, exceeding our targets. We have created a unique business model strongly focused on commissions with high efficiency and a low risk profile. This strategy was enabled by strong investments in technology and in our people. Our investments in technology are a key enabler of growth, risk management and of the scalability and resilience of our operating model. They continue to translate into benefits over time, both in cost control and in the way we run the group. The new business plan will build on what already works, scaling our strengths. It is an ambitious plan, but with zero execution risk. I will now briefly review our full year results, which are a key enabling factor for the new plan before presenting our 4-year strategy and targets. Please turn to Slide 2. In 2025, we delivered record net income at EUR 9.3 billion. best-in-class cost income ratio, lowest ever NPL inflows, stock and ratios with bad loans reset to near 0, strong growth in capital and high increasing and sustainable value creation. Slide 3, we delivered on our commitment while paving the way for the new business plan. Revenue grew despite a significant drop in Euribor, costs were down, cost of risk was low and net income was the highest ever despite significant Q4 managerial actions to favor derisking and strengthen the balance sheet. Slide 4, we over delivered on all our targets set in the previous business plan, while investing more than planned. Shareholder distribution was 50% more than the business plan target. Slide 5. We leveraged Q4 profitability to allocate EUR 1 billion of gross income to strengthen future profitability. We are the most resilient bank in Europe, fully equipped to succeed in any scenario. Slide #6. In this slide, you have a brief summary of our excellent performance. In a nutshell, we had the best year ever for revenues and operating margin with record high commissions and insurance income. We reduced costs and net income was up 8%. Slide 7. We delivered a strong growth in return on equity, earnings per share, dividend per share and tangible book value per share. For 2025, we will pay a cash dividend up 10% on a yearly basis, and we will launch a EUR 2.3 billion buyback in July. Slide 8 for a look at capital. The common equity Tier 1 ratio grew to 13.9%, 13.2% after the buyback to be launched in July. We were able to increase the common equity Tier 1 ratio while distributing EUR 8.8 billion to shareholders. Please turn to the next slide to see the further strengthening of our 0 NPL bank status. We strongly reduced the NPL stock in Q4. We now have just EUR 0.8 billion in bad loans. This is a key element for maintaining a low cost of risk in the coming years. Slide 10, our NPL stock ratios are among the best in Europe, like in Nordic Bank. Slide #11, revenues were up year-on-year despite a strong decline in market interest rates. Thanks to our well-diversified business model. Slide 12. Net interest income was resilient despite a strong drop in Euribor. In Q4, we decided not to push strongly our loan growth and we are accelerating in the first quarter to compensate the EUR 570 million impact on common equity Tier 1 ratio from the Italian Budget Law. Still, loans in any case were up EUR 4 billion in the quarter. Slide 13. We had a record year for commissions and insurance income, and Q4 was the best quarter ever for commissions. Slide 14. Costs are down year-on-year. In Q4, in light of our strong profitability, we accelerated investments, training in preparation for the new business plan and advertising campaigns for the Winter Olympics. Our digital transformation is enabling significant efficiency gains, and we have high flexibility to further reduce costs in the coming years. Slide 15. Our cost of risk was 26 basis points when adjusting for additional provisions to favor derisking and strengthen the balance sheet. The Italian economy is very resilient, and we see no signs of asset quality deterioration. Slide 16. Our excellent and sustainable performance allow us to benefit all our stakeholders and strongly support the fight against poverty and inequalities. Slide 17, our resilient profitability, well-diversified business model, low cost income ratio, cutting-edge technology and best-in-class risk profile place us in a unique position to keep succeeding in the coming years in any scenario. Slide 18, Intesa Sanpaolo is also far better equipped than its European peers, and we are the most resilient European bank. Slide 19. In this slide, you can appreciate the unique business model of Intesa Sanpaolo. Now we can turn to Slide 20, '26 outlook -- to see the 2026 outlook. So Slide 20. For 2026, we expect a net income of about EUR 10 billion, driven by increased revenues, mainly thanks to commissions and insurance income growth, stable costs, low cost of risk driven by our 0 NPL bank status and the tax rate increase due to the Italian Budget Law, coupled with an increase in costs concerning the banking and insurance industry. We are also raising our cash payout ratio to 75% with an additional 20% buyback for a total payout of 95%. Now let me briefly summarize our key messages for the full year results. The level of profitability we have delivered is driven by structural factors, not by temporary effects. In Q4, we took significant managerial actions to further strengthen the sustainability of our results, fully consistent with our approach that balances short term and long term. The combination of profitability, capital strength and low risk we have is not common in the banking sector. From this position of strength, we are entering the next phase of our strategy with strong confidence. In the following slides, you have the full details of our full year and Q4 results, but now let me turn to our new business plan. Over the years, we have significantly strengthened the group. So this plan is about taking the strength further with zero execution risk. The plan is based on businesses we already run, investments we have already made, an execution model that is already proven. We are unique in Europe, resilient and ready to succeed in any scenario. Our Wealth Management, Protection & Advisory model is fully integrated and operates efficiently with product factories and distribution networks working together under full strategic control. It has delivered results over many years, and we will take this model to the next level. The plan includes a very detailed road map to grow our advisory network in Italy and abroad. We will scale up the Global Advisers network in the Banca dei Territori division, and this network will become the third largest in Italy, with Fideuram remaining #1. On top of that, we will set up a Fideuram-style network in the International Banks Divisions. The plan unlock synergies across divisions, not only in Italy but also abroad. We will export all the elements of our successful business model to our international banks. We will leverage isytech, our product experience and fully owned product factories to fully unlock the bank's growth potential. The International Banks will contribute a lot more to net income growth than in the past. The synergies included in the plan have been developed together with the other group divisions through a dedicated steering committee zero-ing execution risk. Another perfect example of our ability to extract synergy outside of Italy is the launch of Isywealth Europe. We see the opportunity to be a challenger in France, Germany and Spain, where we are already present with international branches. We will extend our successful business model, leveraging our strong tech investments, the extension of isytech, our Wealth Management leadership and our existing international branches presence. We will combine our digital capabilities with the development of a sizable network of Wealth Management advisers. This is an opportunity for the group in the midterm, and this is why we assumed 0 revenues in the business plan despite including investments. We will be able to structurally reduce cost and technology remains a major enabler, supporting efficiency, risk management and scalability. We are the first leading bank fully adopting a cloud-based core banking system. As you will see, our business plan includes substantial growth in terms of new clients, new customer financial assets and new lending. On this point, let me highlight that our total new lending in Italy will be by far bigger than Italy's recovery plan and, as usual, will follow high-quality origination standards. We are the most resilient bank in Europe as confirmed by the EBA stress test and the 0 NPL bank status that we will maintain. Against this backdrop, the new business plan is built around three clear pillars: cost reduction, conservative revenue growth and low cost of risk. Let's now turn to Slide 3. This is very important for me. So let me start with our people, our most important assets. And I want to thank them for their hard work and full commitment to the success of Intesa Sanpaolo. Our people will always be our main asset and the key enabler of future success, and we will continue to invest in their talents. On top of that, we have a strong long-standing and cohesive management team. Slide #4. Intesa Sanpaolo is a proven delivery machine, and this slide shows the excellent results of the past business plan. Net income and return on equity more than doubled. Cost income improved strongly. Customer financial assets grew significantly. NPL stock and ratios reached historical lows, and we returned almost EUR 50 billion to shareholders, mainly cash. Slide #5. As you can see in this slide, net income has grown 20 years -- 12 years in a row. Slide #6. The three pillars of our strategy are: one, cost reduction, benefiting from tech investments already deployed; two, conservative revenues growth, thanks to group synergies and additional people to strengthen our Wealth Management protection and advisory leadership; three, low cost of risk driven by our 0 NPL bank status with bad loans already reset to near 0. Our people are now fully committed to delivering the new business plan, a plan they were essential in developing. Slide #7. Let's now go through the business plan numbers. By the end of the plan, we will deliver a net income above EUR 11.5 billion, a sustainable return on equity above 20% and the cost-income ratio at 37%. We will maintain our rock-solid capital position and our leading role in social impact with a new EUR 1 billion contribution. Slide #8. Our priority remains high in sustainable value creation and distribution with strong growth in earnings per share and dividend per share and a total capital return of EUR 50 billion, close to 50% of our market cap. We will distribute in each year of the business plan a cash dividend equal to 75% of our net income, and we will add a 20% buyback. Any additional distribution will be evaluated year-by-year starting from 2027. Slide #9. As usual, our business plan is built on a solid set of industrial initiatives that I will outline later. Slide #10. This plan leverages our strengths with no execution risk. We can leverage a proven track record in cost reduction and our cloud-based digital platform is now being extended to the whole group, while generational change is already underway. We can boost our revenues through the unique combination of fully owned product factories, growing advisory networks and a cohesive management team to extract the group growth potential. We can count on a very low NPL stock, high-quality loan origination and a strong track record in managing emerging risks. Slide 11. To sum up, we are committed to a strong increase in profitability and efficiency with a return on equity above 20%, a result that very few banks in Europe can deliver. Slide 12. We have significant client and loan growth potential. We will expand our customer base by 2.5 million clients, mainly leveraging Isybank and the international banks. We will provide more than EUR 370 billion in medium/long-term lending to households and businesses. In Italy, the amount of new lending is higher than the European Union financial support to fund the national recovery and resilience plan for the country. Slide 13. We will also increase customer financial assets by EUR 200 billion, of which EUR 100 billion in assets under management, also thanks to 3,700 additional people to further strengthen our Wealth Management Advisory Network. Slide 14, our common equity Tier 1 ratio will remain comfortably above the target level of 12.5%, even after EUR 50 billion of capital return, thanks to strong internal capital generation. Slide 15, we will also maintain an excellent liquidity profile despite a light funding plan confirming once again the zero execution risk of the business plan. Slide 16, I want to highlight that the business plan targets are based on conservative rate assumption. Italian GDP growth will be supported by Italy's strong fundamental and our international markets will show an even higher increase. Slide 17. The Italian economy remains resilient and recent upgrades of Italy's rating confirm the country's strength. Slide 18. In this slide, you can see the main P&L figures we are targeting for 2029. And in the next two slides, you will find the main balance sheet figures with a positive contribution from all business units. Now we can go to Slide 21. Thanks to the new plan, we will further strengthen our unique business model. Slide 22, our new business plan will generate benefits for all stakeholders, and we will contribute EUR 500 billion to the real economy over the next 4 years. We can now move to the next section for the industrial initiatives of the business plan. Slide 25. Let's now go through the first pillar of the business plan, cost reduction, which includes five main initiatives, such as the extension of isytech and the acceleration of generational change. Slide 26. As a result of these initiatives, cost will decrease by EUR 200 million in absolute terms, thanks to EUR 1.6 billion in cost savings while keeping investing in technology and growth. To my knowledge, we are the only large bank in Europe with a business plan delivering cost reduction, and we are further stead to have further cost reduction. Then we can go to Slide 27 to see more in details, the first initiative, the extension of isytech. Isytech is our cloud-native digital platform, and it has already been deployed with success to the Italian Retail segment, and this is a key enabler for expansion into a new international markets. Slide 28. This is very important. Isytech will be rolled out across the entire group over the course of the business plan. And by 2029, 100% of application will be in the cloud. But what I want to point out is the '26, '27 in which we will extend to all the Wealth Management activity of the group, so affluent, exclusive, private, and this is -- will be very important also for the international expansion of Wealth Management of the group that we will see in Isywealth Europe. Slide 29, we will deliver a significant increase in productivity through artificial intelligence. This evolution will transform our service model, enhanced operational efficiency and strengthen oversight of risk and control. Slide 30, we will expand also our digital branch capabilities to increase productivity and commercial activation, leveraging artificial intelligence. Slide 31. Our bank is undergoing a generational transition and a significant portion of our workforce is approaching retirement. And by 2029, we will have more than 12,000 exits at no social cost, while hiring more than 6,000 young people in Italy, largely global advisers with skills aligned to evolving business needs. This will enable EUR 570 million in cost savings at run rate. Slide 32, we will also leverage our in-sourcing machine, enabling EUR 200 million savings in external costs. Slide 33. In this slide, you can see our continuous focus on proactive cost management, driving structural administrative cost reduction. Slide 34, we enter into revenues. We have a strong internal growth potential, also leveraging group synergies. The business plan envisages a wide set of revenue growth initiatives across all business lines in Italy and abroad. Slide 35. Our ambition for the top line mainly comes from growth in Wealth Management, Protection & Advisory without relying on interest rate increases. Commissions will be the main source of revenue growth, thanks to initiatives that strengthened both our product factories and distribution networks. But do not forget the growth in net interest income, because in 2026, we will have the first round -- the final round of Euribor reduction. And then in 2027, '28 and '29, we will have a significant acceleration also in the growth of net interest income coming from growth in loan book in deposits and in hedging facilities. So also net interest income will be a key driver of increase of our revenue base with an acceleration starting from 2027, significant acceleration. We can go to Slide 36, starting from the first initiative. This will strengthen our distinctive advisory network, focusing on the Exclusive Client segment. We started serving these clients with a dedicated service model in the last business plan. In this business plan, we will unlock the full potential by serving them with over 2,300 new global advisers, bringing more than EUR 300 million in additional revenues. And you can see also that this acceleration in growth will leave us with further significant space of growth, just looking at the quartile in which we have not generated significant revenues. So the potential is really enormous in the Exclusive Client segment. Slide 37. The Banca dei Territori Global Advisers Network will become the market's third financial advisory network with our Fideuram network remaining in the first place. In addition, we will set up a new Fideuram style advisory network in our International Bank divisions. Slide 38, Private Banking. We will continue to strengthen our Private Banking leadership by enhancing our commercial proposition, reinforcing our life cycle and longevity offering and scaling up our international prices increasing by 500 units the number of financial advisers. And remember, just in 2025, we increased by 500 person the network of Fideuram. So it is really something conservative in my view. Slide -- we can move to Slide #42 to look at the leadership that we have in product factories. We will continue to strengthen our fully owned product factories in Asset Management through the enhancement of our service model and product offering coupled with international expansion. In Life Insurance by developing dedicated solution to address specific customer needs. And in Property & Casualty insurance by extending our proposition to our private banking, SMEs and corporate clients. Now let's turn to Slide 45. Very important for our Property & Casualty Insurance business. As you can see in this slide, we have huge potential to grow Property & Casualty revenues, increasing penetration of our products across our client base, including private banking, in which today we have zero penetration. So, we think to have further significant potential of growth in this business unit. Slide 46. Moving into Corporate and Institutional clients. In the new plan, we target a 5.4% increase per year in IMI Corporate Investment Banking net income. We will grow across various dimensions, scaling up our international business while strengthening our propositions in high-growth value chains, global markets, transaction banking and private markets. We can go to Slide 47, and we will look that we will also scale up IMI Corporate Investment Banking, International Business, launching a new dedicated service model to support Italian Corporates and SMEs in core and emerging markets while strengthening institutional client coverage in core geographies. We can go to Slide 51. Moving into transactional banking, which is very important. And in 51, you can see the SMEs initiatives. In this slide, you can see that we will introduce two different service models to best serve SMEs, thanks to our distinctive product offering and top-notch digital platform. This is another example of synergies across divisions. Slide 53, consumer finance. We are also planning to grow in the consumer finance space where we can improve our market share with a particular focus on personal loans and salary-backed loan solution. Slide 54, Isybank. With more than 1 million clients already on board, a complete product offering, Isybank is beating the FX. In Slide 55, you can see that in the new business plan, Isybank will further consolidate its leading position among Italian digital banks, acquiring 1 million additional new clients. Slide 56, international banks. Looking outside of Italy, we will grow across our international banks, leveraging our successful business model in Italy and unlocking full synergies with other group divisions, a lot more than in the past, also thanks to the extension of isytech. We created a dedicated steering committee with the division sets, the CFO and Chief Transformation and Organization Officer and the Chief Technology Officer to accelerate synergies. This will lead to a 50% significant increase in profitability. Slide 57. Our international banks are expected to deliver strong net income growth driven by the evolution of the business model with enhanced advisory capabilities. The setup of the Fideuram style network to accelerate growth in Wealth Management and Protection, a strong focus on digital, including the isytech adoption and the launch of a new digital payment and lending solution. Slide 59. By 2029, we will have a Fideuram style advisory network in the International Banks division with 1,200 people to fuel growth. Slide 61. This is a very important project for the future of Intesa Sanpaolo. So last but not least, we see the opportunity to extend our successful business model to the main European countries where we are already present such as France, Germany and Spain in which we have branches. We can leverage our leadership in Wealth Management, the EUR 10 billion tech investments already deployed, the extension of isytech in 2027 to Wealth Management areas and the existing presence in these countries. We can combine our digital capabilities with the development of a sizable network of Wealth Management advisers, and we will build on our product factories to develop solution tailored to the new markets while at the same time, leveraging partnership with global champions as we are already doing with BlackRock in Belgium and Luxembourg. This is an opportunity for the group in the midterm, and this is why we assumed zero revenues in this business plan. Despite this, we included EUR 200 million of investments. Slide 62. We have a two-phase road map for Isywealth Europe. In the first phase that I will directly overseas, we will launch the project, extending our international branch, license to serve retail and private client and setting up the new business model. So we will transform our branches that today only corporate devoted into branches that can operate on retail and private. In the second phase, following the extension of isytech to Affluent and Private Client segment. So at the end, we will have Isybank in our branches, just to make it easy. We will have a state-of-the-art IT system, cloud-based that will allow us to make Wealth Management also in this country. We will scale up the business by extending the footprint into other major cities, launching a new digital and holistic product offering and expanding the network of financial advisory and private bankers through hiring or acquisition. At the same time, our product sector in the insurance company has created product in health and house that will be available starting from 2027 also abroad of Italy and especially in Germany, France and Spain. Slide #63. We can enter into the pillar of cost of risk. Slide 64. We are a zero NPL bank. And during the plan, we will keep NPL inflows low, thanks to high quality origination and optimized credit portfolio management. This will drive a structurally low cost of risk without using overlays. Slide 65. As mentioned earlier, in Q4, we reset bad loans to near zero. In the next two slides, you can see more details about our active credit portfolio optimization and forward-looking credit decisions. Slide #68. In addition to our credit risk strategy, we will continue to maintain a strong focus on all other risks, strengthening the internal control framework, risk management and anti-financial crime. We will also improve the management of emerging risks in the new economic and geopolitical environment. Slide 69, we are the most resilient bank in Europe, also demonstrated by the EBA stress test. Slide 71. We will invest heavily in the development of our people. We will scale up capability building and we will push connecting with -- connectivity within the group. As you can see in Slide 72, we will also further promote our group culture and enhance welfare at group level. Slide 73. We will continue to be the #1 bank in the world for social impact with an additional EUR 1 billion contribution to support people in need, fight poverty and reduce inequalities. We will also support clients in the sustainable transition by allocating 30% of total medium-long term new lending to sustainable financing. We confirm our commitments to decarbonization and will continue our commitment to preserving and promoting our cultural heritage, while fostering innovation. In the next slides, you can see more details about our initiatives. We can go to Slide 79 for final remarks before we take your questions. 79. To sum up, our strategy for the next 4 years is based on three key pillars, all enabled by our people, structural cost reduction, conservative revenue growth and low cost of risk. Slide 80, this plan, free from execution risk, translates into a net income above EUR 11.5 billion, giving us a sustainable return on equity above 20% and strong growth in earnings per share and dividend per share, all of this while leveraging our strong growth potential, distributing EUR 50 billion of capital to shareholders and maintaining a rock solid capital base and a very low risk profile. Slide 81, as mentioned earlier, our new business plan will generate benefits with an almost EUR 500 billion contribution to our stakeholders. So today, we covered a lot of ground this morning, and it was important to go into details so that you can see exactly why we are unique and how we will execute this strategy. So this is a plan based on a bottom-up approach, and I think that we will overdeliver the plan. At the core of this strategy is value creation and distribution, guided by a strong sense of purpose. Year-after-year, we have demonstrated our ability to deliver our targets even in a challenging environment. So thank you for your patience. And now let's move to your questions. Operator: [Operator Instructions] We will now take the first question from the line of Antonio Reale from Bank of America. Antonio Reale: It's Antonio from Bank of America. I have two questions, please. The first one, if I may. It's on the vision you have for Intesa Sanpaolo. I think, I mean, you and the country are at a strategic turn, at least in my view. And if I look at your business on one hand, you're clearly -- Italy is a national champion and that's I think an undisputed statement, you generate a steady stream of income, and you have a return that is well in excess of the market growth rate. You can continue to defend that market position within Italy and continue to distribute almost all of your earnings in the form of cash, which is what you've been doing. Or you can have the ambition to add scale and export some of your products internationally, thinking about insurance, asset management. And I'm hearing you talk a little bit about both, some international expansion as well as at the same time, increasing dividends slightly. Interested to hear, sort of, your views here, especially in the context of the changes that are taking place in Italy. There were more headlines also over the weekend. So your views will be very, very helpful here. And my second question is on the NII bridge between '25 and '29. If you could just walk us through the moving parts? And maybe give us a sense of what your NII could look like also this year and next? And particularly related to that, when you think loan growth will be resuming in Italy? Carlo Messina: Thank you, Antonio. So, starting from the second question, then I will elaborate more on the first that was more strategic. On the first -- on the second question, our expectation on net interest income is that we will increase in 2026 in comparison to 2025. We still have roughly 20 basis points of reduction in terms of Euribor. So we will have a reduction in terms of contribution of markdown. But at the same time, the acceleration in the loan book, as I mentioned, we decided to decrease the strong acceleration that we are seeing in the loan book in the last quarter, because we want to be sure to be in a position to face the EUR 60 million of taxation coming from the new budget law. But at the same time, we have a lot of origination that is already in place for 2026. At the same time, the hedging facility will give us a strong contribution during 2026. So, we expect a growth in terms of net interest income in 2026 in comparison to 2025. Having said that, starting from 2027, we will have a flat Euribor in our assumption. Then in the forward, there could be also an increase in terms of Euribor, but we had a conservative approach, not considering a further benefit coming from increase in Euribor. And at the timing, we will have all the game that will be based on items relating on hedging facilities that will continue to bring positive on the net interest income, but also we will have the full impact of the growth in terms of loan and also deposits. Because at the timing, both these two areas will have a positive. That's the reason why in the growth of our total financial assets, you will not see only growth in terms of assets under management, that is, for sure, a priority, but also the increase in deposits will bring us strong contribution to revenues through increase in net interest income. So, my expectation is that we can have really a clear trend of strong acceleration, probably much higher that we have considered in our plan. So, I'm pretty positive on the evolution of net interest income and also of our ability to increase the loan book, both in Italy, in which in the assumption that we have in the plan, we have been, in my opinion, conservative. And in the international expansion in International Bank division and also in all the trend of growth that we have in the IMI Corporate Investment Banking divisions, they are operating in a very good way outside of Italy. And in my expectation, we can have further growth in terms of loan book. Then you see that we decided to change our attitude toward the consumer finance, so allowing increase not only in mortgages with individuals, but also in consumer finance. So my expectation is that also, net interest income will give positive surprise during the next business plan. Coming on the point of Italy and outside of Italy. So the possibility of defending our positioning and changing our view for the international. So in Italy, we are a clear leader, and any kind of combination that can happen also reading on the newspaper will not change our leadership. We have a strong leadership based on strong relation with our client base with our 100% product factories. So we will remain, by definition, the leader, and we will attack all the other players through the acquisition of private bankers and financial advisers in the market, and the hiring of global advisers will allow us to increase also the penetration in the exclusive segments in our country. So I'm not worried at all for the dynamics in the competitive landscape in the country. They will take a number of years to have some potential competitors for Intesa Sanpaolo, also, if we have the combination within other players not realized until today. But my view is that now it's a timing in which we have to accelerate also outside of Italy. Our International Bank divisions today, I want to consider them as Intesa Sanpaolo. Because until the previous plan, there was something like not part of the Intesa Sanpaolo Group, but like an entity separated by the group. Now there is the full integration. They will work with the same approach in terms of Digital Wealth Management & Protection approach. And if you see the dynamic of commissions in 2025, you have the clear evidence that also these divisions will bring us a very positive trend in terms of fee and commissions, and the acceleration will be based on our Wealth Management & Protection models, so reinforcing the advisory, but also recruiting a Fideuram equivalent financial advisers team. And so this -- for a significant number, you see that we are talking about more than 1,000 people. So, we are now changing the approach, and this portion of the group is part of clearly Intesa Sanpaolo. So we're not -- we will not have more Italy and outside of Italy. We will have Intesa Sanpaolo in all the countries in which we operate. Understanding this approach, we are now considering that in the Eurozone, you do not need to make acquisition of banks, especially if you enter into fighting in the country in which you make the acquisition, but it is much better to leverage on branches that you have, especially if you are able to create, moving from corporate into private banking and retail activity, if you created a specific technological system upgrading and cloud-based like isytech. In 2027, we will have isytech and Isybank, because isytech is a system of Isybank, but also the system of Intesa Sanpaolo. And if you have a branch outside of Italy, like in Germany, in France and Spain, you have, by definition, Isybank Wealth Management in the country through the branch. And this will allow us to have a clear state-of-the-art company that can operate in Wealth Management. What we need is to increase, obviously, the financial advisory team. So, we will recruit a significant number of people in this sector. This is a clear project like we made in the past in our delivery machine. So, we started in saying, we will be a leader in Wealth Management. We will reduce to zero the non-performing loans. We will have the system based on cloud through investments like no other in Europe. Now we want to create a new way of entering into market like a challenger bank, but with the strong ability and the strength of an incumbent in a country in which Wealth Management is, by definition, a point of strength, and we have product factories. We are working with our insurance company in order to be ready to have products for health and house like in Italy, in which in some years, we are today with Unipol, the leader into -- in this market. And at the same time, through this isytech evolution for 2027, we will have ready for the branches outside of Italy, a best-in-class technological unit that could be considered a branch or an Isybank Wealth Management in the country. And with agreement with best-in-class players, and we hope to have further agreement with players like BlackRock and the other big player in the market. We can create something that could be very important for the medium-term value of the organization. So, we are moving into a strategic usage of technology in the Eurozone. And our target is today to work to create a project that can allow us to have strong presence in Germany, France and Spain in Wealth Management, Protection & Advisory activity. And I think that this will be a clear priority for the new business plan. So, technology and the ability to have a Wealth Management & Protection, in my opinion, will lead us in a clear diversification approach, not paying goodwill to other players through acquisition in the markets outside of Italy. Operator: We will now take the next question from the line of Ignacio Ulargui from BNP Paribas. Ignacio Ulargui: I have two questions, if I may. The first one is coming back a bit to the target growth of deposits that you were mentioning before, Carlo, on the Italian side. I mean, how do you see the growth of deposits and the speed of conversion of the deposits into asset under management that we have discussed in previous calls? And the second one, looking to the cost. If I just look to the inflation that you are targeting. You're targeting like around 2.5% inflation. Should that be the level of savings that we are getting, not -- I mean, shouldn't be inflation a bit higher in the context that we are telling in Europe and with the expansion that you are targeting in terms of growth in financial advisers? Carlo Messina: So in terms of cost, the inflation of 2% is what we have considered, looking at the most important forecast, but all the dynamics of cost is based on actions. So, we considered the inflection as the trigger point in order to have the inertial trend of cost base, but we don't have any kind of impact coming from this in all directions, especially all actions related to acquisition of people within the business plan. Just the cost, on the cost side, what I can tell you is that we have been really conservative. We have a lot of contingency plan, because all the migration to the cloud and the possibility to close the mainframe will allow us to have a further cost reduction and a portion of this, so EUR 200 million, we decided to devote to the Isywealth Europe project. But we still remain with the potential of further reduction. We will check during the plan, because we will have the clear evidence only when we'll have the migration of the most important part of the segment that is the one related with the Wealth Management in 2027. But my expectation is that we can exceed our expectation in terms of cost reduction and also when we will have the second phase on the corporate activity in 2028 to 2029, we will create further room for reduction in these 2 years and also in the medium term. Looking at deposits, what I can tell you is that the majority of the growth in assets under management was derived by conversion of assets under administration. So we consider in this -- with this plan, deposit strategic like assets under management, just to make it easy. Then obviously, asset under management has a clear priority for us in terms of business model. But when we talk about Wealth Management Protection & Advisory for us, in Wealth Management, we consider also the deposit base, because at this level of Euribor, deposit can have a profitability equivalent to the asset under management product. So for us, what it is very important is to have clients with us to maintain the strong relations that we have with our client base and also the acquisition of new volumes coming from existing clients that have deposits or assets under management with other players or the acquisition of private bankers or financial advisers that can bring us further volumes, but not only in terms of asset under management, but also in terms of deposits. So deposits remain a clear strategic priority in the plan that we have considered a growth that is more in line with the GDP growth, with a nominal GDP growth. But in my expectation, probably we can also have an acceleration in terms of deposit growth. Operator: We will now take the next question from the line of Delphine Lee from JPMorgan. Delphine Lee: Thanks for the comprehensive business plan presentation. I just have two questions. So first of all, just wanted to come back on net interest income following up on previous questions. So if you look at your assumption of, sort of, NII growth, it looks pretty much in line with the loan growth assumption. So it seems to imply the replicating income contribution have some benefit in '26, but quite limited post -- well, from '27 onwards? Just checking if this is correct. Second question is on distribution. So you mentioned you are going to reevaluate additional payout on top of the 95% from '27. So, I assume this is from fiscal year '27. I'm just wondering why you could not do that maybe already for fiscal year '26 or a little bit earlier? Carlo Messina: So, let me start from net interest income, and then I will elaborate on distribution. Because on distribution, I have to make a clear reference in 2027 to our projects of expansion in terms of Isywealth Europe. So in terms of net interest income, in 2026, we will have a clear strong contribution by the [ XME ] facilities, that we will have a strong contribution also from financial securities portfolio. So if you want to make a clear indication of the drivers for 2026, and we will have a strong contribution coming from the loan growth. So in terms of volumes. Deposits, will remain point, the full amount of deposits. So the combination of volume and markdown will be the negative driver of the net interest income coming in 2026 in comparison with 2025, because the first 6 months of 2025 were very positive. And so in comparison, in this area, we will have a negative. But the combination of these effects will bring us to have a growth in terms of net interest income. And then we will have a clear acceleration, because we remain with strong contribution from hedging facility from security portfolio and the timing, loan book will accelerate and will bring a positive trend, but also the growth in terms of deposits will not have more -- the negative coming from the markdown trend, and this will allow us in terms of comparative dynamics in 2027, in comparison with 2026 will allow us to have a strong acceleration. I have to tell you that in the plan, we decided to put a number that is conservative in comparison with what we have in our final figures for the plan, because we want to remain with what we have called, no execution risk in the plan. But the reality is that the net interest income implied in what we have as a potential looking at the growth of the loan book deposits and the hedging facility is much higher than we have considered in the plan. Delphine Lee: Understood. And on the distribution? Carlo Messina: Sorry, on the distribution, so the additional payout will be considered year-by-year starting from 2027 because in 2027, we will have completed the migration on the Wealth Management portion of the isytech system. At the timing, we will have the possibility. In the meantime, we will start during 2026 in selecting financial advisers networks in the different countries in the Central Eastern Europe for the project of international banks and in Germany, France and Spain, but I want to start with Germany as a country, which we can make this analysis. And the timing, we will have a clear view on possibility of making acquisition of network of financial adviser or insurance agents, and we will see what will be the real trend in terms of potential acquisition of this player. For the timing, we will have also a clear understanding of what today is a project because, as I told, we have no revenues embedded in this project. And in my view, it is the clear most important strategic project of the business plan. But if we have a clear potential of increasing significantly revenues for the group, creating ROE that could be much higher than the capital that we can distribute, we will use this for the growth in this sector. So this is the real point of 2027. We will see, we have a lot of room in capital, because also in capital position, we have been conservative in the trend of estimates of our common equity Tier 1 ratio, we will see what can happen. But please do not forget that 2027 linked with technology. So with the technology improvement of isytech will be a very important year for the group, because we will have the possibility to set all the optionality in terms of Wealth Management growth through hiring or acquisition of financial adviser networks that will bring us at the scale of the European level in terms of Wealth Management. Today, we are already in terms of dimension. In the first slide -- in the second slide of the plan in which we demonstrate in the final figures related to what we realized in the plan starting from EUR 900 billion of Wealth Management, financial customer, financial assets, and now we are at EUR 1.5 trillion. We made an incredible job in this, being today one of the leader in Wealth Management in Europe, but we are mainly concentrated in Italy. What we want is to move into a different approach based mainly on organic growth, so leveraging on technology as a strategic tool and on our ability to be a leader in Wealth Management. But we cannot exclude also to make acquisition of network of financial advisers during the period of the business plan. So 2027 will allow us to better understand this point. Operator: We will now take the next question from the line of Sofie Peterzens from Goldman Sachs. Sofie Caroline Peterzens: Here is Sofie from Goldman Sachs. Just my first question would be on the fee income guidance that you give a 3.8% CAGR. In 2025, you had 6% fee growth and kind of, if you look at the volumes that you're looking to grow AUM, it's over 4%. So, why not be more ambitious on the fee income guidance, especially your push for P&C and also Wealth Management. So maybe if you could just talk about the upside risk, the fee guidance? And then my second question would be around kind of the having a zero NPL strategy. What's the rationale for this? Wouldn't it make sense to take a little bit more risk, do a little bit more higher risk lending? Where do you want to kind of aim for zero NPLs? Isn't it better to kind of increase the risk appetite a little bit more, especially given that we have had a lot of deleveraging in Italy over the past decade? Carlo Messina: So, I will start from the second question. Because I used to be the CFO of this organization, and then the CEO during a very difficult period in which you had in Italy and in Europe, different phases of negative cycle, the COVID period. So the approach on the most important risk that the bank can have because you are today, all the analysts and investors are bullish on economy, on the trend of loan book, asking for increasing loan because this increased loans, this increased net interest income. And believe me, I'm used to manage crisis and difficult situation. And I can tell you that you never know what can happen in the future. And it is much better to be really on the safe side if you want to be a clear sustainable and medium-term value proposition for your shareholders. So that's the reason why I think that it is always much better to stay in a very conservative risk approach that's moving into a bullish approach that can be transformed in 1- or 2-year time is something that could be really dangerous. Having said that, the strategy of zero NPL is also made by the fact that apart from other players that are continuing to reduce the coverage of the non-performing loans, in reality, non-performing loans need to be covered. So you cannot avoid to make provisions during the different periods of the year. And so having a zero level of non-performing loans can allow you to have only provisions coming from the new inflows. So that's fundamental if you want to maintain a sustainable cost of risk apart from marketing activities. So if you want to be a real medium, long-term sustainable bank, not -- they can stay here for the next 12 months or 24 months, but you want to stay here forever, it is very important to be in the very safe side of the market. And this is the reason why we decided to move into a significant derisking, being today the best bank in Europe also looking at this level. Then obviously, we will accelerate in our loan book activity, but marginally, this will allow in case of negative to maintain a level of non-performing loans that was the level of the pre-derisking. So, I think that -- we had enough room to continue this strategy. Also, our risk appetite is moving into a more significant appetite also for something that we decided in the past not to do, so consumer finance, more lending at international level. So, we are moving into a different approach, but starting with an hedging that is the zero level of the non-performing loans. And remember that we decided not to use overlays and to maintain during the period of the plan, the amount of the overlay. So, we remain very conservative in terms of hedging in case of negative, but open to accelerate in terms of attitude of risk appetite, especially reinforcing the original to share activity that we are doing today in the Corporate Investment division and will be extended also in the Banca dei Territori divisions. So, looking at the second question, so on fee guidance, we decided to be also very conservative in terms of fee and commissions. So if you look also the amount of growth in terms of assets under management, it's equivalent to the EUR 100 billion of what we have already selected in the past as area of amount that can be converted. In reality, the amount is much higher in comparison to the first point, because we have a significant portion of the asset under administration that today is capital positive, capital gain positive. And this will allow us, if it is the case, to make a further conversion into asset under management product. For the time being, looking at our business plan, we do not need to make further acceleration. And we have also considered a very conservative approach also in terms of pricing. So, we decided to reduce also the unit pricing for the asset under management product, and this will allow us to be in a very conservative side of the plan. And it is also related with the fact that we have considered also in the title, with no execution risk. Operator: We will now take the next question from the line of Andrea Filtri from Mediobanca. Andrea Filtri: The first is on capital. Why has the minimum CET1 ratio increased by 50 basis points to 12.5%? And the second, 2029 should see the launch of the digital euro. What assumptions have you made on the impact of digital euro revenues and costs? Carlo Messina: On digital euro, we do not see a significant amount of contingency to be placed in the plan. So we think that at the end, this will be something that will have an important role in terms of strategic geopolitical position, but ECB will move in order not to create any kind of stress for the banking sector. Looking at capital, just because we decided to move into a dividend policy that has changed because from a substantial point of view, we have used in the past the ability to consider each year with the Board of Directors, the possibility to pay a share buyback. And now having a dividend policy in which it is clear that we will pay cash dividend and share buyback, we decided to move into a different approach also in terms of common equity to be sure also in relation with the Board of Directors and the supervisor that the minimum level can be increased, but the dividend policy at the same time could be really significant. And with a strong correlation, with our very low risk profile and also our very sustainable cash flow generation because today, we are probably the bank that has the clear sustainability of cash flow for the future. So that's the reason why. Operator: We will now take the next question from the line of Britta Schmidt from Autonomous Research. Britta Schmidt: I have a question on costs. Maybe you can give us a little bit more of a breakdown of the EUR 1.6 billion savings, the EUR 570 million in personnel, how much of that is incremental to the existing program? I think you also talked about some external savings but maybe you can give us a bit more of a breakdown. And then coming back to capital, there is a comment that also the 20% share buyback could be dependent on M&A. Am I interpreting this correctly? And maybe you can just give us a clarification as to what tax rate and increase in levies you've assumed both for 2026 and 2029? Carlo Messina: So on cost, we consider to have a reduction in the IT cost, in the real estate cost and in the administrative expenses, in marketing for the current activity in the country but an increase in marketing outside of Italy. And consultancy expenses will be reduced during the period of the plan due to the fact that a majority of the mainframe cost will be reduced during the plan. So the concentration is based on this area. At the same time, the reduction of people already realized, so something that we have already embedded in figures for 2026. And further, people that can leave the organization. These people are people that have already asked to leave the organization, the timing of the previous exit, we were not in a position to allow them to exit the bank. Now we are ready to consider also their will to be part of a story of retiring. And so that's something that we consider absolutely achievable. So personnel cost and administrative expenses mainly concentrated in IT, real estate and consultancy, these are the area in which you can have the most important reduction. Looking at capital, so distribution of capital. From a substantial point each year, when we decided to make the share buyback, we made a clear process that is the normal process in any organization in which you consider before proposing to your Board of Directors to make a share buyback that you have not better allocation for your capital. So that is the rule of the game in each Board of Directors. In all these years in which we presented the plan of share buyback, for each year for the authorization of the Board of Director, we presented also the potential optionality that we can have because we -- it is true that we do not M&A, but we are not in a position not to look and make analysis, and making analysis of M&A, there was no possibility, and this was something part of the decision that have a better allocation of capital. So moving from a substantial dividend policy into a formal dividend policy in which we have not only the cash dividend, but also the share buyback, having a formal process, you need to make the formal statement that you make all the analysis and in the end, you will decide that there will be no better allocation of capital to shareholders. So it's a normal phrase that you have in all the process related to the share buyback in all the organization. And especially when you have a price to book that is significant like all the other European banks today, but there is nothing strange in this approach. It is the usual one in a well-managed organization. The other part of levies, there is an increase related to Banca Progetto in comparison with 2025 that is in the range of EUR 30 million net income, and this will create conditions to have a spike in 2026. Operator: We will now take the next question from the line of Andrea Lisi from Equita. Andrea Lisi: The first one is trying to figure out the room of conservative divestment you adopted during the plan. In particular on capital, if do you assume any new SRT over the plan period or room from further optimizing the risk-weighted assets and capital? And related to P&L, I saw that you have indicated pretax profit of EUR 18 billion. You already indicated that you took some margins of prudence on NII fee and cost, but also below the pay tax line to arrive to EUR 11.5 billion. Can you tell us what you have assumed in order of other provision charges, levies and the tax rate as well, so to figure out if you were prudent there as well? The other question is on Isywealth, we've adopted one of the most interesting projects in the plan. So can -- just a clarification if the EUR 200 million you said that should be made as an addition of cost or that investment you made? And if your reality plan or have an idea of already starting to generate some revenues and contribution to NII before the end of the planned period? Carlo Messina: So the EUR 200 million are already included in the cost base of the plan. So that's the reason why I think that we have a really significant room in our cost base. These are already embedded in the cost base, because it is a project that I want to realize, and I will do all my best to realize this project that I consider really the strategic move for a group like us that wants to be sustainable for the future and doesn't want to make -- to put the shareholders in the condition, not to understand what could be your attitude towards the future, making a different allocation of capital. This is the clear trend of the bank. We want to allocate capital on this. We have already cost on this base. We will try to do our best as in the past to set a delivery machine to deliver on this point. We have technology, we have branches. It is the euro area, and there could be a clear interest. All the country in euros to have players like us that can invest in the country, hire people. I think that we can have also a positive welcome in these countries, especially because we will have a friendly approach and not a no-style approach. And so I think that this could be a very positive project for the future. We will work with clear key players in the country in order to be sure to have a friendly approach in all these countries. At the same time, looking at the P&L we had, as I told, different area of conservative approach, both on revenue and on cost side. But also on tax rate, we have considered a tax rate close to 32%. So we remain, in my opinion, in a very conservative side. And then we can have also extraordinary items that can compensate positive, that can be allocated also for further future growth. So today, the plan is all on the ordinary activity with also some degree of conservative approach also in the tax rate area. On risk-weighted assets, we will continue the optimization. We have further room. In the plan, it's already indicated that we have 30 basis points of benefit, but the benefit could be much higher in the next years. Operator: We will now take the next question from the line of Andrew Coombs from Citi. Andrew Coombs: Firstly, on net interest income. You've used a similar set of assumptions to what you used back in 2022. And by that, I mean you're assuming flat 1 month Euribor. If I go back to the 2022 plan, you did include a line where you talked about EUR 1 billion of incremental NII for every 50 basis points of rate hikes. So perhaps you could just touch upon what you think your NII sensitivity today is if you end up actually seeing the forward curve play out as opposed to flat Euribor? And then second question is coming back to M&A. I mean you've touched upon it specifically in the Wealth space. You've talked about plans to expand in Central and Eastern Europe and Spain and France and Germany. But when you're thinking about M&A, how do you weigh up the prospect of just hiring teams of relationship managers and hire agents that is actually acquiring a wealth business? What are the dynamics and the thought process that goes behind that? Carlo Messina: So, in terms of sensitivity, today, we have that for a spike of 50 basis points. We can have a move of EUR 300 million of increase in terms of net interest income. That's more or less what we can consider in terms of dynamic of net interest income. Looking at M&A, so we -- so our attitude, it is not that we are against M&A by definition. We are against the possibility of not creating value for shareholders. So for a bank like us, entering into -- and we do not like to make acquisition of minority stake just for the sake of increasing the total amount of net income through consolidation. So I think that the industrial part of the story of a bank is based on industrial actions, not on the hedge fund activity and investments. So my point is that if I'm in a position to increase in a sustainable way through the leveraging of technological improvement and through our ability to make Wealth Management, our ability to have product factories, our ability to hire Wealth Management, Financial Advisers, and we are able to do in Italy, we are able to do in Central Eastern Europe. And I think due to the reputation of the bank, we will be able also to do in countries different from Italy in which we have branches that are operating. And do not forget that in Germany, in France and in Spain, our Corporate Investment Banking division is a player. So the total amount of loans that we grant in the area is really significant. So, we are not a marginal player in the country. And we think that this can allow us to be considered a player like all the other if we are able, especially if there could be some people that can leave organization in Germany, in France and Spain, we can be ready to hire these people, creating a network of people. Then if it is not possible through the hiring of people, we are ready also to consider acquisition of financial advisers network. But my attitude is that if I can avoid to pay goodwill to other shareholders. So if it is possible to do something without paying a premium to other shareholders is the best for my shareholders. So my priority is not to make happy the shareholders of other players, it's to make happy my shareholders. So if I have the strength within my organization and if I have the ability, the people, the team and the reputation, I will do all the best to do this without making acquisition. Then if it is needed, because it is strategic for us to have this growth in terms of technological usage, strategic usage of technology, and because we made billions and billions of investments in order to create something that is state-of-the-art, we are ready to use also outside of Italy and using outside of Italy, if I'm ready to make acquisition of financial adviser would be the best solution. Otherwise, I will make acquisition of network of financial advisers. Today, we have nothing on the table because it is a project. So we have to make the screening to work in this country. That's the reason why we will take until the end of the migration on cloud, on the new technology of isytech, but we have enough time to be in a position to create a project that can work. In terms of revenues, we decided to put zero. Because it is really part of the conservative story of the plan in which we have the cost, but we have not the revenues. So I know that all the market today is really concentrated on the short term. So the amount of share buyback, the amount of dividends, the implication of all these M&A bubble that especially we have in Italy. But we couldn't care less of this situation. We work for the medium, long term. And this is the job of a CEO like me, and the job of 100,000 people working in Intesa Sanpaolo. That's all. Operator: We will now take the next question from the line of Noemi Peruch from Morgan Stanley. Noemi Peruch: I have two. One is a follow-up on fees. During the plan, most of the BTP Valore taken up post the rate hikes will expire. How do you consider this trend in your plan? Or could this allow for more upside risk to the plan targets? And my second question is on the strategy of isytech and Isywealth. What would be the differentiated proposition of Intesa to clients, especially in developed Europe? Carlo Messina: Sorry, I didn't understand your first question. Sorry, because the line was not very good, and I didn't understand your first question. So if you can repeat, please. Noemi Peruch: Sure. So during the plan, Most of the BTP Valore taken up post rate hikes will expire. How did you consider this trend in your plan? And could this allow for more upside risk to your targets? Carlo Messina: Okay. So this is a very important question. So that's a good point because we have a really significant amount of these assets under administration that are in the hands of our clients. There is not only the expiring portion, but there is also a capital gain embedded position of these that are an amount that can exceed the EUR 50 billion in our assets under administration. So it is really a significant portion. Our expectation in the plan, we have not considered the total conversion of these BTP Valore into products of assets under management. There is also a portion, let's say, 50% of this can be considered as a potential conversion, but it is not only in assets under management, but it is also a life insurance product, because it is more -- it is probably something similar to BTP for clients that can be risk adverse. And so that's the reason why we have also something that can increase in life insurance. But the point of the BTP Valore is a very important point in combination with a significant number, more than EUR 30 billion, EUR 40 billion of certificates that will expire during the period of the plan. So that's the reason why our approach today is really conservative in this point, because we have billion and billion of assets under administration that we expire during the period of the plan, or it is already today capital gain positive. On isytech, we are today, if you look at the comparison between Isybank and all the other digital players in the market, we are, by definition, best practice in all the different sectors of the mass market. We want to create the same approach in terms of usage of this platform like a digital bank but within a bank like Intesa Sanpaolo. And so we will facilitate the operation of all the Wealth Management clients with an acceleration of timing, the possibility to choose a product with an easy approach. And we have already within the group, a company that is Fideuram Direct that is doing this job in Belgium and Switzerland, with an agreement with BlackRock. So it's something that already is a very important player with us in this area. But we think that isytech is a clear evolution also, what we can do in terms of proposal for clients in Fideuram Direct, isytech would be really the best-in-class system for the management of Wealth Management. Then we can add also the proposal of Aladdin in terms of proposal to our clients. So we think that we can set a number of proposals to international clients that could be best practice also outside of Italy. Operator: We will now take the next question from the line of Hugo Cruz from KBW. Hugo Moniz Marques Da Cruz: Just three questions. One, on the NII, the hedging facility contribution, if you could give a little bit more color, is it going to be a linear improvement year-on-year? What is the front book yield you're assuming in the plan for the rollover of the hedging facility? Second question on operating costs. What will be the shape in the plan? Are the savings more backloaded or not? And third, how do you avoid the risk of cannibalization between Banca dei Territori Advisory Network and Fideuram? You're getting -- you're becoming so big. How do you do prevent that risk? Carlo Messina: So starting from the last question. So cannibalization of the segment are completely different because the two areas are with a specific indication of what would be the clients in each division. So I do not see any kind of cannibalization. There could be clear usage of best practice within the organization and the reinforcement of global advisers within the Banca dei Territori. So I think that at the end, we will have Banca dei Territori with global adviser and relationship managers. Private Banking division with financial advisers and private bankers, but with specific clients for each division. And all these will be used also as best practice in the international bank division. And hopefully, in my expectation, through Isywealth also outside of Italy in countries in which we have branches. Looking at operating cost, we made, in managerial actions, we can call, in 2025 in the range of EUR 50 million that will be something that made an anticipation of cost in 2025 that we, in any case, could have been placed in 2026. So this is the amount of cost that being front-loaded in 2025. Then it is clear that looking at the evolution of isytech and the possibility to make write-offs of procedures related to mainframe, we will have the possibility to make further write-off, creating condition to have a reduction of costs during the next years. In terms of aging facility, we have a contribution in 2026. That would be an increase of EUR 500 million, between EUR 450 million, EUR 500 million, then moving into EUR 300 million per year during the next years. Operator: We will now take the next question from the line of Ignacio Cerezo from UBS. Ignacio Cerezo Olmos: I've got three short ones, hopefully. First one is on the fees. So the 4% blended fee breakdown, if you can give us a bit of color on the disaggregation of that number between commercial banking fees and market fees? The second one is within the market fees, if you're allowing for a decline of the placement component? Or do you think that is a sustainable part of the fee number? And the third one is, if you can share with us what kind of market performance are you assuming to back the 4% AUM growth per annum revenue? Carlo Messina: The performance is really limited, so 1%. So we have been really conservative also in terms of market performance in terms of volumes. Then in terms of performance fee, there is an amount that is below EUR 100 million per year, so it's very limited. In terms of component of fees, commercial fees, we move between 2% and 3% during the period of the plan. So again, in my expectation, this include also the corporate investment banking fees that will accelerate, in my opinion, in a significant way. In terms of the other component related to Wealth Management, we will have a trend of gross inflows that would be in the range of EUR 150 billion per year. So that's more or less the amount of increase that we will have in commission deriving from volumes. And in terms of net inflows could be between EUR 50 billion and EUR 20 billion depending by the years. What we will have through this significant action that we made in Banca dei Territori is a significant increase of 360 degrees Valore Insieme that could be an accelerator of commissions within the -- all the group. But again, then we decided to make a reduction in terms of pricing. So bringing to something that both in terms of volume and pricing, in my view, is conservative. Operator: We will now take the next question from the line of Giovanni Razzoli from Deutsche Bank. Giovanni Razzoli: I have just one question, which is about the operating leverage that you have on your EUR 200 million investment to scale up your international presence. I was wondering how much of operating leverage you do have on these initiatives. So if the success of this initiative were to exceed your expectations, shall we expect progressive acceleration of those investments and costs going forward? Or can you leverage on your tech spin to exploit the acceleration of revenues with no major increase in the cost? Carlo Messina: So, we will accelerate these figures. So that's for sure. But in any case, our expectation is to use the reserves that we have in the cost base, so maintaining the total amount of cost more or less in line. Then we will see depending on what could be the real acceleration. But theoretically, we have enough room to accelerate this process to increasing the amount of cost devoted without changing the total amount of costs that we have considered for 2029. Operator: We will now take the next question from Fabrizio Bernardi from Intermonte. Fabrizio Bernardi: [Foreign Language] I am Fabrizio with Intermonte. I heard you talking about Fideuram Wealth Management, asset management many times. So my question is not on the state cost-income ratio or tax ratio. My question is that if you believe that we should change our mind about how to value Intesa Sanpaolo. So from a commercial bank to a player that is well involved in asset management, so technically with higher multiples? Carlo Messina: So I think that the first point is that we consider -- so then obviously, investors and analysts can make their own evaluation. But if you want my personal view on my organization is that today, we are a technological company. So that's my first point. So, we are ready to be really a clear technological player in the market using technology, so using the strategy embedded, the potential strategy that technology can give you, we can do something that other players cannot do. So moving into different countries, to branches, euro area. So with, I think, a very positive approach from the local government and player to increase the presence, to make investments, to be a clear player in the market. Then obviously, this will be made in sectors in which we are a leader in which we consider that we have the winning business model that is Wealth Management Protection & Advisory. So asset under management will be a strategic part of this job, but also Property & Casualties business, because we think that through a proposal in health and houses, we can also increase our penetration outside of Italy starting from 2027. Fabrizio Bernardi: If I can follow up regarding something else, like the, let's say, the link between Monte di Paschi and Banca Generali. Is this a key point for you or no? I mean, is this a clear competitor that can create some problems or not? Carlo Messina: So we do not see any kind of problem coming from the combination of Monte Paschi di Siena in their ability to have an approach with Banca Generali or the full group Generali. I think that our dimension in Italy is relevant for us. And also I think that there is today an overestimation of the potential of dimension of Generali in Italy, Generali is not only in Italy. In Italy, the dimension of Generali is comparable with the one of BPM in terms of presence. So, in terms of the -- as soon as we talk about Generali -- it enters into a rebound, okay? So, I was telling that Generali is a clear best practice player in terms of insurance business. But in terms of asset under management in Italy, I think the dimension is not different from the one of BPM. And so the possibility with Monte Paschi di Siena, they can accelerate the placement of the insurance product. But again, do not forget that the #1 player in Italy also in terms of life reserve, life insurance reserve is Intesa Sanpaolo, not Generali. And in terms of new premium Generali is the one, the first in terms of life premium, and Intesa Sanpaolo is a second one. So, I have to tell you that from this linkage between Monte Paschi and Generali, I don't see any kind of threats. I hope that there could be a clear, more relaxed approach between the different players involved in the saga, in the past of these M&A sector for 2025. But then as I told in the other answer, we are pretty happy to be part of a completely different story. We are on a different planet and our expansion will be outside of Italy. Thank you. Operator: I would now like to turn the conference back to Mr. Carlo Messina for closing remarks. Carlo Messina: I want just to stress the point of the correlation between technology and Wealth Management. I think that probably, I will use the next month in order to explain better the combination that we see between the strong investments that we made in technology and the potential of growth that we have in terms of Wealth Management & Protection. My strategic view for the market is that branches and acquisition of branches or acquisition of bank with branches will lose a lot of value for the future in the next 5 years' time. And what is really the winning business model is to work in terms of Wealth Management & Protection, using people within the organization, creating the sense of being proud of being part of an organization of success, but using technology in favor of people within the organization. Having said that, technology will allow us to increase our presence also outside of Italy and the strong capital base that we have, the strong synergies that we will create in terms of cost base will allow us to have significant amount of money that we can invest in expansion in other countries in Europe leveraging on our strengths. So that's what I see for the future of the bank, and I think that we are a unique case in Europe. And also the fact that we decided to reduce in a significant way the non-performing loans is based on the clear view that a bank that can be a leader in terms of Wealth Management and Technology cannot have a significant amount of non-performing loans. So zero non-performing loan is also a precondition to be a clear leader in a market in which we want to enter, starting from the point that we are a zero bad loan bank. And please compare us with all the players that you have in your country because all the players will have non-performing loans much higher than Intesa Sanpaolo. And so starting point is, we have an approach that is less risky than the other player. And we are a Wealth Management leader, Technological leader, and we want to play a game also outside of Italy, but not paying goodwill to other shareholders. So thank you very much. Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.
Operator: Ladies and gentlemen, thank you for joining us and welcome to the Q4 2025 Revvity Earnings Conference Call. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please raise your hand. If you have dialed into today's call, please press 9 to raise your hand and 6 to unmute. I will now hand the conference over to Stephen Barr Willoughby, SVP, Investor Relations. Steve, please go ahead. Stephen Barr Willoughby: Thank you, operator. Good morning, everyone, and welcome to Revvity's fourth quarter 2025 Earnings Conference Call. On the call with me today are Prahlad Singh, our President and Chief Executive Officer, and Maxwell Krakowiak, our Senior Vice President and Chief Financial Officer. I would like to remind you of the Safe Harbor statements in our press release issued earlier this morning and those in our SEC filings. Statements or comments made on this call may be forward-looking statements which may include but may not be limited to financial projections or other statements of the company's plans, objectives, expectations, or intentions. The company's actual results may differ significantly from those projected or suggested due to a variety of factors which are discussed in detail in our SEC filings. Any forward-looking statements made today represent our views as of today. We disclaim any obligation to update these forward-looking statements in the future, even if our estimates change. So you should not rely on any of today's statements as representing our views as of any day after today. During this call, we will be referring to certain non-GAAP financial measures. A reconciliation of the measures we plan to use during this call to the most directly comparable GAAP measures is available as an attachment to our earnings press release. I'll now turn it over to our President and Chief Executive Officer, Prahlad Singh. Prahlad? Prahlad Singh: Thank you, Steve, and good morning, everyone. I'm glad you are able to join us to discuss our fourth quarter results and our initial outlook for 2026. Overall, 2025 proved to be a dynamic year filled with both new challenges and significant opportunities for both our company and our customers. I'm pleased to share that in spite of the evolving circumstances we faced, we closed the year on a high note. With our fourth quarter revenue, organic growth, and adjusted EPS all surpassing our expectations. This strong fourth quarter performance enabled us to exceed our adjusted EPS guidance for the entire year. It's especially impressive that even with factors such as changes in NIH funding, evolving tariffs, pharma policy uncertainty, the extended US government shutdown, foreign exchange movements, and shifts in DRG-related volumes affecting our diagnostics business in China, we were still able to deliver $5.06 in adjusted EPS, surpassing the initial guidance we provided a year ago. Additionally, our 3% organic growth for the year was also within our original guidance range we outlined last January despite all the unexpected challenges we encountered throughout the year. Our ability to achieve our initial organic growth guidance and exceed our EPS guidance in spite of these hurdles speaks to Revvity's resilience, our agility, and our overall ability to execute in those areas that are more fully within our control. We were able to accomplish all of this while still delivering strong outcomes for our customers, our employees, and our shareholders. In the fourth quarter, we saw positive momentum continue across our diagnostic businesses, with both reproductive health and immunodiagnostics performing better than anticipated. This strength led to our diagnostics segment organic growth being up 7% in the quarter overall. In our life sciences segment, we also continued to see trends gradually move in the right direction across our end markets as our organic growth was flat year over year with positive low single-digit growth from our pharma customers and a low single-digit year-over-year decline in sales from our academic and government customers, which included a modest headwind from the US government shutdown. Importantly, our sales of life sciences reagents and consumables were a bit better than we had expected and were flat year over year overall. We also saw continued improvements in demand for our life sciences instruments during the fourth quarter, as they were also roughly flat on a year-over-year basis. This performance for our instruments represented a strong double-digit sequential increase in total revenue as compared to the third quarter and marked a meaningful organic growth improvement compared to the most significant declines we've seen with these products fairly consistently over the past three years. Given the strong finish to 2025, and the progress we've made over the past few years, we chose to reinvest a portion of this operating up back into the company during the fourth quarter, with a particular focus on supporting our employees who have remained highly dedicated and productive throughout the year. This resulted in our adjusted operating margins in the quarter being 29.7%. When combined with some below-the-line favorability, this led to our adjusted earnings per share in the fourth quarter to be $1.70, which was $0.11 above the midpoint of our guidance and $0.06 above the high end. In addition to the meaningful progress we've made operationally in 2025, I'm very proud of what we've been able to opportunistically accomplish from a capital deployment perspective as well. In 2025 alone, we've repurchased over $800 million worth of our shares, reducing our share count by 8.5 million shares overall. This brings our repurchase activity since becoming Revvity in 2023 to over $1.5 billion, representing nearly 15 million repurchased shares or about 12% of our total share count at the time. This robust repurchase activity during a period of elevated end market uncertainty demonstrates not only a continued confidence in our transformation, and our medium and longer-term potential, but also our continued disciplined stewardship of shareholder capital. We will continue to be both opportunistic and disciplined as we evaluate all capital deployment opportunities going forward, both organically and inorganically. While we began to see some encouraging signs during the fourth quarter, and take note of a few different promising market tailwinds of late, such as stronger biopharma funding, M&A activity, and greater clarity on future NIH funding, we also want to remain cognizant in our initial outlook for 2026 that the signs of modest improvement we have seen to date have been only recent and we continue to operate in what is a fluid end market and policy environment. Consequently, while Max will provide more details in a bit, we are reiterating for our organic growth this year to be in the 2% to 3% range, as we are assuming recent end market trends continue over the course of the year. If these potentially favorable market conditions do result in customer demand recovering more than we currently anticipate in this outlook, we will look to appropriately update you on future quarterly earnings calls. I'm happy to report that in mid-January, we closed on our previously announced acquisition of the software company ACD. We are already in the process of integrating ACD into our signals business and initial steps are underway to integrate its core product offerings into our main signals one platform as well. We expect ACD to contribute a little over $20 million in total this year, which adds another roughly 75 basis points to our overall revenue growth for the year. So taking into account our 2% to 3% organic growth outlook, and the expected tailwinds from FX and the ACD acquisition, it brings our total expected revenue this year to be in a range of $2.96 to $2.99 billion. As we've highlighted in the past, we are making good progress with our various cost efficiency initiatives and remain on pace for them to be fully completed by the end of the second quarter. These programs include significant footprint consolidations, deeper commercial and operational integrations, and greater supply chain and logistical synergies. While their impact will increase as the year goes on, especially in the second half of the year, we continue to expect these initiatives to result in our adjusted operating margins this year being 28% overall. We expect this all to result in our 2026 adjusted earnings per share to be in the range of $5.35 to $5.45, representing high single-digit adjusted EPS growth for the year. So overall, we are positioned well as we enter 2026 and I'm optimistic that our end markets should begin to recover as we go through the year, which would provide even greater opportunities for us and our shareholders. Another item we are extremely excited about as we move into 2026 is our recent introduction and upcoming launch of our AI models as a service platform, Signals Synthetica. Our Signals software business is perfectly positioned to capitalize on the potential of AI, as it is the central repository and workflow engine for nearly all major pharma preclinical R&D activity across the globe and increasingly for many biotechs and small to mid-sized pharma companies as well. Preclinical scientists work within Signals One every day to create new data, analyze results, and seamlessly share it with colleagues. With the introduction of Synthetica, we are providing a platform where bench scientists will be able to seamlessly leverage industry-leading AI and ML models that are both publicly and privately available directly within their existing workflows. The insights gained by leveraging these AI models will be used by scientists to more quickly iterate and improve their drug candidates and development, both in the wet lab and virtually, enabling a lab-in-the-loop approach to drug development. We expect this repeating loop of faster and more frequent refinement and advancements of drugs in development will ultimately accelerate drug development timelines versus previous methods. As part of our Synthetica launch, we also announced our important collaboration with Lilly and its TUNE lab initiative. Lilly TuneLab's AI models are built on knowledge and insight from over a billion dollars of R&D investment by the company over the last decade. Lilly is not only making these models available to smaller biotechs, in exchange for them sharing data back into the platform, but they are also co-funding with us access to our Signals platform and providing Synthetica modeling credits to biotech users, exemplifying our shared commitment to driving and engagement of both platforms. Signals is embedded in nearly all major pharma companies around the world already, and now with Synthetica, and our collaboration with Lilly Tune Lab, we can uniquely deliver functional AI capabilities directly to scientists in a completely transformative way. So in closing, I'm excited that the power, differentiation, and momentum that we have built at Revvity over the last several years is increasingly garnering more and more appreciation amongst our customers, our investors, and even our competitors. Driven by leading innovation, coupled with strong and consistent operational and commercial execution, Revvity is on a strong path with a bright future, especially as key end markets likely continue to recover over the coming months and quarters. With that, I will now turn the call over to Max. Maxwell Krakowiak: Thanks, Prahlad, and good morning, everyone. As Prahlad highlighted, we navigated and overcame many obstacles during 2025, and were able to finish the year on a strong note in the fourth quarter as both our organic growth and adjusted earnings per share came in better than we expected. With this stronger finish, we were also able to take the opportunity to further reinvest back into our people with our expectations overall while keeping our adjusted operating margins consistent. I am proud of what we were able to accomplish last year, as we were able to achieve both our organic growth and adjusted EPS expectations that were either in line to above our guidance coming into the year despite significant headwinds versus our initial assumptions. From an innovation perspective, we introduced several very exciting new offerings and collaborations during the quarter, particularly in the areas of software and AI, and we remain opportunistically disciplined with our capital deployment by announcing the acquisition of the software firm ACD Labs, which closed a few weeks ago as well as by repurchasing another $108 million of our shares. As we continue to remain extremely confident in the medium and longer-term potential of Revvity, we use this opportunity to dramatically reduce our share count. I think this will bode extremely well for our shareholders once end markets more fully normalize and our overall financial performance moves back towards our long-range plan in the upcoming years. Our ability to opportunistically deploy capital like we have is a direct result of our strong free cash flow generation and conversion over the last several years since becoming Revvity combined with our strong balance sheet, both of which I expect to continue. As we look to the future, we will continue to take a balanced and disciplined approach to deploying capital with a focus on pursuing the highest potential return opportunities in front of us. As we have shown in the past, I expect this will continue to represent an appropriate and balanced mix of buybacks, M&A, and internal investments. While I will provide more specifics on our guidance for 2026 in a bit, as we look ahead to the future, I'm optimistic that our key end markets which have been under pressure are beginning to show some signs of potential initial recovery which would compare favorably to our current expectations that our end market demand trends continue to remain fairly similar to what they have been over the last three years. Now turning to the specifics of our fourth quarter performance. Overall, the company generated revenue of $772 million in the quarter, resulting in 4% organic growth. FX was an approximate 2% tailwind to growth and we again had no incremental contribution from acquisitions. For the full year, we generated $2.86 billion of revenue which was comprised of 3% organic growth, a 1% tailwind from FX, and no impact from M&A. As it relates to our P&L, we generated 29.7% adjusted operating margins in the quarter, which were down 60 basis points year over year but in line with our expectations. For the full year, our adjusted operating margins were 27.1% which were down 120 basis points year over year as margins were pressured from tariffs, FX, and lower volume leverage. This was partially offset by an increasing contribution from recently implemented cost containment initiatives. Looking below the line, our adjusted net interest and other expenses were $23 million in the quarter. This brought the full year adjusted net interest and other expense to $84 million. Our adjusted tax rate was 6.5% in the quarter, which benefited from the timing of discrete items which happened to primarily fall within the fourth quarter. This resulted in a full year adjusted tax rate of 14.5%. As we've previously mentioned, we continue to remain active with our share repurchase program as we averaged 113.2 million diluted shares in the quarter which was down over 2 million shares sequentially and resulted in our adjusted EPS in the fourth quarter being $1.70 which exceeded the high end of our expectations. For the full year, our adjusted EPS was $5.06, which is above the high end of our initial guidance at the beginning of the year, and represented 3% growth year over year. Moving beyond the P&L, we generated free cash flow of $162 million in the quarter, resulting in 84% conversion of our adjusted net income. This brought our full year free cash flow to $515 million equating to 87% conversion of our adjusted net income. Our balance sheet remains strong as we finish the year with a net debt to adjusted EBITDA leverage ratio of 2.7 times with 100% of our debt being fixed rate with a weighted average interest rate of 2.6% and weighted average maturity out another six years. As we evaluate capital deployment, we will continue to remain both flexible and disciplined in order to capitalize on the highest return opportunities, while ensuring we maintain our investment-grade credit rating. I will now provide some commentary on our fourth quarter and full year business trends, which are also highlighted in the quarterly slide presentation on our Investor Relations website. The 4% growth in organic revenue in the quarter was comprised of flat performance in our life sciences segment and 7% growth in diagnostics. Geographically, we had flat performance in both The Americas and APAC, and we grew double digits in Europe. For the full year, we achieved 3% organic growth with 4% growth in diagnostics and 2% growth in life sciences. The Americas grew low single digits, Europe grew high single digits, and APAC declined in the low single digits. From a segment perspective, our life sciences business generated revenue of $382 million in the quarter. This was up 2% on a reported basis and flat on an organic basis. For the full year, our life sciences business was up 2% organically. From a customer perspective, sales in the pharma biotech rose in the low single digits in both the quarter and for the year. While sales in the academic and government declined in the low single digits both in the quarter and for the year. Flat year over year organically in the quarter, our signal software business was driven by the timing of renewals and difficult year-ago comps when the business grew in the mid-thirties. For the full year, our signals business grew in the high teens organically. As it pertains to some of the software industry-specific metrics, our SaaS pipeline continues to grow with nearly 40% ARR growth as compared to last year, with SaaS now representing approximately 35% of the overall business. Signals again had double-digit APV growth, versus the prior year, and maintained a net retention rate of more than 110%. In our diagnostics segment, we generated $390 million of revenue in the quarter, which was up 10% on a reported basis and 7% on an organic basis. For the full year, our diagnostics segment grew 4% organically. From a business perspective, our immunodiagnostics business grew in the high single digits organically in the quarter, and in the mid-single digits for the full year. Strong performance outside of China was partially offset by double-digit declines for the business in China for the full year as we've continued to face DRG-related volume pressures which we expect will continue until we anniversary them around the end of the second quarter this year. Our reproductive health business grew mid-single digits organically in the quarter and for the full year. Newborn screening continued to perform well and grew in the mid-single digits in the quarter and in the high single digits for the full year. Our reproductive health business has continued to meaningfully outperform underlying birth rate trends through fantastic operational and commercial execution and an increasing contribution from our work with Genomics England. Now turning to our initial outlook for 2026. As we recently highlighted at a sell-side conference just a few weeks ago, while we may be starting to see some modest improvements in pharma and biotech customer sentiment, for the time being, we are expecting a continuation of the major end market trends that we've been experiencing over the last two to three years to continue as we move into 2026. Should demand trends sustainably improve more than this initial outlook, we would look to update you at an appropriate time. With this backdrop, we are reiterating our outlook for 2% to 3% total company organic growth in 2026. Using FX rates, as of December, we expect the impact from exchange rates to be an approximate 1% tailwind to our revenue given the weaker dollar. With us closing the ACD Labs software acquisition in mid-January, we expect this acquisition to add approximately 75 basis points to our overall company revenue growth this year. We expect this all to result in our 2026 total revenue to be in a range of $2.96 to $2.99 billion overall. As we've discussed at length over the past few quarters, given some of the unexpected headwinds we faced last year, such as tariffs, diagnostic volume pressures, and FX, we chose to implement and accelerate additional cost efficiency measures in the second half of the year which we anticipate will take until close to the end of the second quarter to be fully completed. We expect these initiatives to result in 28% adjusted operating margins this year up from the 27.1% we reported for 2025. As we've also highlighted in the past, if we are able to generate upside to our organic revenue growth this year, above our initial 2% to 3% expectation, we would anticipate some additional leverage and margin expansion above this initial outlook as well. We had another strong generation and conversion year in 2025, which I anticipate will continue going forward. As a reminder, we do have a low-cost €500 million bond that is maturing this July which we will look to retire. Because we will lose this currently favorable spread on our cash, versus this low-cost debt, and also have lower average cash balances as a result of our 2025 share repurchases, we anticipate our net interest expense and other to be $95 million this year up from $84 million in 2025. We clearly had some strong performance from our tax planning initiatives as we moved into 2025. While we could again see some benefit from our tax planning programs as we move throughout 2026, we are not going to assume any benefit from them in our initial outlook. Consequently, we are assuming an 18% adjusted tax rate in our initial 2026 guidance, up from the 14.5% we ultimately generated last year. While the timing and impact from discrete tax items can vary year to year, I am still very proud of the progress we've been making as it pertains to our overall tax structure over the last few years. Given our progress, our normal annual tax rate has now been lowered to approximately 18%, down from our previous 20% level just a year or two ago. Lastly, given our significant share repurchase activity throughout 2025, we expect our diluted average share count to be approximately 112 million in 2026. We expect all of this to result in our full year 2026 adjusted earnings per share to be in a range of $5.35 to $5.45. Here in the first quarter, we expect our organic growth to be in line with our full year 2% to 3% outlook and a sizable 3% tailwind from FX given the weaker dollar year over year. While movements in FX do not typically have a meaningful impact on our adjusted EPS, they can have an impact on both our revenue as well as our adjusted operating margins. Consequently, between FX, our first quarter this year having fourteen operating weeks, tariffs, and not all of our cost efficiency projects yet being fully complete, we expect our adjusted operating margins here in the first quarter to be approximately 23% before stepping up in the second quarter and then further stepping up in the back half of the year. Our margin expansion will improve as we go throughout 2026 as we will increasingly benefit from the cost programs currently underway, will anniversary tariff impacts, and will not have as large of a headwind from FX beyond Q1, assuming current rates continue. This all results in our first quarter adjusted earnings per share expected to represent approximately 19% of our full year earnings. Overall, we finished off 2025 on a strong note with momentum into 2026. We are well positioned to capitalize as end market trends recover while still also being appropriately prudent with our initial outlook for this year given continued market uncertainties and the dynamic environment we've experienced over the last three years. We have positioned the business well for the future given our dedication to innovation, and our ability to consistently deliver for our customers. When combined with our ongoing cost efficiency programs, and robust share repurchase activity, we are well situated to see outsized performance should end markets recover more than we are currently anticipating. With that, operator, we would now like to open up the call for questions. Operator: We will now begin the question and answer session. Please limit yourself to one question and one follow-up. If you would like to ask a question, please raise your hand now. If you have dialed in to today's call, please press 9 to raise your hand and 6 to unmute. Please stand by while we compile the Q&A roster. Dan Brennan: Your line is open. Please go ahead. Dan Brennan: Great. Thank you. Thanks for the questions. Congrats on the quarter. Prahlad and Max, maybe just on the 2% to 3% organic guide. I know you started talking about it back, I think, early September. And this was, you know, prior to the first MFN deal meeting struck by Pfizer. I think we've had 13 other signs since then. So there are definitely signs, you know, the biotech market's improving well. So just I know you've talked about it throughout this call about the arguable conservative nature to start here and you're leaving room for upside. But nonetheless, given you had that anchored back then and things haven't improved, I'm just wondering if you could provide more color on this two to 3% framework and kind of what the potential upside could be as the year unfolds. Maxwell Krakowiak: Yeah. Thanks, Dan. So I think as we think about our 2026 guidance, you know, to your point, it is consistent with the framework that we provided back in September. And, yes, there have been some positive signs in our end markets since September. You know, therefore, I think as we look at the guidance for 2026, we do believe that there are multiple paths to potential upside across both revenue and EPS. You look at things from a revenue organic growth perspective, some of those paths starting first in the life sciences side. So one, you know, we aren't really modeling any improvement in the preclinical markets across both pharma, biotech, and academic and government. I think we continue to see positive trends in pharma biotech, whether that's around the MFN deals and the certainty that brings our customers, the biotech funding environment, the M&A environment. There's definitely been some positive indicators over the past couple months. And, look, it's tough to believe that academic and government is going to be as challenged as it was last year. The second thing, you know, from a software perspective, we have, you know, the launch of some new products, at the '25, early '26. We are not embedding any material benefit from those software launches in 2026. But, obviously, there's a potential that those could accelerate quicker. I think when you look at things from a diagnostic side, you know, on the newborn screening side in particular, you know, we're assuming more LRP type performance for that business as opposed to the outperformance that it's driven over the past couple years. You know, there's nothing fundamentally changing there other than just a more prudent assumption to start off the year. And then secondly, from an immunodiagnostic side, you know, we are taking a little bit more, I say, of a conservative and prudent approach on some of the expectations for our China IDX business, which, you know, at the 2026 will be less than 5% of total company revenue. But we are taking a I would say a more prudent assumption there. So then, you know, from an EPS perspective, right, a couple potential opportunities for upside. One, as it relates from a margin perspective, I just talked about multiple paths from an organic growth upside. You know, if those were to come through, you know, we've previously mentioned that we would expect that to come with incremental margin expansion above the 28% baseline that's embedded in our guidance. And then secondly, from an EPS perspective, I'd say there's opportunity from upside from a below-the-line perspective. Obviously, we finished 2025 with a lot of momentum in terms of some of our tax planning initiatives. And as we've mentioned in the prepared remarks, you know, we're not really embedding any further upside or execution from a tax planning perspective or any benefits from any discrete items from the year, which we generally have a track record of being able to execute on. So I think that's how I think about it in terms of the upside, both from an organic growth perspective and also from an EPS perspective. Dan Brennan: Great. And then maybe just as a follow-up, just on the life science side, is it really just preclinical spending recovering that's gonna drive the strength in instruments and reagents? Are there any share potential there? And what can we be watching to get ahead of, like, when those businesses could start to turn up? Thank you. Maxwell Krakowiak: Yeah. Look. So I think from a preclinical perspective, you know, I think it one, a big part of that is just continued momentum in the end market. I talked about some of the positive signs we're seeing there, and so really just a continuation of the demand development off those positive indicators. You know, in terms of your comment on share, I would argue we've been taking share over the past couple years continuously in the preclinical market, particularly within the reagents business. And so I think that's something that we look to continue to execute upon. Operator: Your next question comes from the line of Daniel Anthony Arias with Stifel. Your line is open. Please go ahead. Dan, a reminder to kindly unmute yourself by pressing star 6. Daniel Anthony Arias: Okay. There we go. Sorry about that. Max, on software, to your point, you have a handful of new products that you're launching here. Can you just sort of refresh us on the timing of coming to market and then what your uptake trajectory might be? I mean, it doesn't sound like you have much baked in for this year. But what should we think about the curve looking like? And then how quickly do you think gets you back to the nine to, I believe, 11% range that you've laid out as an LRP for software? Prahlad Singh: Yeah. Let me take that, Dan. You know, as you saw in our results for last year, in our signals business, obviously, overall is doing extremely well. And as you pointed out with the upcoming launch of Biodesign, the introduction of Synthetica, and the launch later this year of Labgistics. Our signals business actually is in the mid of the most significant new product introduction phase in its history. You know, despite historically being focused primarily on small molecule workflows, you know, its revenue CAGR is lost solidly in the double digits and as you pointed out, above our LRP assumption of nine to 11%. So even before all these new product launches, you know, the advent of AI or how we might participate there, the business is already performing better than we expect from it over the coming years. Now let's say, as you pointed out to these new product launches, our new focus to also start gaining traction in other end markets, as material sciences. There is good potential for our growth rates in this business to accelerate even further. You know, despite having to grow off a larger base of revenue. So, no, obviously, while we are not gonna revise our LR assumption of a particular business on an earnings call, I would reiterate as I've said in the past, that we would be really disappointed if this business does not at least double in revenue over the next four to five years, which would imply something closer to a 15% organic growth rate. Daniel Anthony Arias: Okay. Helpful. And then maybe just on biopharma, Prahlad, you referenced biotech funding improvements as something that can help the recovery here. You're not alone. Several of your peers have done too. I'm just curious if you dig into the order book, are you finding that some of the early uptick signals that you're talking about are they coming from the companies that have successfully raised money? And so that makes you kind of feel okay about the thesis? Or, you know, is that a trend at all that you're seeing in the discovery space? I'm just trying to understand whether better biotech funding is actually something that we can count on for 2026. Prahlad Singh: Yeah. Dan, I would say it's a combination of both. Obviously, you know, we started seeing some modest improvement in the fourth quarter from these customers. You know, I think it's a lot more clarity and confidence in the policy and regulatory environment that we saw compared to the earlier part of '25, which is allowing more and more meaningful decisions. And on the behavior that we see with the uptick in biotech M&A, improvement in the funding. You know, I think all of these are contributing. So I wouldn't say that there is one lever, but definitely, there's just the confidence that you are seeing and consistency. But we've got to see this for a longer period of time before we, you know, make a call and it true durable uptake. But I'm optimistic that these customers are starting to move on the right path. Operator: Your next question comes from the line of Vijay Muniyappa Kumar with Evercore ISI. Your line is open. Please go ahead. Vijay Muniyappa Kumar: Hi, guys. Thank you for taking my question. First one maybe on the guidance 2% to 3%. How are you thinking about life science versus diagnostics relative to that two to three corporate? You know, your exit rate was 4%. Diagnostic, 7%, anything one-off in the 7% in the Q4. Maxwell Krakowiak: Yeah. Hey, Vijay. Look. So I think as you think about the framework of the two to 3% organic growth for 2026, right. I would say life sciences is embedded at sort of a low single digit as well as diagnostics. Breaking it down further within the life sciences business, we've got life sciences solutions at low single digits. And then software at mid-single digits. Know, within that life science solutions bucket, we anticipate low single-digit growth in our reagents business and flattish performance from our instrumentation. As we look at things from a diagnostic side, we've got again, low single-digit overall for DX. And then embedded underneath that, you have reproductive health, growing at mid-single digits. Immunodiagnostics growing at low single digits, given the headwinds from China. But outside of China, we still expect our immunodiagnostics business to grow in the high single digits for 2026. Vijay Muniyappa Kumar: That's helpful, Max. Maybe I'll pull out one for you on M&A environment. I'm curious how you're thinking about deal size. I know you mentioned, you know, returns metrics have to have to, you know, clear the hurdles. What is the potential for a merger of equals? Would that be on the table? Thank you. Prahlad Singh: Yeah. Vijay, you know, obviously, we continue to reevaluate redeploying cash into potential M&A targets. But it has to make a strong strategic addition to the company, you know, not just for size. And, you know, our focus is on software, and life sciences reagents primarily. And then as you pointed out, you know, with our multidisciplinary, we haven't seen yet any targets that are compelling enough either from a financial profile or an expected return perspective to move forward with. Operator: Your next question comes from the line of Josh Waldman with Cleveland Research. Your line is open. Please go ahead. Josh Waldman: Great. Thanks for taking my questions. Two for you. Prahlad, I wondered if you could provide more detail on what you saw within pharma biotech within the life science solutions business. I believe you mentioned no budget flush. Was the improvement in the quarter, you know, fairly evenly dispersed over the three months? And then were these more, like, longer-term projects that started to flip to orders, or did you see the actual, you know, new opportunities coming into the pipeline start to start to ratchet up? Prahlad Singh: Hey, Josh. You know, let me give you an overall color. Again, I think it's, you know, very similar to what I've, you know, said during Dan's question. I think overall, what we've seen is cautious optimism and consistency in terms of order trending. I wouldn't say that there was a budget flush. I think that's the way I would think of it. But what I would say is a lot more clarity and confidence in policy and regulatory environment enables our pharma biotech customers to plan appropriately and with more degree of confidence as we get into 2026. Maxwell Krakowiak: Yeah. And I would just say from a financials perspective in the fourth quarter, Josh, you know, when you look at the performance of life sciences solutions, it really kinda came in line with our expectation. You know, reagents were a little bit better than we had anticipated in the fourth quarter, coming in at approximately flattish versus a down low single-digit assumption heading into the fourth. And then from an instruments perspective, you know, although it was significantly improved from the trends that we saw over the past twelve quarters, it was a little bit lighter than what we had anticipated, but it also came in at around flattish for the quarter, which again was a significant improvement versus the trends we've seen over the past three years. Josh Waldman: Okay. And then on the diagnostics business, can you run through the areas that came in better than expected, either, you know, from a product angle within the subsegments or geographic? And then how durable do you think this is going into '26? Do you think diagnostics could also be a source of upside to the two to three, or is it more really the life science business on the back of pharma biotech that could produce the upside? Maxwell Krakowiak: Yeah. So I think as you look at the diagnostic performance in the fourth quarter, it did come in better than expectations. We had expected about positive mid-single-digit growth. It came in at a high single-digit growth. When you really look at the drivers of that, I would say, one, we did have continued strength globally in newborn screening, which was a tailwind to us versus our expectations. And then the second component was immunodiagnostics did a little bit better globally as well. Some of that, though, was around instrument-related timing. And so there was a little bit of additional tailwind from that. You think about how that then dovetails into 2026, you know, as I mentioned in the response, I think it was to Dan's initial question on where is upside, we definitely think we have some upside in the diagnostics business. You know, the first area I mentioned, we have a more prudent assumption around newborn screening, versus what we've seen over the past couple of years. Again, nothing's fundamentally changing there. Just a more prudent assumption, just start the year that's more in line with our LRP. Then the second dynamic is around immunodiagnostics. We've mentioned that we've taken up, again, a little bit more of a conservative assumption on immunodiagnostics in China. Just given some of the uncertainty there that's happened over the past couple years. But nothing is fundamentally changed. And should it have played out, you know, we could see some potential benefit there as well. So that's how I kinda think about the upside for diagnostics in '26. It's not just related to the life sciences business. Operator: Your next question comes from the line of Luke England Sergott with Barclays. Your line is open. Please go ahead. Luke England Sergott: Alright. Cool. Guys. Wanted to follow-up on that last China DX question on the IDX. I understand that you're taking a little bit more prudent outlook here. Does that have anything to do with kind of what peers are talking about from potential increasing of DRG or VBP plans over there to get into cancer or oncology testing? You know, I don't imagine you have a lot of exposure to those types of tests, but just what are you guys hearing over there from that perspective? And then how, you know, is that what's leading to that prudence? Maxwell Krakowiak: Excuse me. Yeah. Hey, Luke. Look. So as I think about China IDX, you know, again, I think the first thing I wanna call out is, again, this will represent less than 5% of total company revenue in 2026. So this continues to just become an overall smaller piece of the portfolio. You know, I would say from a market perspective, we've not seen anything fundamentally change in the past ninety days. You know, there has been, I think, some noise around potential theoretical new policies that could come in place, but, again, those are theoretical and no real details have really been released. And then as you mentioned, some of the policy changes related to oncology, etcetera, really don't impact our business. So I would say the punch line for us is nothing has really fundamentally changed. This is really just a matter of us taking a more, you know, prudent assumption, for what's gonna happen in China IDX for 2026. Luke England Sergott: Alright. Great. And then on the instruments piece, life science instruments, you guys are assuming that's flat for '26. Just give us a look at, like, what the backlog looks like or where the demand is, you know, just kind of mirroring, I guess, the last year, any type of pacing or pickup that you guys see throughout the year? Maxwell Krakowiak: No. I'd look. I would say from an interest perspective, nothing particular to call out. Again, most of our projects generally have, you know, four to five months lead time. Most of our instrumentation is customized. So we have generally good visibility from a funnel perspective. Again, we had talked about the funnel strength we were seeing heading into the fourth quarter. Again, that mostly largely played out as anticipated. It was still a really good performance for our instruments business in the fourth quarter. And so I would say as you think about the flattish assumption, again, this is assuming a similar CapEx environment that we just, you know, faced in 2025. And I think there's been some real indicators that, you know, things could be improving, but we need to see it over, you know, the course of a couple quarters before we start rolling that into the numbers. Operator: Your next question comes from the line of Andrew Cooper with Raymond James. Your line is open. Please go ahead. Andrew Cooper: Hey, everybody. Thanks for the questions. Maybe just to start with margins. Can you just give a little bit more of a breakdown of some of the moving parts for the year, especially the first quarter? I mean, we're used to some drop from 4Q to 1Q, but would you call normal versus the tariffs versus FX versus cost-saving program costs? You know, just help us some of those moving pieces would be great. Maxwell Krakowiak: Yeah. Absolutely. Hey, Andrew. So I think look. When you think about things from an operating margin perspective, you know, it is, to your point, normal for us to have Q1 be, I would say, several hundred basis points below our full year operating margin. Then normally, Q2, Q3 is kind of in line with full year, and the fourth quarter is, you know, several hundred basis points above our full year operating margin. You know, I think as you look at 2026, both the first quarter and the second quarter would be, I would say, lighter than normal, and there's for a couple reasons for that. First, as you look at the first quarter, you do have the impact of the extra week, which is an operating margin headwind for us. And then secondly, you know, as we mentioned in the prepared remarks, our cost are gonna continuously be executed throughout the first half of the year without being fully completed until the end of the second quarter. So you will get a little bit of a cost productivity benefit in the second half once those are 100% actioned. Andrew Cooper: Okay. Helpful. And then maybe just as follow-up. You know, high level launching products sometimes into what we'd all admit is a challenging kind of end market is always a little bit tricky. I mean, have you guys calibrated some of the software launch expectations and, you know, is it different given, I think, all the new launches are more SaaS oriented versus kind of on-prem upfront license fee? But, you know, how does this constrained capital environment impact the way you go to market with these newer products? Prahlad Singh: If at all? Yeah. Andrew, I mean, the way our software business is set up is, you know, you just essentially, you know, you have an installed base, and most of these product launches go into the signal suite. So it is more of an upsell opportunity that comes in, and then that rolls over. In some cases, when the contract come up for renewal, in some cases based on the customer's needs. That they might have an immediate need for it. So, you know, and as we've talked about earlier, right, most of what you know, our product launches with us around biodesign or logistics are based on custom demand and asks from the user group that the team puts in place. So there has been more of a pull for this than a push of a new NPIs. We expect them to start gaining traction earlier as we move from small molecules to larger molecules with biodesign. But generally, it takes a few quarters for them to start gaining traction. Operator: Your next question comes from the line of Daniel Louis Leonard with UBS. Your line is open. Please go ahead. Daniel Louis Leonard: Thank you very much. I've got another China diagnostic question. Fully appreciate that China immunodiagnostics is less than 5% of your revenue, but how confident are you that this returns to growth in the second half of the year? Maxwell Krakowiak: Yeah. Hey, Dan. Thanks for the question. You know, again, it's on China IDX. I would say that, you know, as we have taken a more prudent assumption, I would say we are no longer forecasting a return to low single-digit growth in the second half of the year. We expect it to now be, I would say, down slightly in the second half of the year. And, again, that just goes to what we're calling, you know, a more prudent and conservative assumption as we head into 2026. Nothing fundamentally changed throughout the underlying market conditions. Daniel Louis Leonard: Thank you for that clarification. And an unrelated follow-up, I could just, you know, use some help better understanding how you're framing the economic opportunity for that AI drug discovery offering and software. Thank you. Prahlad Singh: Yeah, Dan. I mean, look. The fact is that as, you know, we talked about at a health care conference earlier during the year, and we went through what Synthetica does. We really feel it's a very exciting area for us as a company. And then I think, you know, I would be bold enough to say for the industry as a whole. You know, Synthetica for me is not an AI. It's even more potentially important in the near term as it is in the longer term because what it does is it brings to action how drug discovery happens. You know, when you think of it today, you move from only being a wet lab to doing in silico modeling and being able to then link it back to what happens in the wet lab, bring it back onto the Synthetica plot. The signal suite provides a platform or a marketplace where all of this can happen in one place without you having to be a software expert. I think that's the value of Synthetica. It provides a federated model where you are able to curate put AI models on one platform that are validated and be able to use them and enable drug discovery to happen in an efficient form. I think in the longer term, the benefit of what you will see from that is not just on productivity and efficiency but also acceleration of drug discovery. So we really are, needless to say, very excited about Synthetica. And then in the first one, of, hopefully, a few is the partnership that we have announced with Lilly on that initiative. Operator: Your next question comes from the line of Brandon Couillard with Wells Fargo. Your line is open. Please go ahead. Brandon Couillard: Hey. Good morning. Thanks for taking the questions. Just one for me. Max, free cash flow conversions has improved over the last two years. I didn't hear you talk about a target for this year, but can you give us a little more color on the levers to improvement there and kind of where you're seeing free cash flow shake out for '26? Thanks. Maxwell Krakowiak: Hey, Brandon. Yeah. Look. I think from a free cash flow conversion standpoint, we've continued to execute, I would say, incredibly well over the couple years. I think if you look on average over the past couple years, it's been close to a 90% free cash flow conversion for us, which is obviously, again, a dramatic change from where we were. You know, if you go back, you know, a handful of years ago, we were hovering kind of around 70% conversion. I think there's really been a couple of drivers of that. You know? One, we continue to execute on some of the working capital initiatives that we have across the company. Two, you know, I would say it's a benefit of the portfolio we have now with the higher reoccurring mix of product. And then three, you know, we've really made sure that everyone across the company is incentivized and has targets from a cash flow perspective, which is really starting to pay a lot of dividends. You know, I think as you look at 2026 and the expectation, we do expect to have continued momentum. You know, our LRP kind of calls for 85% conversion or greater a given year, and I think that's the expectation we have for 2026 as well. Operator: Your next question comes from the line of Catherine Schulte with Baird. Your line is open. Please go ahead. Catherine Schulte: Hey, guys. Thanks for the question. Maybe just one from me as well. Can you just size how much benefit 1Q organic growth has from the extra week? And any other pacing commentary on how to think about organic growth for the rest of the year, you know, maybe what's implied in the guide for a 4Q exit rate? Maxwell Krakowiak: Yeah. Hey, Catherine. Look. So I'll actually answer the second part there first. You know, from an organic growth cadence over the course of the year, you know, we're calling for two to three here in the first quarter, which is in line with the full year. I would say we're expecting relatively consistent performance around that, you know, 2% to 3% for each quarter of the year. So I'd say relatively consistent there. And then I think as you look at the extra week, financials, just to talk through some of the different moving pieces across the entire P&L. You know, from an organic growth perspective, we expect it to be about a 100 bps tailwind to OG in the first quarter. You know, that's roughly 20 basis points for the full year. You know, the benefit from a revenue perspective, the majority of that tailwind is really from our life sciences reagents business as we pick up a couple extra selling days. Then there's a little bit of service and software, contract amortization. We are not expecting an impact across our DX or CapEx purchases from our customers. I think then when you look at it from a margin perspective, it is a headwind for us, as you do have an extra week of cost, which is predominantly labor-driven. Obviously, you have to pay your employees for that extra week. And so that ends up actually being a margin headwind for us, which is, again, leading to the lighter than normal Q1 margins. From an EPS perspective, you know, it's roughly about a $0.06 headwind that we're facing for the first quarter related to that extra week due to the margin, and then there's a little bit of extra net interest expense below the line as well. Operator: Your final question will come from the line of Tycho Peterson with Jefferies. Your line is open. Please go ahead. Tycho Peterson: Hey. Thanks. I wanted to touch on reagents. Appreciate all the color and, you know, 4Q a little bit better. But curious, last quarter, was noise on margins, discounting, promotional activity by some of your peers. Can you just talk a little bit about competitive dynamics on the reagent side? How you're thinking about pricing and margins there in consumables if top line does come back a bit? Prahlad Singh: Yeah. Hey, Tycho. I think as Max pointed out, you know, we feel very good about the way the business has been playing out. And I think we've taken some share. So we've not seen any margin dilution per se on the reagents business. And it continues to do well for us and bodes well for the way we are looking at how it is in 2026. So I wouldn't say that, you know, from our perspective, there was any noise either in terms of margins or share. I think we did well on both. Tycho Peterson: Okay. And then the second question and last one is just on instruments. Curious if we can get a little more color just on the various buckets, how you're thinking about, you know, liquid handling, in vivo, high content screening, obviously, some GLP benefit there. Maybe just talk about four buckets on the instrument side and what's baked in for each of those this year. Maxwell Krakowiak: Yeah. Hey, Tycho. Look. From an instruments perspective, we're not gonna guide by, you know, SOPs sub-product line. But I think as you think about the trends, right, particularly around high content screening, you know, high content screening for us, we had mentioned, was looking at a strong fourth quarter. It did end up being strong, I would say, double-digit growth in the fourth quarter as we continue to see momentum there, which, again, really is sold into the pharma biotech environment. So from that perspective, we expect, you know, the high content screening momentum to continue in 2026. And I would say, you know, the rest of the portfolio, again, expect it to be, I would say, relatively, you know, flattish as we've kinda come off the lower baselines here exiting 2025. Operator: There are no further questions at this time. I will now turn the call back to Steve for closing remarks. Stephen Barr Willoughby: Thank you, Nicole. Thanks, everyone. We look forward to catching up with you over the remainder of this week and hopefully see you in person in upcoming conferences the next month or so. Have a good day.
Operator: Good morning, ladies and gentlemen, and welcome to the conference call of Intesa Sanpaolo for the presentation of the 2025 Results and Business Plan, hosted today by Mr. Carlo Messina, Chief Executive Officer. My name is Sandra, and I will be your coordinator for today's conference. [Operator Instructions] I remind you that today's conference is being recorded. At this time, I would like to hand the call over to Mr. Carlo Messina, CEO. Sir, you may begin. Carlo Messina: Good morning, ladies and gentlemen, and welcome to today's conference call on our full year results and our new business plan. This is Carlo Messina, Chief Executive Officer; and I'm here with Luca Bocca, CFO; Marco Delfrate and Andrea Tamagnini, Investor Relations Officers. Before starting our presentation, let me recap the main elements of our strategy. Over the last two business plan, we have delivered on our commitments, exceeding our targets. We have created a unique business model strongly focused on commissions with high efficiency and a low risk profile. This strategy was enabled by strong investments in technology and in our people. Our investments in technology are a key enabler of growth, risk management and of the scalability and resilience of our operating model. They continue to translate into benefits over time, both in cost control and in the way we run the group. The new business plan will build on what already works, scaling our strengths. It is an ambitious plan, but with zero execution risk. I will now briefly review our full year results, which are a key enabling factor for the new plan before presenting our 4-year strategy and targets. Please turn to Slide 2. In 2025, we delivered record net income at EUR 9.3 billion. best-in-class cost income ratio, lowest ever NPL inflows, stock and ratios with bad loans reset to near 0, strong growth in capital and high increasing and sustainable value creation. Slide 3, we delivered on our commitment while paving the way for the new business plan. Revenue grew despite a significant drop in Euribor, costs were down, cost of risk was low and net income was the highest ever despite significant Q4 managerial actions to favor derisking and strengthen the balance sheet. Slide 4, we over delivered on all our targets set in the previous business plan, while investing more than planned. Shareholder distribution was 50% more than the business plan target. Slide 5. We leveraged Q4 profitability to allocate EUR 1 billion of gross income to strengthen future profitability. We are the most resilient bank in Europe, fully equipped to succeed in any scenario. Slide #6. In this slide, you have a brief summary of our excellent performance. In a nutshell, we had the best year ever for revenues and operating margin with record high commissions and insurance income. We reduced costs and net income was up 8%. Slide 7. We delivered a strong growth in return on equity, earnings per share, dividend per share and tangible book value per share. For 2025, we will pay a cash dividend up 10% on a yearly basis, and we will launch a EUR 2.3 billion buyback in July. Slide 8 for a look at capital. The common equity Tier 1 ratio grew to 13.9%, 13.2% after the buyback to be launched in July. We were able to increase the common equity Tier 1 ratio while distributing EUR 8.8 billion to shareholders. Please turn to the next slide to see the further strengthening of our 0 NPL bank status. We strongly reduced the NPL stock in Q4. We now have just EUR 0.8 billion in bad loans. This is a key element for maintaining a low cost of risk in the coming years. Slide 10, our NPL stock ratios are among the best in Europe, like in Nordic Bank. Slide #11, revenues were up year-on-year despite a strong decline in market interest rates. Thanks to our well-diversified business model. Slide 12. Net interest income was resilient despite a strong drop in Euribor. In Q4, we decided not to push strongly our loan growth and we are accelerating in the first quarter to compensate the EUR 570 million impact on common equity Tier 1 ratio from the Italian Budget Law. Still, loans in any case were up EUR 4 billion in the quarter. Slide 13. We had a record year for commissions and insurance income, and Q4 was the best quarter ever for commissions. Slide 14. Costs are down year-on-year. In Q4, in light of our strong profitability, we accelerated investments, training in preparation for the new business plan and advertising campaigns for the Winter Olympics. Our digital transformation is enabling significant efficiency gains, and we have high flexibility to further reduce costs in the coming years. Slide 15. Our cost of risk was 26 basis points when adjusting for additional provisions to favor derisking and strengthen the balance sheet. The Italian economy is very resilient, and we see no signs of asset quality deterioration. Slide 16. Our excellent and sustainable performance allow us to benefit all our stakeholders and strongly support the fight against poverty and inequalities. Slide 17, our resilient profitability, well-diversified business model, low cost income ratio, cutting-edge technology and best-in-class risk profile place us in a unique position to keep succeeding in the coming years in any scenario. Slide 18, Intesa Sanpaolo is also far better equipped than its European peers, and we are the most resilient European bank. Slide 19. In this slide, you can appreciate the unique business model of Intesa Sanpaolo. Now we can turn to Slide 20, '26 outlook -- to see the 2026 outlook. So Slide 20. For 2026, we expect a net income of about EUR 10 billion, driven by increased revenues, mainly thanks to commissions and insurance income growth, stable costs, low cost of risk driven by our 0 NPL bank status and the tax rate increase due to the Italian Budget Law, coupled with an increase in costs concerning the banking and insurance industry. We are also raising our cash payout ratio to 75% with an additional 20% buyback for a total payout of 95%. Now let me briefly summarize our key messages for the full year results. The level of profitability we have delivered is driven by structural factors, not by temporary effects. In Q4, we took significant managerial actions to further strengthen the sustainability of our results, fully consistent with our approach that balances short term and long term. The combination of profitability, capital strength and low risk we have is not common in the banking sector. From this position of strength, we are entering the next phase of our strategy with strong confidence. In the following slides, you have the full details of our full year and Q4 results, but now let me turn to our new business plan. Over the years, we have significantly strengthened the group. So this plan is about taking the strength further with zero execution risk. The plan is based on businesses we already run, investments we have already made, an execution model that is already proven. We are unique in Europe, resilient and ready to succeed in any scenario. Our Wealth Management, Protection & Advisory model is fully integrated and operates efficiently with product factories and distribution networks working together under full strategic control. It has delivered results over many years, and we will take this model to the next level. The plan includes a very detailed road map to grow our advisory network in Italy and abroad. We will scale up the Global Advisers network in the Banca dei Territori division, and this network will become the third largest in Italy, with Fideuram remaining #1. On top of that, we will set up a Fideuram-style network in the International Banks Divisions. The plan unlock synergies across divisions, not only in Italy but also abroad. We will export all the elements of our successful business model to our international banks. We will leverage isytech, our product experience and fully owned product factories to fully unlock the bank's growth potential. The International Banks will contribute a lot more to net income growth than in the past. The synergies included in the plan have been developed together with the other group divisions through a dedicated steering committee zero-ing execution risk. Another perfect example of our ability to extract synergy outside of Italy is the launch of Isywealth Europe. We see the opportunity to be a challenger in France, Germany and Spain, where we are already present with international branches. We will extend our successful business model, leveraging our strong tech investments, the extension of isytech, our Wealth Management leadership and our existing international branches presence. We will combine our digital capabilities with the development of a sizable network of Wealth Management advisers. This is an opportunity for the group in the midterm, and this is why we assumed 0 revenues in the business plan despite including investments. We will be able to structurally reduce cost and technology remains a major enabler, supporting efficiency, risk management and scalability. We are the first leading bank fully adopting a cloud-based core banking system. As you will see, our business plan includes substantial growth in terms of new clients, new customer financial assets and new lending. On this point, let me highlight that our total new lending in Italy will be by far bigger than Italy's recovery plan and, as usual, will follow high-quality origination standards. We are the most resilient bank in Europe as confirmed by the EBA stress test and the 0 NPL bank status that we will maintain. Against this backdrop, the new business plan is built around three clear pillars: cost reduction, conservative revenue growth and low cost of risk. Let's now turn to Slide 3. This is very important for me. So let me start with our people, our most important assets. And I want to thank them for their hard work and full commitment to the success of Intesa Sanpaolo. Our people will always be our main asset and the key enabler of future success, and we will continue to invest in their talents. On top of that, we have a strong long-standing and cohesive management team. Slide #4. Intesa Sanpaolo is a proven delivery machine, and this slide shows the excellent results of the past business plan. Net income and return on equity more than doubled. Cost income improved strongly. Customer financial assets grew significantly. NPL stock and ratios reached historical lows, and we returned almost EUR 50 billion to shareholders, mainly cash. Slide #5. As you can see in this slide, net income has grown 20 years -- 12 years in a row. Slide #6. The three pillars of our strategy are: one, cost reduction, benefiting from tech investments already deployed; two, conservative revenues growth, thanks to group synergies and additional people to strengthen our Wealth Management protection and advisory leadership; three, low cost of risk driven by our 0 NPL bank status with bad loans already reset to near 0. Our people are now fully committed to delivering the new business plan, a plan they were essential in developing. Slide #7. Let's now go through the business plan numbers. By the end of the plan, we will deliver a net income above EUR 11.5 billion, a sustainable return on equity above 20% and the cost-income ratio at 37%. We will maintain our rock-solid capital position and our leading role in social impact with a new EUR 1 billion contribution. Slide #8. Our priority remains high in sustainable value creation and distribution with strong growth in earnings per share and dividend per share and a total capital return of EUR 50 billion, close to 50% of our market cap. We will distribute in each year of the business plan a cash dividend equal to 75% of our net income, and we will add a 20% buyback. Any additional distribution will be evaluated year-by-year starting from 2027. Slide #9. As usual, our business plan is built on a solid set of industrial initiatives that I will outline later. Slide #10. This plan leverages our strengths with no execution risk. We can leverage a proven track record in cost reduction and our cloud-based digital platform is now being extended to the whole group, while generational change is already underway. We can boost our revenues through the unique combination of fully owned product factories, growing advisory networks and a cohesive management team to extract the group growth potential. We can count on a very low NPL stock, high-quality loan origination and a strong track record in managing emerging risks. Slide 11. To sum up, we are committed to a strong increase in profitability and efficiency with a return on equity above 20%, a result that very few banks in Europe can deliver. Slide 12. We have significant client and loan growth potential. We will expand our customer base by 2.5 million clients, mainly leveraging Isybank and the international banks. We will provide more than EUR 370 billion in medium/long-term lending to households and businesses. In Italy, the amount of new lending is higher than the European Union financial support to fund the national recovery and resilience plan for the country. Slide 13. We will also increase customer financial assets by EUR 200 billion, of which EUR 100 billion in assets under management, also thanks to 3,700 additional people to further strengthen our Wealth Management Advisory Network. Slide 14, our common equity Tier 1 ratio will remain comfortably above the target level of 12.5%, even after EUR 50 billion of capital return, thanks to strong internal capital generation. Slide 15, we will also maintain an excellent liquidity profile despite a light funding plan confirming once again the zero execution risk of the business plan. Slide 16, I want to highlight that the business plan targets are based on conservative rate assumption. Italian GDP growth will be supported by Italy's strong fundamental and our international markets will show an even higher increase. Slide 17. The Italian economy remains resilient and recent upgrades of Italy's rating confirm the country's strength. Slide 18. In this slide, you can see the main P&L figures we are targeting for 2029. And in the next two slides, you will find the main balance sheet figures with a positive contribution from all business units. Now we can go to Slide 21. Thanks to the new plan, we will further strengthen our unique business model. Slide 22, our new business plan will generate benefits for all stakeholders, and we will contribute EUR 500 billion to the real economy over the next 4 years. We can now move to the next section for the industrial initiatives of the business plan. Slide 25. Let's now go through the first pillar of the business plan, cost reduction, which includes five main initiatives, such as the extension of isytech and the acceleration of generational change. Slide 26. As a result of these initiatives, cost will decrease by EUR 200 million in absolute terms, thanks to EUR 1.6 billion in cost savings while keeping investing in technology and growth. To my knowledge, we are the only large bank in Europe with a business plan delivering cost reduction, and we are further stead to have further cost reduction. Then we can go to Slide 27 to see more in details, the first initiative, the extension of isytech. Isytech is our cloud-native digital platform, and it has already been deployed with success to the Italian Retail segment, and this is a key enabler for expansion into a new international markets. Slide 28. This is very important. Isytech will be rolled out across the entire group over the course of the business plan. And by 2029, 100% of application will be in the cloud. But what I want to point out is the '26, '27 in which we will extend to all the Wealth Management activity of the group, so affluent, exclusive, private, and this is -- will be very important also for the international expansion of Wealth Management of the group that we will see in Isywealth Europe. Slide 29, we will deliver a significant increase in productivity through artificial intelligence. This evolution will transform our service model, enhanced operational efficiency and strengthen oversight of risk and control. Slide 30, we will expand also our digital branch capabilities to increase productivity and commercial activation, leveraging artificial intelligence. Slide 31. Our bank is undergoing a generational transition and a significant portion of our workforce is approaching retirement. And by 2029, we will have more than 12,000 exits at no social cost, while hiring more than 6,000 young people in Italy, largely global advisers with skills aligned to evolving business needs. This will enable EUR 570 million in cost savings at run rate. Slide 32, we will also leverage our in-sourcing machine, enabling EUR 200 million savings in external costs. Slide 33. In this slide, you can see our continuous focus on proactive cost management, driving structural administrative cost reduction. Slide 34, we enter into revenues. We have a strong internal growth potential, also leveraging group synergies. The business plan envisages a wide set of revenue growth initiatives across all business lines in Italy and abroad. Slide 35. Our ambition for the top line mainly comes from growth in Wealth Management, Protection & Advisory without relying on interest rate increases. Commissions will be the main source of revenue growth, thanks to initiatives that strengthened both our product factories and distribution networks. But do not forget the growth in net interest income, because in 2026, we will have the first round -- the final round of Euribor reduction. And then in 2027, '28 and '29, we will have a significant acceleration also in the growth of net interest income coming from growth in loan book in deposits and in hedging facilities. So also net interest income will be a key driver of increase of our revenue base with an acceleration starting from 2027, significant acceleration. We can go to Slide 36, starting from the first initiative. This will strengthen our distinctive advisory network, focusing on the Exclusive Client segment. We started serving these clients with a dedicated service model in the last business plan. In this business plan, we will unlock the full potential by serving them with over 2,300 new global advisers, bringing more than EUR 300 million in additional revenues. And you can see also that this acceleration in growth will leave us with further significant space of growth, just looking at the quartile in which we have not generated significant revenues. So the potential is really enormous in the Exclusive Client segment. Slide 37. The Banca dei Territori Global Advisers Network will become the market's third financial advisory network with our Fideuram network remaining in the first place. In addition, we will set up a new Fideuram style advisory network in our International Bank divisions. Slide 38, Private Banking. We will continue to strengthen our Private Banking leadership by enhancing our commercial proposition, reinforcing our life cycle and longevity offering and scaling up our international prices increasing by 500 units the number of financial advisers. And remember, just in 2025, we increased by 500 person the network of Fideuram. So it is really something conservative in my view. Slide -- we can move to Slide #42 to look at the leadership that we have in product factories. We will continue to strengthen our fully owned product factories in Asset Management through the enhancement of our service model and product offering coupled with international expansion. In Life Insurance by developing dedicated solution to address specific customer needs. And in Property & Casualty insurance by extending our proposition to our private banking, SMEs and corporate clients. Now let's turn to Slide 45. Very important for our Property & Casualty Insurance business. As you can see in this slide, we have huge potential to grow Property & Casualty revenues, increasing penetration of our products across our client base, including private banking, in which today we have zero penetration. So, we think to have further significant potential of growth in this business unit. Slide 46. Moving into Corporate and Institutional clients. In the new plan, we target a 5.4% increase per year in IMI Corporate Investment Banking net income. We will grow across various dimensions, scaling up our international business while strengthening our propositions in high-growth value chains, global markets, transaction banking and private markets. We can go to Slide 47, and we will look that we will also scale up IMI Corporate Investment Banking, International Business, launching a new dedicated service model to support Italian Corporates and SMEs in core and emerging markets while strengthening institutional client coverage in core geographies. We can go to Slide 51. Moving into transactional banking, which is very important. And in 51, you can see the SMEs initiatives. In this slide, you can see that we will introduce two different service models to best serve SMEs, thanks to our distinctive product offering and top-notch digital platform. This is another example of synergies across divisions. Slide 53, consumer finance. We are also planning to grow in the consumer finance space where we can improve our market share with a particular focus on personal loans and salary-backed loan solution. Slide 54, Isybank. With more than 1 million clients already on board, a complete product offering, Isybank is beating the FX. In Slide 55, you can see that in the new business plan, Isybank will further consolidate its leading position among Italian digital banks, acquiring 1 million additional new clients. Slide 56, international banks. Looking outside of Italy, we will grow across our international banks, leveraging our successful business model in Italy and unlocking full synergies with other group divisions, a lot more than in the past, also thanks to the extension of isytech. We created a dedicated steering committee with the division sets, the CFO and Chief Transformation and Organization Officer and the Chief Technology Officer to accelerate synergies. This will lead to a 50% significant increase in profitability. Slide 57. Our international banks are expected to deliver strong net income growth driven by the evolution of the business model with enhanced advisory capabilities. The setup of the Fideuram style network to accelerate growth in Wealth Management and Protection, a strong focus on digital, including the isytech adoption and the launch of a new digital payment and lending solution. Slide 59. By 2029, we will have a Fideuram style advisory network in the International Banks division with 1,200 people to fuel growth. Slide 61. This is a very important project for the future of Intesa Sanpaolo. So last but not least, we see the opportunity to extend our successful business model to the main European countries where we are already present such as France, Germany and Spain in which we have branches. We can leverage our leadership in Wealth Management, the EUR 10 billion tech investments already deployed, the extension of isytech in 2027 to Wealth Management areas and the existing presence in these countries. We can combine our digital capabilities with the development of a sizable network of Wealth Management advisers, and we will build on our product factories to develop solution tailored to the new markets while at the same time, leveraging partnership with global champions as we are already doing with BlackRock in Belgium and Luxembourg. This is an opportunity for the group in the midterm, and this is why we assumed zero revenues in this business plan. Despite this, we included EUR 200 million of investments. Slide 62. We have a two-phase road map for Isywealth Europe. In the first phase that I will directly overseas, we will launch the project, extending our international branch, license to serve retail and private client and setting up the new business model. So we will transform our branches that today only corporate devoted into branches that can operate on retail and private. In the second phase, following the extension of isytech to Affluent and Private Client segment. So at the end, we will have Isybank in our branches, just to make it easy. We will have a state-of-the-art IT system, cloud-based that will allow us to make Wealth Management also in this country. We will scale up the business by extending the footprint into other major cities, launching a new digital and holistic product offering and expanding the network of financial advisory and private bankers through hiring or acquisition. At the same time, our product sector in the insurance company has created product in health and house that will be available starting from 2027 also abroad of Italy and especially in Germany, France and Spain. Slide #63. We can enter into the pillar of cost of risk. Slide 64. We are a zero NPL bank. And during the plan, we will keep NPL inflows low, thanks to high quality origination and optimized credit portfolio management. This will drive a structurally low cost of risk without using overlays. Slide 65. As mentioned earlier, in Q4, we reset bad loans to near zero. In the next two slides, you can see more details about our active credit portfolio optimization and forward-looking credit decisions. Slide #68. In addition to our credit risk strategy, we will continue to maintain a strong focus on all other risks, strengthening the internal control framework, risk management and anti-financial crime. We will also improve the management of emerging risks in the new economic and geopolitical environment. Slide 69, we are the most resilient bank in Europe, also demonstrated by the EBA stress test. Slide 71. We will invest heavily in the development of our people. We will scale up capability building and we will push connecting with -- connectivity within the group. As you can see in Slide 72, we will also further promote our group culture and enhance welfare at group level. Slide 73. We will continue to be the #1 bank in the world for social impact with an additional EUR 1 billion contribution to support people in need, fight poverty and reduce inequalities. We will also support clients in the sustainable transition by allocating 30% of total medium-long term new lending to sustainable financing. We confirm our commitments to decarbonization and will continue our commitment to preserving and promoting our cultural heritage, while fostering innovation. In the next slides, you can see more details about our initiatives. We can go to Slide 79 for final remarks before we take your questions. 79. To sum up, our strategy for the next 4 years is based on three key pillars, all enabled by our people, structural cost reduction, conservative revenue growth and low cost of risk. Slide 80, this plan, free from execution risk, translates into a net income above EUR 11.5 billion, giving us a sustainable return on equity above 20% and strong growth in earnings per share and dividend per share, all of this while leveraging our strong growth potential, distributing EUR 50 billion of capital to shareholders and maintaining a rock solid capital base and a very low risk profile. Slide 81, as mentioned earlier, our new business plan will generate benefits with an almost EUR 500 billion contribution to our stakeholders. So today, we covered a lot of ground this morning, and it was important to go into details so that you can see exactly why we are unique and how we will execute this strategy. So this is a plan based on a bottom-up approach, and I think that we will overdeliver the plan. At the core of this strategy is value creation and distribution, guided by a strong sense of purpose. Year-after-year, we have demonstrated our ability to deliver our targets even in a challenging environment. So thank you for your patience. And now let's move to your questions. Operator: [Operator Instructions] We will now take the first question from the line of Antonio Reale from Bank of America. Antonio Reale: It's Antonio from Bank of America. I have two questions, please. The first one, if I may. It's on the vision you have for Intesa Sanpaolo. I think, I mean, you and the country are at a strategic turn, at least in my view. And if I look at your business on one hand, you're clearly -- Italy is a national champion and that's I think an undisputed statement, you generate a steady stream of income, and you have a return that is well in excess of the market growth rate. You can continue to defend that market position within Italy and continue to distribute almost all of your earnings in the form of cash, which is what you've been doing. Or you can have the ambition to add scale and export some of your products internationally, thinking about insurance, asset management. And I'm hearing you talk a little bit about both, some international expansion as well as at the same time, increasing dividends slightly. Interested to hear, sort of, your views here, especially in the context of the changes that are taking place in Italy. There were more headlines also over the weekend. So your views will be very, very helpful here. And my second question is on the NII bridge between '25 and '29. If you could just walk us through the moving parts? And maybe give us a sense of what your NII could look like also this year and next? And particularly related to that, when you think loan growth will be resuming in Italy? Carlo Messina: Thank you, Antonio. So, starting from the second question, then I will elaborate more on the first that was more strategic. On the first -- on the second question, our expectation on net interest income is that we will increase in 2026 in comparison to 2025. We still have roughly 20 basis points of reduction in terms of Euribor. So we will have a reduction in terms of contribution of markdown. But at the same time, the acceleration in the loan book, as I mentioned, we decided to decrease the strong acceleration that we are seeing in the loan book in the last quarter, because we want to be sure to be in a position to face the EUR 60 million of taxation coming from the new budget law. But at the same time, we have a lot of origination that is already in place for 2026. At the same time, the hedging facility will give us a strong contribution during 2026. So, we expect a growth in terms of net interest income in 2026 in comparison to 2025. Having said that, starting from 2027, we will have a flat Euribor in our assumption. Then in the forward, there could be also an increase in terms of Euribor, but we had a conservative approach, not considering a further benefit coming from increase in Euribor. And at the timing, we will have all the game that will be based on items relating on hedging facilities that will continue to bring positive on the net interest income, but also we will have the full impact of the growth in terms of loan and also deposits. Because at the timing, both these two areas will have a positive. That's the reason why in the growth of our total financial assets, you will not see only growth in terms of assets under management, that is, for sure, a priority, but also the increase in deposits will bring us strong contribution to revenues through increase in net interest income. So, my expectation is that we can have really a clear trend of strong acceleration, probably much higher that we have considered in our plan. So, I'm pretty positive on the evolution of net interest income and also of our ability to increase the loan book, both in Italy, in which in the assumption that we have in the plan, we have been, in my opinion, conservative. And in the international expansion in International Bank division and also in all the trend of growth that we have in the IMI Corporate Investment Banking divisions, they are operating in a very good way outside of Italy. And in my expectation, we can have further growth in terms of loan book. Then you see that we decided to change our attitude toward the consumer finance, so allowing increase not only in mortgages with individuals, but also in consumer finance. So my expectation is that also, net interest income will give positive surprise during the next business plan. Coming on the point of Italy and outside of Italy. So the possibility of defending our positioning and changing our view for the international. So in Italy, we are a clear leader, and any kind of combination that can happen also reading on the newspaper will not change our leadership. We have a strong leadership based on strong relation with our client base with our 100% product factories. So we will remain, by definition, the leader, and we will attack all the other players through the acquisition of private bankers and financial advisers in the market, and the hiring of global advisers will allow us to increase also the penetration in the exclusive segments in our country. So I'm not worried at all for the dynamics in the competitive landscape in the country. They will take a number of years to have some potential competitors for Intesa Sanpaolo, also, if we have the combination within other players not realized until today. But my view is that now it's a timing in which we have to accelerate also outside of Italy. Our International Bank divisions today, I want to consider them as Intesa Sanpaolo. Because until the previous plan, there was something like not part of the Intesa Sanpaolo Group, but like an entity separated by the group. Now there is the full integration. They will work with the same approach in terms of Digital Wealth Management & Protection approach. And if you see the dynamic of commissions in 2025, you have the clear evidence that also these divisions will bring us a very positive trend in terms of fee and commissions, and the acceleration will be based on our Wealth Management & Protection models, so reinforcing the advisory, but also recruiting a Fideuram equivalent financial advisers team. And so this -- for a significant number, you see that we are talking about more than 1,000 people. So, we are now changing the approach, and this portion of the group is part of clearly Intesa Sanpaolo. So we're not -- we will not have more Italy and outside of Italy. We will have Intesa Sanpaolo in all the countries in which we operate. Understanding this approach, we are now considering that in the Eurozone, you do not need to make acquisition of banks, especially if you enter into fighting in the country in which you make the acquisition, but it is much better to leverage on branches that you have, especially if you are able to create, moving from corporate into private banking and retail activity, if you created a specific technological system upgrading and cloud-based like isytech. In 2027, we will have isytech and Isybank, because isytech is a system of Isybank, but also the system of Intesa Sanpaolo. And if you have a branch outside of Italy, like in Germany, in France and Spain, you have, by definition, Isybank Wealth Management in the country through the branch. And this will allow us to have a clear state-of-the-art company that can operate in Wealth Management. What we need is to increase, obviously, the financial advisory team. So, we will recruit a significant number of people in this sector. This is a clear project like we made in the past in our delivery machine. So, we started in saying, we will be a leader in Wealth Management. We will reduce to zero the non-performing loans. We will have the system based on cloud through investments like no other in Europe. Now we want to create a new way of entering into market like a challenger bank, but with the strong ability and the strength of an incumbent in a country in which Wealth Management is, by definition, a point of strength, and we have product factories. We are working with our insurance company in order to be ready to have products for health and house like in Italy, in which in some years, we are today with Unipol, the leader into -- in this market. And at the same time, through this isytech evolution for 2027, we will have ready for the branches outside of Italy, a best-in-class technological unit that could be considered a branch or an Isybank Wealth Management in the country. And with agreement with best-in-class players, and we hope to have further agreement with players like BlackRock and the other big player in the market. We can create something that could be very important for the medium-term value of the organization. So, we are moving into a strategic usage of technology in the Eurozone. And our target is today to work to create a project that can allow us to have strong presence in Germany, France and Spain in Wealth Management, Protection & Advisory activity. And I think that this will be a clear priority for the new business plan. So, technology and the ability to have a Wealth Management & Protection, in my opinion, will lead us in a clear diversification approach, not paying goodwill to other players through acquisition in the markets outside of Italy. Operator: We will now take the next question from the line of Ignacio Ulargui from BNP Paribas. Ignacio Ulargui: I have two questions, if I may. The first one is coming back a bit to the target growth of deposits that you were mentioning before, Carlo, on the Italian side. I mean, how do you see the growth of deposits and the speed of conversion of the deposits into asset under management that we have discussed in previous calls? And the second one, looking to the cost. If I just look to the inflation that you are targeting. You're targeting like around 2.5% inflation. Should that be the level of savings that we are getting, not -- I mean, shouldn't be inflation a bit higher in the context that we are telling in Europe and with the expansion that you are targeting in terms of growth in financial advisers? Carlo Messina: So in terms of cost, the inflation of 2% is what we have considered, looking at the most important forecast, but all the dynamics of cost is based on actions. So, we considered the inflection as the trigger point in order to have the inertial trend of cost base, but we don't have any kind of impact coming from this in all directions, especially all actions related to acquisition of people within the business plan. Just the cost, on the cost side, what I can tell you is that we have been really conservative. We have a lot of contingency plan, because all the migration to the cloud and the possibility to close the mainframe will allow us to have a further cost reduction and a portion of this, so EUR 200 million, we decided to devote to the Isywealth Europe project. But we still remain with the potential of further reduction. We will check during the plan, because we will have the clear evidence only when we'll have the migration of the most important part of the segment that is the one related with the Wealth Management in 2027. But my expectation is that we can exceed our expectation in terms of cost reduction and also when we will have the second phase on the corporate activity in 2028 to 2029, we will create further room for reduction in these 2 years and also in the medium term. Looking at deposits, what I can tell you is that the majority of the growth in assets under management was derived by conversion of assets under administration. So we consider in this -- with this plan, deposit strategic like assets under management, just to make it easy. Then obviously, asset under management has a clear priority for us in terms of business model. But when we talk about Wealth Management Protection & Advisory for us, in Wealth Management, we consider also the deposit base, because at this level of Euribor, deposit can have a profitability equivalent to the asset under management product. So for us, what it is very important is to have clients with us to maintain the strong relations that we have with our client base and also the acquisition of new volumes coming from existing clients that have deposits or assets under management with other players or the acquisition of private bankers or financial advisers that can bring us further volumes, but not only in terms of asset under management, but also in terms of deposits. So deposits remain a clear strategic priority in the plan that we have considered a growth that is more in line with the GDP growth, with a nominal GDP growth. But in my expectation, probably we can also have an acceleration in terms of deposit growth. Operator: We will now take the next question from the line of Delphine Lee from JPMorgan. Delphine Lee: Thanks for the comprehensive business plan presentation. I just have two questions. So first of all, just wanted to come back on net interest income following up on previous questions. So if you look at your assumption of, sort of, NII growth, it looks pretty much in line with the loan growth assumption. So it seems to imply the replicating income contribution have some benefit in '26, but quite limited post -- well, from '27 onwards? Just checking if this is correct. Second question is on distribution. So you mentioned you are going to reevaluate additional payout on top of the 95% from '27. So, I assume this is from fiscal year '27. I'm just wondering why you could not do that maybe already for fiscal year '26 or a little bit earlier? Carlo Messina: So, let me start from net interest income, and then I will elaborate on distribution. Because on distribution, I have to make a clear reference in 2027 to our projects of expansion in terms of Isywealth Europe. So in terms of net interest income, in 2026, we will have a clear strong contribution by the [ XME ] facilities, that we will have a strong contribution also from financial securities portfolio. So if you want to make a clear indication of the drivers for 2026, and we will have a strong contribution coming from the loan growth. So in terms of volumes. Deposits, will remain point, the full amount of deposits. So the combination of volume and markdown will be the negative driver of the net interest income coming in 2026 in comparison with 2025, because the first 6 months of 2025 were very positive. And so in comparison, in this area, we will have a negative. But the combination of these effects will bring us to have a growth in terms of net interest income. And then we will have a clear acceleration, because we remain with strong contribution from hedging facility from security portfolio and the timing, loan book will accelerate and will bring a positive trend, but also the growth in terms of deposits will not have more -- the negative coming from the markdown trend, and this will allow us in terms of comparative dynamics in 2027, in comparison with 2026 will allow us to have a strong acceleration. I have to tell you that in the plan, we decided to put a number that is conservative in comparison with what we have in our final figures for the plan, because we want to remain with what we have called, no execution risk in the plan. But the reality is that the net interest income implied in what we have as a potential looking at the growth of the loan book deposits and the hedging facility is much higher than we have considered in the plan. Delphine Lee: Understood. And on the distribution? Carlo Messina: Sorry, on the distribution, so the additional payout will be considered year-by-year starting from 2027 because in 2027, we will have completed the migration on the Wealth Management portion of the isytech system. At the timing, we will have the possibility. In the meantime, we will start during 2026 in selecting financial advisers networks in the different countries in the Central Eastern Europe for the project of international banks and in Germany, France and Spain, but I want to start with Germany as a country, which we can make this analysis. And the timing, we will have a clear view on possibility of making acquisition of network of financial adviser or insurance agents, and we will see what will be the real trend in terms of potential acquisition of this player. For the timing, we will have also a clear understanding of what today is a project because, as I told, we have no revenues embedded in this project. And in my view, it is the clear most important strategic project of the business plan. But if we have a clear potential of increasing significantly revenues for the group, creating ROE that could be much higher than the capital that we can distribute, we will use this for the growth in this sector. So this is the real point of 2027. We will see, we have a lot of room in capital, because also in capital position, we have been conservative in the trend of estimates of our common equity Tier 1 ratio, we will see what can happen. But please do not forget that 2027 linked with technology. So with the technology improvement of isytech will be a very important year for the group, because we will have the possibility to set all the optionality in terms of Wealth Management growth through hiring or acquisition of financial adviser networks that will bring us at the scale of the European level in terms of Wealth Management. Today, we are already in terms of dimension. In the first slide -- in the second slide of the plan in which we demonstrate in the final figures related to what we realized in the plan starting from EUR 900 billion of Wealth Management, financial customer, financial assets, and now we are at EUR 1.5 trillion. We made an incredible job in this, being today one of the leader in Wealth Management in Europe, but we are mainly concentrated in Italy. What we want is to move into a different approach based mainly on organic growth, so leveraging on technology as a strategic tool and on our ability to be a leader in Wealth Management. But we cannot exclude also to make acquisition of network of financial advisers during the period of the business plan. So 2027 will allow us to better understand this point. Operator: We will now take the next question from the line of Sofie Peterzens from Goldman Sachs. Sofie Caroline Peterzens: Here is Sofie from Goldman Sachs. Just my first question would be on the fee income guidance that you give a 3.8% CAGR. In 2025, you had 6% fee growth and kind of, if you look at the volumes that you're looking to grow AUM, it's over 4%. So, why not be more ambitious on the fee income guidance, especially your push for P&C and also Wealth Management. So maybe if you could just talk about the upside risk, the fee guidance? And then my second question would be around kind of the having a zero NPL strategy. What's the rationale for this? Wouldn't it make sense to take a little bit more risk, do a little bit more higher risk lending? Where do you want to kind of aim for zero NPLs? Isn't it better to kind of increase the risk appetite a little bit more, especially given that we have had a lot of deleveraging in Italy over the past decade? Carlo Messina: So, I will start from the second question. Because I used to be the CFO of this organization, and then the CEO during a very difficult period in which you had in Italy and in Europe, different phases of negative cycle, the COVID period. So the approach on the most important risk that the bank can have because you are today, all the analysts and investors are bullish on economy, on the trend of loan book, asking for increasing loan because this increased loans, this increased net interest income. And believe me, I'm used to manage crisis and difficult situation. And I can tell you that you never know what can happen in the future. And it is much better to be really on the safe side if you want to be a clear sustainable and medium-term value proposition for your shareholders. So that's the reason why I think that it is always much better to stay in a very conservative risk approach that's moving into a bullish approach that can be transformed in 1- or 2-year time is something that could be really dangerous. Having said that, the strategy of zero NPL is also made by the fact that apart from other players that are continuing to reduce the coverage of the non-performing loans, in reality, non-performing loans need to be covered. So you cannot avoid to make provisions during the different periods of the year. And so having a zero level of non-performing loans can allow you to have only provisions coming from the new inflows. So that's fundamental if you want to maintain a sustainable cost of risk apart from marketing activities. So if you want to be a real medium, long-term sustainable bank, not -- they can stay here for the next 12 months or 24 months, but you want to stay here forever, it is very important to be in the very safe side of the market. And this is the reason why we decided to move into a significant derisking, being today the best bank in Europe also looking at this level. Then obviously, we will accelerate in our loan book activity, but marginally, this will allow in case of negative to maintain a level of non-performing loans that was the level of the pre-derisking. So, I think that -- we had enough room to continue this strategy. Also, our risk appetite is moving into a more significant appetite also for something that we decided in the past not to do, so consumer finance, more lending at international level. So, we are moving into a different approach, but starting with an hedging that is the zero level of the non-performing loans. And remember that we decided not to use overlays and to maintain during the period of the plan, the amount of the overlay. So, we remain very conservative in terms of hedging in case of negative, but open to accelerate in terms of attitude of risk appetite, especially reinforcing the original to share activity that we are doing today in the Corporate Investment division and will be extended also in the Banca dei Territori divisions. So, looking at the second question, so on fee guidance, we decided to be also very conservative in terms of fee and commissions. So if you look also the amount of growth in terms of assets under management, it's equivalent to the EUR 100 billion of what we have already selected in the past as area of amount that can be converted. In reality, the amount is much higher in comparison to the first point, because we have a significant portion of the asset under administration that today is capital positive, capital gain positive. And this will allow us, if it is the case, to make a further conversion into asset under management product. For the time being, looking at our business plan, we do not need to make further acceleration. And we have also considered a very conservative approach also in terms of pricing. So, we decided to reduce also the unit pricing for the asset under management product, and this will allow us to be in a very conservative side of the plan. And it is also related with the fact that we have considered also in the title, with no execution risk. Operator: We will now take the next question from the line of Andrea Filtri from Mediobanca. Andrea Filtri: The first is on capital. Why has the minimum CET1 ratio increased by 50 basis points to 12.5%? And the second, 2029 should see the launch of the digital euro. What assumptions have you made on the impact of digital euro revenues and costs? Carlo Messina: On digital euro, we do not see a significant amount of contingency to be placed in the plan. So we think that at the end, this will be something that will have an important role in terms of strategic geopolitical position, but ECB will move in order not to create any kind of stress for the banking sector. Looking at capital, just because we decided to move into a dividend policy that has changed because from a substantial point of view, we have used in the past the ability to consider each year with the Board of Directors, the possibility to pay a share buyback. And now having a dividend policy in which it is clear that we will pay cash dividend and share buyback, we decided to move into a different approach also in terms of common equity to be sure also in relation with the Board of Directors and the supervisor that the minimum level can be increased, but the dividend policy at the same time could be really significant. And with a strong correlation, with our very low risk profile and also our very sustainable cash flow generation because today, we are probably the bank that has the clear sustainability of cash flow for the future. So that's the reason why. Operator: We will now take the next question from the line of Britta Schmidt from Autonomous Research. Britta Schmidt: I have a question on costs. Maybe you can give us a little bit more of a breakdown of the EUR 1.6 billion savings, the EUR 570 million in personnel, how much of that is incremental to the existing program? I think you also talked about some external savings but maybe you can give us a bit more of a breakdown. And then coming back to capital, there is a comment that also the 20% share buyback could be dependent on M&A. Am I interpreting this correctly? And maybe you can just give us a clarification as to what tax rate and increase in levies you've assumed both for 2026 and 2029? Carlo Messina: So on cost, we consider to have a reduction in the IT cost, in the real estate cost and in the administrative expenses, in marketing for the current activity in the country but an increase in marketing outside of Italy. And consultancy expenses will be reduced during the period of the plan due to the fact that a majority of the mainframe cost will be reduced during the plan. So the concentration is based on this area. At the same time, the reduction of people already realized, so something that we have already embedded in figures for 2026. And further, people that can leave the organization. These people are people that have already asked to leave the organization, the timing of the previous exit, we were not in a position to allow them to exit the bank. Now we are ready to consider also their will to be part of a story of retiring. And so that's something that we consider absolutely achievable. So personnel cost and administrative expenses mainly concentrated in IT, real estate and consultancy, these are the area in which you can have the most important reduction. Looking at capital, so distribution of capital. From a substantial point each year, when we decided to make the share buyback, we made a clear process that is the normal process in any organization in which you consider before proposing to your Board of Directors to make a share buyback that you have not better allocation for your capital. So that is the rule of the game in each Board of Directors. In all these years in which we presented the plan of share buyback, for each year for the authorization of the Board of Director, we presented also the potential optionality that we can have because we -- it is true that we do not M&A, but we are not in a position not to look and make analysis, and making analysis of M&A, there was no possibility, and this was something part of the decision that have a better allocation of capital. So moving from a substantial dividend policy into a formal dividend policy in which we have not only the cash dividend, but also the share buyback, having a formal process, you need to make the formal statement that you make all the analysis and in the end, you will decide that there will be no better allocation of capital to shareholders. So it's a normal phrase that you have in all the process related to the share buyback in all the organization. And especially when you have a price to book that is significant like all the other European banks today, but there is nothing strange in this approach. It is the usual one in a well-managed organization. The other part of levies, there is an increase related to Banca Progetto in comparison with 2025 that is in the range of EUR 30 million net income, and this will create conditions to have a spike in 2026. Operator: We will now take the next question from the line of Andrea Lisi from Equita. Andrea Lisi: The first one is trying to figure out the room of conservative divestment you adopted during the plan. In particular on capital, if do you assume any new SRT over the plan period or room from further optimizing the risk-weighted assets and capital? And related to P&L, I saw that you have indicated pretax profit of EUR 18 billion. You already indicated that you took some margins of prudence on NII fee and cost, but also below the pay tax line to arrive to EUR 11.5 billion. Can you tell us what you have assumed in order of other provision charges, levies and the tax rate as well, so to figure out if you were prudent there as well? The other question is on Isywealth, we've adopted one of the most interesting projects in the plan. So can -- just a clarification if the EUR 200 million you said that should be made as an addition of cost or that investment you made? And if your reality plan or have an idea of already starting to generate some revenues and contribution to NII before the end of the planned period? Carlo Messina: So the EUR 200 million are already included in the cost base of the plan. So that's the reason why I think that we have a really significant room in our cost base. These are already embedded in the cost base, because it is a project that I want to realize, and I will do all my best to realize this project that I consider really the strategic move for a group like us that wants to be sustainable for the future and doesn't want to make -- to put the shareholders in the condition, not to understand what could be your attitude towards the future, making a different allocation of capital. This is the clear trend of the bank. We want to allocate capital on this. We have already cost on this base. We will try to do our best as in the past to set a delivery machine to deliver on this point. We have technology, we have branches. It is the euro area, and there could be a clear interest. All the country in euros to have players like us that can invest in the country, hire people. I think that we can have also a positive welcome in these countries, especially because we will have a friendly approach and not a no-style approach. And so I think that this could be a very positive project for the future. We will work with clear key players in the country in order to be sure to have a friendly approach in all these countries. At the same time, looking at the P&L we had, as I told, different area of conservative approach, both on revenue and on cost side. But also on tax rate, we have considered a tax rate close to 32%. So we remain, in my opinion, in a very conservative side. And then we can have also extraordinary items that can compensate positive, that can be allocated also for further future growth. So today, the plan is all on the ordinary activity with also some degree of conservative approach also in the tax rate area. On risk-weighted assets, we will continue the optimization. We have further room. In the plan, it's already indicated that we have 30 basis points of benefit, but the benefit could be much higher in the next years. Operator: We will now take the next question from the line of Andrew Coombs from Citi. Andrew Coombs: Firstly, on net interest income. You've used a similar set of assumptions to what you used back in 2022. And by that, I mean you're assuming flat 1 month Euribor. If I go back to the 2022 plan, you did include a line where you talked about EUR 1 billion of incremental NII for every 50 basis points of rate hikes. So perhaps you could just touch upon what you think your NII sensitivity today is if you end up actually seeing the forward curve play out as opposed to flat Euribor? And then second question is coming back to M&A. I mean you've touched upon it specifically in the Wealth space. You've talked about plans to expand in Central and Eastern Europe and Spain and France and Germany. But when you're thinking about M&A, how do you weigh up the prospect of just hiring teams of relationship managers and hire agents that is actually acquiring a wealth business? What are the dynamics and the thought process that goes behind that? Carlo Messina: So, in terms of sensitivity, today, we have that for a spike of 50 basis points. We can have a move of EUR 300 million of increase in terms of net interest income. That's more or less what we can consider in terms of dynamic of net interest income. Looking at M&A, so we -- so our attitude, it is not that we are against M&A by definition. We are against the possibility of not creating value for shareholders. So for a bank like us, entering into -- and we do not like to make acquisition of minority stake just for the sake of increasing the total amount of net income through consolidation. So I think that the industrial part of the story of a bank is based on industrial actions, not on the hedge fund activity and investments. So my point is that if I'm in a position to increase in a sustainable way through the leveraging of technological improvement and through our ability to make Wealth Management, our ability to have product factories, our ability to hire Wealth Management, Financial Advisers, and we are able to do in Italy, we are able to do in Central Eastern Europe. And I think due to the reputation of the bank, we will be able also to do in countries different from Italy in which we have branches that are operating. And do not forget that in Germany, in France and in Spain, our Corporate Investment Banking division is a player. So the total amount of loans that we grant in the area is really significant. So, we are not a marginal player in the country. And we think that this can allow us to be considered a player like all the other if we are able, especially if there could be some people that can leave organization in Germany, in France and Spain, we can be ready to hire these people, creating a network of people. Then if it is not possible through the hiring of people, we are ready also to consider acquisition of financial advisers network. But my attitude is that if I can avoid to pay goodwill to other shareholders. So if it is possible to do something without paying a premium to other shareholders is the best for my shareholders. So my priority is not to make happy the shareholders of other players, it's to make happy my shareholders. So if I have the strength within my organization and if I have the ability, the people, the team and the reputation, I will do all the best to do this without making acquisition. Then if it is needed, because it is strategic for us to have this growth in terms of technological usage, strategic usage of technology, and because we made billions and billions of investments in order to create something that is state-of-the-art, we are ready to use also outside of Italy and using outside of Italy, if I'm ready to make acquisition of financial adviser would be the best solution. Otherwise, I will make acquisition of network of financial advisers. Today, we have nothing on the table because it is a project. So we have to make the screening to work in this country. That's the reason why we will take until the end of the migration on cloud, on the new technology of isytech, but we have enough time to be in a position to create a project that can work. In terms of revenues, we decided to put zero. Because it is really part of the conservative story of the plan in which we have the cost, but we have not the revenues. So I know that all the market today is really concentrated on the short term. So the amount of share buyback, the amount of dividends, the implication of all these M&A bubble that especially we have in Italy. But we couldn't care less of this situation. We work for the medium, long term. And this is the job of a CEO like me, and the job of 100,000 people working in Intesa Sanpaolo. That's all. Operator: We will now take the next question from the line of Noemi Peruch from Morgan Stanley. Noemi Peruch: I have two. One is a follow-up on fees. During the plan, most of the BTP Valore taken up post the rate hikes will expire. How do you consider this trend in your plan? Or could this allow for more upside risk to the plan targets? And my second question is on the strategy of isytech and Isywealth. What would be the differentiated proposition of Intesa to clients, especially in developed Europe? Carlo Messina: Sorry, I didn't understand your first question. Sorry, because the line was not very good, and I didn't understand your first question. So if you can repeat, please. Noemi Peruch: Sure. So during the plan, Most of the BTP Valore taken up post rate hikes will expire. How did you consider this trend in your plan? And could this allow for more upside risk to your targets? Carlo Messina: Okay. So this is a very important question. So that's a good point because we have a really significant amount of these assets under administration that are in the hands of our clients. There is not only the expiring portion, but there is also a capital gain embedded position of these that are an amount that can exceed the EUR 50 billion in our assets under administration. So it is really a significant portion. Our expectation in the plan, we have not considered the total conversion of these BTP Valore into products of assets under management. There is also a portion, let's say, 50% of this can be considered as a potential conversion, but it is not only in assets under management, but it is also a life insurance product, because it is more -- it is probably something similar to BTP for clients that can be risk adverse. And so that's the reason why we have also something that can increase in life insurance. But the point of the BTP Valore is a very important point in combination with a significant number, more than EUR 30 billion, EUR 40 billion of certificates that will expire during the period of the plan. So that's the reason why our approach today is really conservative in this point, because we have billion and billion of assets under administration that we expire during the period of the plan, or it is already today capital gain positive. On isytech, we are today, if you look at the comparison between Isybank and all the other digital players in the market, we are, by definition, best practice in all the different sectors of the mass market. We want to create the same approach in terms of usage of this platform like a digital bank but within a bank like Intesa Sanpaolo. And so we will facilitate the operation of all the Wealth Management clients with an acceleration of timing, the possibility to choose a product with an easy approach. And we have already within the group, a company that is Fideuram Direct that is doing this job in Belgium and Switzerland, with an agreement with BlackRock. So it's something that already is a very important player with us in this area. But we think that isytech is a clear evolution also, what we can do in terms of proposal for clients in Fideuram Direct, isytech would be really the best-in-class system for the management of Wealth Management. Then we can add also the proposal of Aladdin in terms of proposal to our clients. So we think that we can set a number of proposals to international clients that could be best practice also outside of Italy. Operator: We will now take the next question from the line of Hugo Cruz from KBW. Hugo Moniz Marques Da Cruz: Just three questions. One, on the NII, the hedging facility contribution, if you could give a little bit more color, is it going to be a linear improvement year-on-year? What is the front book yield you're assuming in the plan for the rollover of the hedging facility? Second question on operating costs. What will be the shape in the plan? Are the savings more backloaded or not? And third, how do you avoid the risk of cannibalization between Banca dei Territori Advisory Network and Fideuram? You're getting -- you're becoming so big. How do you do prevent that risk? Carlo Messina: So starting from the last question. So cannibalization of the segment are completely different because the two areas are with a specific indication of what would be the clients in each division. So I do not see any kind of cannibalization. There could be clear usage of best practice within the organization and the reinforcement of global advisers within the Banca dei Territori. So I think that at the end, we will have Banca dei Territori with global adviser and relationship managers. Private Banking division with financial advisers and private bankers, but with specific clients for each division. And all these will be used also as best practice in the international bank division. And hopefully, in my expectation, through Isywealth also outside of Italy in countries in which we have branches. Looking at operating cost, we made, in managerial actions, we can call, in 2025 in the range of EUR 50 million that will be something that made an anticipation of cost in 2025 that we, in any case, could have been placed in 2026. So this is the amount of cost that being front-loaded in 2025. Then it is clear that looking at the evolution of isytech and the possibility to make write-offs of procedures related to mainframe, we will have the possibility to make further write-off, creating condition to have a reduction of costs during the next years. In terms of aging facility, we have a contribution in 2026. That would be an increase of EUR 500 million, between EUR 450 million, EUR 500 million, then moving into EUR 300 million per year during the next years. Operator: We will now take the next question from the line of Ignacio Cerezo from UBS. Ignacio Cerezo Olmos: I've got three short ones, hopefully. First one is on the fees. So the 4% blended fee breakdown, if you can give us a bit of color on the disaggregation of that number between commercial banking fees and market fees? The second one is within the market fees, if you're allowing for a decline of the placement component? Or do you think that is a sustainable part of the fee number? And the third one is, if you can share with us what kind of market performance are you assuming to back the 4% AUM growth per annum revenue? Carlo Messina: The performance is really limited, so 1%. So we have been really conservative also in terms of market performance in terms of volumes. Then in terms of performance fee, there is an amount that is below EUR 100 million per year, so it's very limited. In terms of component of fees, commercial fees, we move between 2% and 3% during the period of the plan. So again, in my expectation, this include also the corporate investment banking fees that will accelerate, in my opinion, in a significant way. In terms of the other component related to Wealth Management, we will have a trend of gross inflows that would be in the range of EUR 150 billion per year. So that's more or less the amount of increase that we will have in commission deriving from volumes. And in terms of net inflows could be between EUR 50 billion and EUR 20 billion depending by the years. What we will have through this significant action that we made in Banca dei Territori is a significant increase of 360 degrees Valore Insieme that could be an accelerator of commissions within the -- all the group. But again, then we decided to make a reduction in terms of pricing. So bringing to something that both in terms of volume and pricing, in my view, is conservative. Operator: We will now take the next question from the line of Giovanni Razzoli from Deutsche Bank. Giovanni Razzoli: I have just one question, which is about the operating leverage that you have on your EUR 200 million investment to scale up your international presence. I was wondering how much of operating leverage you do have on these initiatives. So if the success of this initiative were to exceed your expectations, shall we expect progressive acceleration of those investments and costs going forward? Or can you leverage on your tech spin to exploit the acceleration of revenues with no major increase in the cost? Carlo Messina: So, we will accelerate these figures. So that's for sure. But in any case, our expectation is to use the reserves that we have in the cost base, so maintaining the total amount of cost more or less in line. Then we will see depending on what could be the real acceleration. But theoretically, we have enough room to accelerate this process to increasing the amount of cost devoted without changing the total amount of costs that we have considered for 2029. Operator: We will now take the next question from Fabrizio Bernardi from Intermonte. Fabrizio Bernardi: [Foreign Language] I am Fabrizio with Intermonte. I heard you talking about Fideuram Wealth Management, asset management many times. So my question is not on the state cost-income ratio or tax ratio. My question is that if you believe that we should change our mind about how to value Intesa Sanpaolo. So from a commercial bank to a player that is well involved in asset management, so technically with higher multiples? Carlo Messina: So I think that the first point is that we consider -- so then obviously, investors and analysts can make their own evaluation. But if you want my personal view on my organization is that today, we are a technological company. So that's my first point. So, we are ready to be really a clear technological player in the market using technology, so using the strategy embedded, the potential strategy that technology can give you, we can do something that other players cannot do. So moving into different countries, to branches, euro area. So with, I think, a very positive approach from the local government and player to increase the presence, to make investments, to be a clear player in the market. Then obviously, this will be made in sectors in which we are a leader in which we consider that we have the winning business model that is Wealth Management Protection & Advisory. So asset under management will be a strategic part of this job, but also Property & Casualties business, because we think that through a proposal in health and houses, we can also increase our penetration outside of Italy starting from 2027. Fabrizio Bernardi: If I can follow up regarding something else, like the, let's say, the link between Monte di Paschi and Banca Generali. Is this a key point for you or no? I mean, is this a clear competitor that can create some problems or not? Carlo Messina: So we do not see any kind of problem coming from the combination of Monte Paschi di Siena in their ability to have an approach with Banca Generali or the full group Generali. I think that our dimension in Italy is relevant for us. And also I think that there is today an overestimation of the potential of dimension of Generali in Italy, Generali is not only in Italy. In Italy, the dimension of Generali is comparable with the one of BPM in terms of presence. So, in terms of the -- as soon as we talk about Generali -- it enters into a rebound, okay? So, I was telling that Generali is a clear best practice player in terms of insurance business. But in terms of asset under management in Italy, I think the dimension is not different from the one of BPM. And so the possibility with Monte Paschi di Siena, they can accelerate the placement of the insurance product. But again, do not forget that the #1 player in Italy also in terms of life reserve, life insurance reserve is Intesa Sanpaolo, not Generali. And in terms of new premium Generali is the one, the first in terms of life premium, and Intesa Sanpaolo is a second one. So, I have to tell you that from this linkage between Monte Paschi and Generali, I don't see any kind of threats. I hope that there could be a clear, more relaxed approach between the different players involved in the saga, in the past of these M&A sector for 2025. But then as I told in the other answer, we are pretty happy to be part of a completely different story. We are on a different planet and our expansion will be outside of Italy. Thank you. Operator: I would now like to turn the conference back to Mr. Carlo Messina for closing remarks. Carlo Messina: I want just to stress the point of the correlation between technology and Wealth Management. I think that probably, I will use the next month in order to explain better the combination that we see between the strong investments that we made in technology and the potential of growth that we have in terms of Wealth Management & Protection. My strategic view for the market is that branches and acquisition of branches or acquisition of bank with branches will lose a lot of value for the future in the next 5 years' time. And what is really the winning business model is to work in terms of Wealth Management & Protection, using people within the organization, creating the sense of being proud of being part of an organization of success, but using technology in favor of people within the organization. Having said that, technology will allow us to increase our presence also outside of Italy and the strong capital base that we have, the strong synergies that we will create in terms of cost base will allow us to have significant amount of money that we can invest in expansion in other countries in Europe leveraging on our strengths. So that's what I see for the future of the bank, and I think that we are a unique case in Europe. And also the fact that we decided to reduce in a significant way the non-performing loans is based on the clear view that a bank that can be a leader in terms of Wealth Management and Technology cannot have a significant amount of non-performing loans. So zero non-performing loan is also a precondition to be a clear leader in a market in which we want to enter, starting from the point that we are a zero bad loan bank. And please compare us with all the players that you have in your country because all the players will have non-performing loans much higher than Intesa Sanpaolo. And so starting point is, we have an approach that is less risky than the other player. And we are a Wealth Management leader, Technological leader, and we want to play a game also outside of Italy, but not paying goodwill to other shareholders. So thank you very much. Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.
Operator: Ladies and gentlemen, welcome to the Julius Bär 2025 Full Year Results Presentation for media and analysts. I am Sandra, the Chorus Call operator. [Operator Instructions] The conference is being recorded. The presentation will be followed by a Q&A session. [Operator Instructions] The conference must not be recorded for publication or broadcast. At this time, it is my pleasure to hand over to Alexander van Leeuwen, Head of Investor Relations. Please go ahead, sir. Alexander van Leeuwen: Good morning, everyone. Welcome to the Julius Bär Full Year Results Call. I am Alex van Leeuwen, Head of Investor Relations. We are joined today by our CEO, Stefan Bollinger and CFO, Evie Kostakis. Today, in addition to the financial results presented by Evie, Stefan will also provide an update on the execution of our strategy as promised back in June. Before starting, I would like to flag the important information provided on Slide 2 of the presentation. It's now my pleasure to hand over to Stefan for his introductory remarks. Stefan Bollinger: Thank you, Alex, and good morning, everyone. Thank you for dialing in for this full year results call and update on our strategy execution. Let me start by giving you my take on our 2025 results. Overall, 2025 was a good year with a strong underlying financial performance. It was also an important transition year for us as we redefined our strategy and started our transformation journey. And with all our efforts so far, I'm pleased that we are back to solid foundations with a positive execution momentum to deliver our midterm targets. First, a few comments on business performance. We're happy to report record high assets under management of more than CHF 520 billion, underpinned by solid net new money of CHF 14.4 billion, and that despite our ongoing derisking efforts. This further solidifies our position as the largest independent wealth manager internationally. On an underlying basis, operating income was up 6%, while costs were up only 1%, resulting in a 17% increase in pretax profit. Our underlying cost income ratio improved by a full 3 percentage points to 67.6%. This resulted in positive operating leverage for the first time since 2021. We also further bolstered our capital position with a CET1 capital ratio of 17.4%. Second, in 2025, we decisively addressed legacy issues and strengthened our foundations. We completed the credit review, upgraded our governance and renewed our leadership team. We also significantly simplified the organization, enhanced accountabilities and promoted disciplined entrepreneurship. And third, we successfully launched our new strategy and created great momentum in executing it. We empowered the organization front to back to fully focus on profitable growth, and we continue to improve operational efficiencies and advance on our technology priorities. We achieved what we planned for the year, and we are ready for the transformation ahead. I'll give you more color on the key milestones and the way forward a little later. And now I'd like to hand over to Evie for more details on the financials. Evie Kostakis: Thank you, Stefan, and good morning, everyone. As usual, before discussing the results, I'll start on Page 6 with an overview of some of the key market developments in 2025 that provide the backdrop and context to our results. In Swiss franc terms, despite the tariff shock in April, stock and bond markets were up by mid-single-digit percentages with the Swiss market outperforming global indices. And in terms of FX moves, I would highlight that the dollar weakened by 13% versus Swiss franc. We saw further rate cuts across the board with the Swiss National Bank reducing rates in the first half by another 50 basis points to 0 and the European Central Bank reducing the main refi rate by a further 100 basis points. The U.S. Fed kept its rates steadfastly unchanged in the first half, before reducing in three 25 basis point steps in the second half. The third set of graphs on the bottom left of the page shows that the shape of the key yield curves continued to normalize for European and Swiss rates throughout the year and the 1- to 5-year belly of the U.S. yield curve started to flatten again in the second half. Finally, stock market volatility saw a massive spike in early April after Liberation Day in the United States, but then swiftly normalized down to lower levels again during most of the rest of the year. Moving on to Slide 7, which shows assets under management up 5% to CHF 521 billion after having been down 3% in the first half as the positive effects of the CHF 14.4 billion haul in net new money and the CHF 57 billion uplift in markets were partly offset by the steep weakening of the dollar to the tune of CHF 38 billion as well as the sale and deconsolidation of our onshore Brazilian business in H1. Monthly average AUM, important for the margin calculations, grew by 7% year-on-year to CHF 499 billion, and total client assets, including assets under custody, were up 4% to CHF 614 billion. Proceeding to net new money on Slide 8. Against the backdrop of continued derisking of the client book, the net new money reached CHF 14.4 billion by year-end or just shy of 3% annualized, essentially in line with our guidance at the start of the year. In terms of regional contributions from key markets based on client domicile, I would highlight Asia, especially our key markets, Hong Kong, India, Singapore and Thailand, Western Europe with a strong contribution from the U.K. and Ireland, Germany and Iberia, and the Middle East, particularly the UAE. After releveraging came to a halt in the first half, there was an initial amount of releveraging in H2, adding 0.6 percentage points to the net new money pace in H2 and 0.3% for the full year. This marks the first year of client leverage coming back in earnest after 2021 and is consistent with the normalization of the shape of the yield curves we saw in the market backdrop slide. So now let's go to revenues on Slide 9. As a reminder, as of 2025, adjusted operating income now excludes M&A-related impacts, the same way we adjust on the expense side. On that adjusted basis, operating income was unchanged year-on-year at CHF 3.861 billion. However, as the comprehensive credit review led to a significant increase in loan loss allowances in 2025, excluding the resulting net credit losses from operating income would result in a more meaningful overview of the underlying revenue development. As a reminder, we announced a CHF 130 million increase in gross loan loss allowances in May, a further CHF 149 million in November for a total of CHF 279 million which after taking into account net recoveries at the end of the year was reduced to net credit losses for the year of CHF 213 million. If we strip out those CHF 213 million negative revenues in 2025, then the underlying operating income showed a year-on-year increase of 6% to almost CHF 4.073 billion. Looking at the revenue composition and starting from the largest contributor to our revenue base, we see that net commission and fee income was up 5% year-on-year to CHF 2.314 billion, largely driven by the year-on-year increase in average AUM. Moving beyond commission and fee income, we saw a CHF 252 million decline in net interest income being more than compensated for by CHF 326 million increase in net income from financial instruments or trading income. NII was strongly impacted by the year-on-year decrease in interest rates by a mix shift to lower interest rate Swiss franc-denominated loans and slightly smaller treasury bond portfolio, a weaker U.S. dollar and to a lesser extent, the further shrinking of the private debt portfolio, which is now virtually completely wound down. As a result, while deposit expense fell substantially by 22%, on the asset side, interest income on the loan portfolio decreased by 29% and interest income from the treasury portfolio fell by 11%, resulting in NII of CHF 125 million. Against that, net income from financial instruments at fair value through profit and loss improved by 25% to CHF 1.608 billion, essentially all on the back of a 51% rise in treasury swap income or quasi NII as we like to refer to it. This was the result of a 28% year-on-year increase in average swap volumes to CHF 27 billion as well as higher average spreads. While income related to structured products and FX trading initially grew in the first 4 months of 2025, especially during the market volatility spike following the liberation Day announcement in early April, it then normalized to lower levels in the remainder of the year. On Slide 10, we regrouped the IFRS revenue lines in an alternative way with the aim to better reflect the three key business drivers, i.e., recurring income, interest-driven income and activity-driven income. For the definitions on how we derive this alternative split from the IFRS view, please refer to the appendix, and I note that the treasury swap income figures we use are based on management accounts. What this alternative view shows clearly is how the CHF 252 million year-on-year decline in NII has indeed been more than compensated by CHF 358 million higher treasury swap income. In other words, what we call interest-driven income, which is the sum of accounting NII and treasury swap income, actually increased year-on-year by CHF 106 million or 10% to almost CHF 1.2 billion. Recurring income grew by 5% to over CHF 1.8 billion, while activity-driven income was unchanged at just over CHF 1 billion. On Slide 11, we show the same, but in gross margin terms. The slight 1 basis point decrease in underlying gross margin to 82 basis points is essentially the result of a small, almost 1 basis point increase in the interest-driven gross margin to 24 basis points. This was more than offset by a small, slightly more than 1 basis point decrease in the activity-driven gross margin to 21 basis points. The recurring gross margin remained at 37 basis points on a rounded basis. The exit gross margin in the last 2 months was 77 basis points, of which just over 37 basis points from recurring, slightly over 24 basis points from interest-driven income and around 15 basis points from activity-driven income, as client activity slowed down towards the end of the year from the more elevated levels seen in September and October. By the way, in the appendix, you can find an overview of the half year gross margin development, including on the basis of the IFRS revenue split. Now let's move on to operating expenses on Slide 12. While, as I showed earlier, underlying revenues were up 6% year-on-year, costs were up only 1% to CHF 2.808 billion, mainly driven by somewhat higher personnel expenses being largely offset by a decline in general expenses, partly as a result of internalizations of 184 formerly external staff. Costs include CHF 40 million cost-to-achieve related to this year's cost saving program, of which CHF 31 million in personnel restructuring costs compared to CHF 24 million included a year ago. Personnel costs increased by 4% to CHF 1.848 billion, in part due to a rise in incentive and performance-related costs, a small increase in pension fund-related expenses and the slightly higher severance payments. General expenses came down by 7% to CHF 714 million, while legal provisions and losses increased by CHF 12 million to CHF 56 million. Excluding provisions and losses, general expenses decreased by 9% to CHF 658 million, mainly on the back of stringent vendor management, leading to a reduction in consulting and legal fees and lower spend on external staff. Depreciation and amortization went up by 4% to CHF 246 million, following the rise in capitalized IT-related investments in recent years. As a result, the expense margin improved by 4 basis points year-on-year to 55 basis points and the underlying cost-to-income ratio by 3 percentage points to 68%. In other words, a satisfactory return to driving operating leverage in the business. As usual, we also show the approximate split of expenses by currency, and it is encouraging to see that despite the significant year-on-year strengthening of the Swiss franc, the share of Swiss franc denominated cost has actually come down year-over-year. The share is now 55%, whereas a year ago, it was 56%. The sensitivity to changes in the key FX rates is largely unchanged to what we showed last June. A 10% weakening of the dollar with ceteris paribus and not including any potential mitigating actions, impact our cost-to-income ratio by approximately 2 percentage points. On Slide 13, we provide some statistics on our now completed 2025 cost-saving program. As you may recall, last February, we announced we would extend the pre-existing program and aim to save another CHF 110 million gross in 2025. In the end, we overachieved on this by CHF 20 million and delivered CHF 130 million of gross cost savings on a run rate basis by the end of 2025, of which CHF 60 million were already reflected in the full year results. Furthermore, initially, we had budgeted around CHF 65 million of cost to achieve, whereas ultimately, we were able to limit that number down to CHF 40 million. And as a reminder, the main measures applied were the simplification of the organizational structure, the optimization of the front operating model as well as a significant reduction of non-personnel spend. And finally, just to reconfirm that in the strategy update, we also announced further structural efficiency improvements also for CHF 130 million with a phased implementation by 2028 and against estimated cost-to-achieve of around CHF 65 million. The incremental P&L benefit of these further measures will be back-end loaded as the cost-to-achieve will mostly be booked in '26 and '27 and the improvements realized mostly in '28. Slide 14 summarizes the profit development. IFRS net profit was impacted by the nonrecurring release of tax provisions in 2024, the increase in loan loss allowances following the completion of the credit review in '25 and the mostly noncash impact from the sale of Julius Bär Brazil earlier in 2025. But on an underlying basis, i.e., excluding M&A-related items and the net credit losses, it is pleasing to see meaningfully positive operating jaws with operating income up 6% and expenses up 1%, resulting in 17% year-on-year increase in underlying pretax profit to CHF 1.27 billion, and the underlying pretax margin improving by 2 basis points to 25 basis points. As the tax rate normalized from 2.9 percentage points in 2024 to 17.2%, underlying net profit was just CHF 1 million higher at CHF 1.05 billion. Due to a very significant buildup in capital, as we will see a few slides later, return on CET1 on this basis was 28% compared to 32% a year ago. Our forward tax guidance for the new strategic cycle is unchanged at between 18% and 20% and takes into account the currently expected impact of the implementation of the OECD minimum tax rate in different jurisdictions. On to the balance sheet on the next slide. Our balance sheet remains highly liquid with a loan-to-deposit ratio of 62% and one of the highest liquidity coverage ratios in Europe at 261%. As a large portion of the balance sheet are denominated in dollars, the year-to-date weakening of the dollar against the Swiss franc had a meaningful impact on how those balance sheet items developed in Swiss franc terms. For example, the loan book increased by 1% or CHF 0.5 billion to CHF 42.1 billion. But on an FX-neutral basis, the increase in loans was 5% or plus CHF 2.3 billion. And deposits declined by 3%, minus CHF 1.9 billion to CHF 66.8 billion. But on an FX-neutral basis, deposits actually increased by 3% or plus CHF 2 billion. Turning to the capital development on Slide 16. The Basel III final standard was fully implemented in Switzerland as of the 2025 financial year. And with this full implementation, the Swiss framework went significantly further than the ones currently applicable in, for example, the Eurozone, the United Kingdom and the United States. In the graph on this slide, we show for end of 2024, the CET1 capital ratio pro forma for Basel III final at 14.2%. And then the development from there to the 17.4% print at the end of 2025. CET1 capital grew by 10% to CHF 3.9 billion as the combined benefits of net profit generation and the continued OCI pull-to-par effect more than offset the impact of the dividend accrual. At the same time, risk-weighted assets decreased by 10% to CHF 22.7 billion, mainly on lower operational risk positions as the 2015 U.S. case dropped out of the calculation as well as lower credit risk positions, partly due to a decrease in the treasury portfolio and partly as a result of a further wind-down of the private debt loan book, which typically carries a risk weighting of 100%. So as a result, the CET1 capital ratio improved on a like-for-like basis by around 320 basis points to 17.4%, almost fully restoring capital levels to pre-Basel III final levels in the space of just 12 months. The risk density was 21% at the end of 2025. However, our risk density guidance for the new cycle is unchanged from the 22% to 24% range we gave in the June strategy update. In line with our dividend policy, where the dividend is the higher 50% of adjusted net profit or last year's dividend per share, the proposed dividend is unchanged at CHF 2.6 per share. And as we also discussed extensively last year, any additional capital distribution in the form of future buybacks remain subject to regulatory approvals from our home regulator, FINMA. We continue to have an active and constructive dialogue with them, but it is ultimately the regulators' time line. Finally, on Slide 17, a quick review of the development in the Tier 1 leverage ratio. As a result of the CET1 capital development and the net impact of the CHF 350 million AT1 call in June, and the $400 million A Tier 1 issuance in February, Tier 1 capital increased by 4% to CHF 5.5 billion. The leverage exposure increased by 3% to CHF 111 billion, basically in line with balance sheet growth. As a result, the Tier 1 leverage ratio was essentially unchanged at 4.9%, comfortably above the regulatory floor of 3%. With that, it is my pleasure to hand the microphone back to Stefan for an update on the strategy execution. Stefan Bollinger: Thank you, Evie. Let me start with a few comments on our financial results in the context of our 2026, '28 midterm targets. First, on net new money. Overall, there was positive momentum last year across all our regions and client segments. We aim to gradually improve the pace to 4% to 5% per annum by 2028. Second, on cost income ratio. We have made excellent progress last year with an improvement of over 300 basis points to 67.6%. We're starting our new strategic cycle with front-loaded investments for backloaded returns and remain committed to achieving a cost income ratio of below 67% by 2028. And third, on capital. We significantly improved our CET1 ratio to 17.4%. And given the capital generative nature of our business model, we reiterate our midterm target of a return on CET1 of above 30% with a 14% underpin. Overall, last year's results are a testament to the resilience of our franchise, the trust of our clients and the commitment of our people. This sets us well on course to achieve our midterm targets. Let's now look at 2025 in the context of our overall transformation journey. It was a crucial transition year for us. The focus was twofold. On one hand, to address pressure points and strengthen our foundations, and on the other hand, to define and start executing our new strategy. As I said in my introduction, we delivered on both of those objectives. To give you a few highlights. First, on strengthening foundations, we made significant progress in derisking. As part of that, we defined a new group risk appetite framework. We also upgraded our risk organization and carved out separate compliance function. And last but not least, we completed our credit book review, which allows us to turn the page and fully focus on our business. We enhanced our leadership structure with a smaller executive Board and the newly introduced global wealth management committee, including key leadership appointments. We also reinforced accountability and ownership across the bank by enhancing the first and second line of defense, introducing a new front operating model and the new compensation framework. Now on to strategy execution. We sharpened our high net worth and ultra high net worth client proposition, and we are launching a comprehensive growth agenda. More to come in a minute. On the cost and efficiency front, we implemented our cost program and overachieved the target set for 2025. And on technology, we launched the IT infrastructure renewal project in Switzerland and delivered on time our new global finance platform. Now looking ahead, let's talk about our new strategic cycle. This is what I believe matters most. It comes down to a few simple transformational imperatives. First, on profitable growth. It's about reviving our organic growth engine to our full potential. Second, on cost, the imperative is to instill everyday cost consciousness in everything we do. Third, on risk and compliance. It comes down to disciplined entrepreneurship fully in line with our core wealth management lane. On the technology front, it's about scaling and harmonizing our infrastructure to deliver the best digital experiences. And finally, it is critical to drive our culture transformation and promote performance and ownership. Over the last few months, we've been talking a lot about cost and risk. Today, I want to talk about growth. We have a comprehensive agenda which cover all the relevant dimensions: productivity, client propositions, product access and geographic footprint. And everyone has a role to play, regions, products and group functions. With everything we did last year, we have set the stage to execute on it. There are three main components driving that execution as we enter our new strategic cycle. First, it's about front productivity and growth mindset. We continue to operationalize our new front operating model, including processes and incentives. Under the umbrella of ease of doing business, we are streamlining processes supported by digital tools for relationship managers. A good example is the rollout of our new wealth navigator. And on the talent front, we're doubling down on internal mobility and career development programs. We are scaling up our associate relationship manager program and completed our first ever summer internship program. Second, on regional and product priorities, starting with our home market, Switzerland, we see significant further potential. It comes down to leveraging all the great capabilities and expertise we have on the ground and developing new client solutions tailored to local needs. Since the beginning of the year, we have strong leadership in place with Marc Blunier and Alain Kruger. On Region Asia, our second home market. This year marks the 20th anniversary of our local presence. We have a very strong position there and continue to grow, especially with ultra high net worth clients through our hubs in Singapore and Hong Kong. We are well positioned to also capture opportunities arising from a changing geopolitical landscape by leveraging our global scale, independence and Swiss heritage. An example is our Lat Am business, which delivered positive net new money for the first time in several years. And with the arrival of Antonio Murga to lead LatAm, we're looking forward to further grow this franchise. And now on products. Our new Global Products & Solutions unit as well as our independent CIO office are now fully operational and already creating tangible impact. We see strong traction on structured products with a significant increase in volumes. We're also expanding alternative investments and high-end advisory and discretionary mandates. Third, to deliver on our growth agenda, we need the regions, products and group functions to come together. To do so, we are launching a 3-year dedicated revenue and growth program to support execution and ensure focus on organic growth. We can't talk about growth without talking about clients. What we see is renewed energy, strong momentum and continuous engagement with our clients. It is clear when the regions, products and functions come together, we unlock the power of our franchise. I've seen this firsthand having personally met with more than 1,000 clients since I joined. In summary, our transformation is about striking the right balance across growth, cost and risk. On cost, we will further optimize our front-to-back operating model and simplify our processes and IT landscape. We'll also continue embedding cost consciousness and ownership in the day-to-day business. I'm convinced that our designated Chief Operating Officer, Jean Nabaa, with his track record in driving operational excellence will bring additional momentum to our efforts. On risk. We are just about to complete the rollout of our bank-wide culture and conduct awareness program. And our designated Chief Compliance Officer, Victoria McLean, will focus on operationalizing our new compliance function. Before we go into Q&A, let me reiterate my key takeaways. We have delivered a strong underlying performance, a testament to the strength of our franchise and overall transformation momentum. 2025 was a crucial transition year for us. We addressed legacy issues, strengthened our foundations and mobilized the organization around the execution of our strategy. We have a clear growth agenda focused on reviving our organic growth engine. We have a plan, we have momentum, and we are on track to achieving our midterm targets. With that, let's transition to Q&A. Operator: [Operator Instructions] Our first question comes from Amit Ranjan from JPMorgan. Amit Ranjan: The first one is on the dedicated 3-year revenue and growth program that you talked about, what are some of the key metrics that you are looking here to measure progress? And if you could also talk about the phasing of this? Is it mostly a 2028 measurement? Or there are some guideposts in between? And in that context, if you could please also talk about your net new money expectations for 2026 and adviser hiring expectations after the decline that we have seen in 2025? Evie Kostakis: Amit, thanks for the questions. Let me start with the second batch of questions on net new money and RM hiring. So first, on net new money. Last year, despite derisking and the year of, I would call it, transition, we were able to bring in CHF 14.4 billion of net new money or 2.9% on an annualized basis, pretty close to what we thought we would do and what we said we would do at the beginning of the year at 3%. When I look at 2026, we aim to do a bit better than that, but please do not forget that our midterm targets stipulate that we will gradually improve to the level of more than 4% by 2028. And then on the RM hiring front, last year, we hired 120 RMs on a gross basis. We intentionally shifted some of the hiring into early 2026 to align with both bonus cycles and onboarding readiness. You're right in that we did have a decrease in the net number of RMs. That's due to the sale of Brazil, the intensification of low performer management and natural attrition, so the net number ended up lower. However, we are planning to hire more than 150 RMs this year. And hiring momentum has picked up. In January, we saw 16 new RMs join with another 8 hires already signed. And as I said, we have the ambition to hire 150 plus this year, focused on our key strategic markets and always subject to strict quality criteria. I think we're quite confident in our ability to attract top talent. We've shown it again and again. We have a strong employer brand. We're dedicated to RM enablement, and I think people appreciate the performance-driven culture. Operator: The next question comes from Benjamin Caven-Roberts from Goldman Sachs. Benjamin Caven-Roberts: Just actually one for me, please, on the cost income. If you could talk a little about how you expect the cost income to develop into 2026. You mentioned the fact that there is the CHF 130 million of savings targeted with cost-to-achieve mostly front-loaded and savings largely back-end loaded. But I just wanted to check how should we think about progress on cost and efficiency there. Evie Kostakis: Good question, Ben, thank you, and good morning for the question. In the second -- I think we didn't answer Amit's second question. So Stefan, over to you. Stefan Bollinger: Yes. Amit, the revenue and growth program specifically addresses the organic growth dimension and provides a structural central framework for systematic sales management, pricing and product adoption, think discretion mandates, high-end advisory mandate, structured products, alternatives funds lending and so forth. If you think about how this is then going to play out, an obvious example is our existing seasoned RMs and giving them the tools to deliver growth. This will be a combination with the things I mentioned around products, but also ease of doing business is an important component of that. Evie Kostakis: And then going back to your question, what I would say is that based on an 80 basis point gross margin as an input factor and assuming the other key input factors provided at the strategy update in June, including reasonably normal market performance, AUM and no big change to the initial input factor of a dollar exchange rate at spot rate, we would from today's perspective expect to land at levels slightly higher than 2025 underlying, on track towards our target of less than 67% by 2028. The non-steerable cost growth as shown in the cost-to-income ratio walk for the '26 to '28 cycle on the strategy update is more front loaded. You might recall that was around 6 percentage points. The benefits of the further efficiency improvement program will be more back ended in 2028, plus the cost-to-achieve needed to realize those improvements will be booked mostly in '26 and '27 and then fall away in '28. And therefore, the resulting net benefits will normally only start to come through in '27 and more fully, I would say, in '28. So in short, in the near term, overall, a slight upward pressure on the cost-to-income ratio and then a clear drop towards 67% or lower in 2028. And as a reminder, again, this is based on an input factor of 80 basis points gross margin and a USD 0.80 exchange rate against the Swiss franc, and we're already about 4% weaker than that right now. Operator: The next question comes from Anke Reingen from RBC. Anke Reingen: Just one, please. Just on the buyback. Basically, your commentary says it's for FINMA to decide on the share buyback. Sorry to be wanting to be precise on the words, but does that basically mean you requested for the buyback and you're just waiting for FINMA to confirm? And then secondly, on client releveraging, so you saw a bit more pickup in releveraging here. Do you think that's something that's going to continue into the start of the year, obviously, a function of markets? Or is it like not something we can extrapolate? Stefan Bollinger: Thanks, Anke. On the share buyback question, you may recall that in November, we talked about some conditions still to have to be in place, and we pointed out things like the Chief Compliance Officer only arriving at the end of this month. So we're not yet in a position to ask for a share buyback. Evie Kostakis: And on the second question, Anke, we were pleased to see releveraging come back in earnest to the tune of CHF 1.7 billion in 2025. This was -- we saw some releveraging, particularly in the low-yielding Swiss franc, including from clients in emerging markets and Asia, but also on the euro side as well, less on the dollar where rates remain still quite high. We don't know now with the appointment of the new Governor for the Federal Reserve, whether rates will come down faster on the U.S. dollar than we have expected. But if we continue to see yield curves normalize, and if we continue to see relatively benign market action, then I don't see any reason why we shouldn't see a continuation of releveraging. But just as a reminder, in terms of our midterm planning, we have factored in stable loan penetration at current levels of around 8%. Operator: The next question comes from Hubert Lam from Bank of America. Hubert Lam: I've got three questions. Firstly, on RMs, I saw that you gave us a guidance on the gross RM hires. But can you talk about RM attrition? Are you seeing more turnover there? Are there -- has there been any unwanted departures and you should expect more to come this year as -- once bonuses are paid and new incentive schemes are put in place? Second question is, can you give us also an update on the timing of the Swiss IT project, the time line, implementation and the cost around that? And lastly, I have a question around flows and derisking. Evie, I know you gave guidance for this year around flows, but does that imply also some further client derisking? Or is that process largely over last year? Evie Kostakis: Hubert, thanks for the questions. Let me start with the RMs. I mean we did have a net decrease in RMs, as I mentioned in Amit -- to Amit's question earlier on. That was, to some extent, a result of the intensification of local management that was part of the cost program. We also had some regular attrition as we do on a yearly basis. We had the sale of Brazil as well, where 28 RMs left the platform. So I would say that last year was indeed a year of decline in RMs. But in our planning, we are factoring in a slight increase of RMs year-on-year from '26 to '28 going forward, including hiring about 150-plus RMs every year. On the IT project, time line, implementation and costs, as Stefan mentioned, we've embarked on this journey to replace our core infrastructure in Switzerland. We hope to do this in a time-boxed approach, so in the next 3 years, recognizing that there's always risks to delays and all the costs associated with that core infrastructure renewal are embedded in our cost-to-income ratio targets for 2028. And then I think your other question was on derisking. I mean, client risk management, as we have said in the past, is an ongoing exercise in wealth management, particularly as the geopolitical landscape evolves. So there will always be some client risk management that we do. And indeed, in the last couple of years, we've done more than you would do on a usual basis. As I said, we aim to do better than last year in terms of net new money this year and to gradually improve our net new money growth potential to 4% to 5% by 2028. Operator: The next question comes from Benjamin Goy from Deutsche Bank. Benjamin Goy: Two questions please from my side. So first on Asia, trends look actually very positive. So maybe you can comment a bit specifically on this important region for you. And then secondly, your cost/income ratio, as you mentioned, made significant progress in '25, and it was also better than expected. Clearly, there were some headwinds like currency. Nevertheless, just trying to understand where did you overperform versus initial expectations. Evie Kostakis: I'll take the cost/income ratio question. So I think we had said at the November IMS that we expected to land the year at less than 69% on an underlying basis. We ended up doing a little bit better than that. We ended at 67.6%. There was a pickup though in costs. So I think November to December, the cost-to-income ratio was around 75%. There are some seasonal costs that came in. They were just a little bit less than what we expected. So I would say that it's mostly a cost-driven beat compared to that initial guidance. Then Stefan, do you want to take the Asia question? Stefan Bollinger: Sure. Look, in Asia, we had a strong year, and I think there's a very positive momentum. As you know, there was a flurry of IPO activity, particularly in Hong Kong with over 100 IPOs last year. And in these IPOs, there's always a lockup period until clients actually get the liquidity, which will happen in the coming months and years, and this will bode extremely well for our business. And I feel we're very good, well positioned to capture those opportunities. Benjamin Goy: And do you see trading activity from clients improving as well? Evie Kostakis: I think -- I guess your question is what we've seen so far in January, right, with all the turmoil we've seen in the precious metals market. Benjamin Goy: Yes. Evie Kostakis: Well, indeed, we have seen a notable pickup in activity in January, as you would expect, given the turmoil in the markets. Operator: The next question is from Jeremy Sigee from BNP Paribas. Jeremy Sigee: These are both follow-ups actually. So the first one links to your last comment about transaction income. I just wanted to check, you mentioned the 80 bps sort of gross margin guideline or plan assumption. Are you still happy with that versus the exit rate that you mentioned, which was lower? Is 80 bps still a reasonable expectation? And then second clarification, again, on the adviser numbers, you said that on a net basis, you're expecting slight increases in RMs year-on-year in '26 onwards versus quite meaningful gross hires. So by implication, you're assuming quite chunky attrition or performance management of advisers. I just wanted to check that's the right understanding. Evie Kostakis: Jeremy, thanks for the question. Let me start with the second one. In 2025, we didn't indeed have higher overall attrition than we usually have on a year-on-year basis, and that was a result of all the factors that I discussed before. Of course, every year, we hire on a gross basis, but we also have some natural attrition. And that natural attrition is in the single digits percentage-wise on a normal basis. Then on the 80 basis points input factor, what I can say is that our recurring margin at 37 basis points is, I think, a pretty good starting point. It's going to be -- of course, we want to get that up, but it's going to be a slow grind towards 2028. Then assuming on interest-driven income, assuming stable balance sheet structure and stable AUM, we think 24 basis points is a reasonable assumption for interest-driven income. And then the hardest one to forecast always is activity-driven income. It was 15 basis points in November and December. For the half year, it was 19 basis points. For the full year, it was 21 basis points. In January, we've seen a strong start to the year. So I think that's kind of the piece that's the hardest one to forecast. Operator: The next question comes from Mate Nemes from UBS. Mate Nemes: I have two questions, please. The first one would be on net inflows. So it looks like in November, December, we've seen some acceleration from the July, October period. And given the derisking of client base, given the performance management in the RM side, you seem to be off set up actually for some acceleration in net new money in '26. I was just wondering, based on recent trends, where do you expect net new money to drive mainly the group numbers, where do you expect really good momentum in influence? That's the first question. The second question would be just a follow-up on the Sphere Swiss Core booking platform replacement and modernization. Could you give us a sense what part of the overall spending will be flowing through the P&L and what could be capitalized? Evie Kostakis: Thanks for the question. Let me start with the second one. Typically, we capitalize around 70% of our change the bank and expense the remainder. On net inflows, indeed, we did see an acceleration in November and December in that 2-month period, we annualized net new money at 3.2%. As I've said, I think, quite often in the past, the net new money is a very volatile time series. So you should not extrapolate any 2-month, 4-month or 1-month number. We do plan to do better than what we did in 2025 and 2026 and reiterate that we target a 4% to 5% increase by 2028. Operator: The next question comes from Stefan Stalmann from Autonomous. Stefan-Michael Stalmann: I have two, please. The first one on your new compensation framework. Could you maybe outline in general terms what has changed compared to the previous one? And maybe also if you had applied hypothetically this new compensation framework in 2025, would that resulted in higher or lower compensation expenses? And the second question on a regulatory topic. There's obviously quite a lot of debate in Switzerland, among others on the treatment of software assets in CET1 capital. And it now looks as if maybe the government is going to a potential outcome where there's partial deduction as opposed to full deduction on CET1. Would you expect that to actually have a benefit for you going forward? Stefan Bollinger: Thank you, Stefan. I would say on the compensation framework, the main purpose was twofold. First, to create accountability and ownership of the first line of defense and then make sure that they do the right thing from a risk point of view. Think about how we think about compensation for clients with higher reputational risk, more credit intensity and other things. And on the other hand, the revision of the compensation framework was done to incentivize our RMs to deliver organic growth. As you say, we are now going through this compensation cycle. And of course, time will tell what the results will be, but the early indications are very positive. Evie Kostakis: Stefan also from my side. I guess you're referring to the proposed amendment of the 2 big to fail regime. But let me remind you that's mainly directed to SIPs. As we aren't one, we do not expect any substantial impact on our regulatory capital and liquidity. We already treat software as an intangible asset. And consequently, we deducted from CET1 capital, as you know. Regarding DTAs, there's no tax loss carryforwards that we have remaining on the books as of today, which we -- which were previously deducted from capital. I would say our CET1 is, therefore, already of high quality. Operator: The next question comes from Nicholas Herman from Citi. Nicholas Herman: I have 3 questions left, please. Just firstly, on your targets, you said that you are firmly on track to achieve the 2028 or medium-term targets. Just curious, is that a reference to the much higher revenue power of the business on the back of higher AUM and strong markets last year? Or is it also a reference to the fact that you are ahead of your transformation process? Secondly, on risk density, other than deleveraging and maybe perhaps some increased investment into the treasury portfolio, are there any other factors expected to drive the risk density higher from here from 21% to the guidance of 22% to 24%? And then finally, on your swap volumes, I think you said CHF 27 billion, just curious how you expect that to trend from here, please? Evie Kostakis: Nick, thanks a lot for the questions. Let me start with the swap volume. So it was around CHF 27 billion in 2025, up from roughly around CHF 21 billion in 2024. That's primarily driven by our excess funding position primarily in dollar deposits. Sometimes there's some seasonality in that if we issue, for example, term deposit notes from our markets business. So I think you can sort of model how we think about that based on the 24 basis points interest-driven income guidance we've given and the interest rate sensitivity we show in the appendix of the presentation. On risk density, we do stick to our guidance of 22% to 24%. It's on the credit side of things, again, we're assuming stable lending penetration. So loan growth pretty much tracking AUM growth. Operational RWAs, we've had the big U.S. case drop out of the operational loss database at the end of 2025 and we don't see any other large cases dropping out before 2029. And then, of course, you have the markets RWA, which is more seasonally driven. So I think we stick to 22% to 24%. Yes, I would say that it's more likely to be closer to 22% than to 24%, particularly if you take into account the fact that we're also managing down the CHF 0.7 billion portfolio that we announced in IMS, which carries a higher risk density. Stefan Bollinger: And Nick, to your comment that we are firmly on track in terms of the midterm targets. What I was referring to is that when we announced our strategy last year in June, we still had a lot of wood to chop. We had to complete the credit review. We had to hire a new Chief Compliance Officer, implement a new risk appetite framework, new compensation framework and so forth. What I meant is that having made all these changes and entering our 2026, '28 strategic cycle, we feel very confident that we have made the changes necessary to have the right conditions to reach those targets. Operator: [Operator Instructions] The next question comes from Giulia Aurora Miotto from Morgan Stanley. Giulia Miotto: I have two. The first one, going back to the core banking system change in Switzerland. And when is the bulk of this project happening? So is it in '26 or '27? I'm referring to basically the migration of clients. When do you expect that to start? And then secondly, on the FINMA discussion, any color that you can share with us in terms of what FINMA is waiting for essentially? What are the next deliverables? And is there any time line? Would it be realistic to expect the second half of this year to see the end of this enforcement action? Evie Kostakis: On the second question, there's no migration of clients happening in '26 or '27, probably '28 if everything is on track. Stefan Bollinger: And on FINMA, look, we are just waiting for the enforcement proceeding to be completed and this thing can take time. I would say that our interaction with FINMA and all our other regulators is very active, proactive, transparent, and we feel we're making good progress. We will take a little bit more time. Operator: The next question comes from Nicolas Payen from Kepler Cheuvreux. Nicolas Payen: I have two questions, please. The first one would be on the credit recovery that we saw in H2. Just wondering if it's final or we should -- we could expect something more going forward? And then a follow-up on the net inflows contribution. Could we have the split between seasoned RM and newly hired RM, please? Evie Kostakis: Sorry, your second question was how many seasoned RMs versus RMs business case? Well... Nicolas Payen: Split regarding net inflows contribution between seasoned RMs and newly hired RMs, please? Evie Kostakis: Super. Thank you. So roughly about 70% of the net new money call came from RMs and business case with 30% coming from the seasoned RMs and RMs on business case represent roughly 31% of the population of RMs, which is the highest proportion of RMs on business case we've had in 6 years. So I think that bodes well at least for that portion of net new money generation in the coming quarters. And then on your question on credit recoveries, yes, the bulk of the credit recovery was from the 2023 largest private debt case. However, there were a few others. I would say that the vast majority of the 2023 case is already in the books. Operator: The last question comes from Tom Hallett from KBW. Thomas Hallett: Can you just remind us what your exposure to China is in terms of AUM and revenue, please? And then secondly, I'm just trying to reconcile the kind of strong performance in costs with your relatively downbeat assessment of the cost-income ratio. I was wondering if you could kind of bucket the moving parts in costs into kind of the underlying inflation rate, the cost saves and the investment rates and those related to compsn? Evie Kostakis: Tom, thanks a lot for the questions. Let me start with China first. So it's Chinese domicile clients are roughly more than 1/4 of our total AUM base. So you can make your assumptions on gross margin and work out revenues. This is something we don't disclose, obviously. The second point on cost-to-income ratio, you characterized as downbeat. I would not characterize it as downbeat. I would characterize it as realistic. So we said that some of the investments, the non-steerable investments that we talked about in the June strategy update will be front-loaded. And that was roughly 6% in cost-to-income ratio terms across the '26 to '28 cycle. Then we have non-steerable investments that will power the growth in terms of the revenue and growth program that were around 3.5 percentage points, leading to an uptick of 6 percentage points in terms of additional revenue and cost-to-income ratio terms for '26 to '28. What we said is that some of these non-steerable investments will be front-loaded in '26. And therefore, that's why we're giving realistic guidance on where we'll land on the cost-to-income ratio in '26. Stefan Bollinger: Just to clarify, our Asian assets are over a quarter, not just China. Operator: Ladies and gentlemen, that was the last question. I would now like to turn the conference back over to the management for any closing remarks. Stefan Bollinger: Thank you all very much for your engagement and your questions. Julius Bar is now stronger, simpler and fully focused on the future. We'll be back with our next update at the IMS in May. The IR team is available offline in case of further questions. Thank you all and have a great day. Operator: Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call, and thank you for participating in the conference. You may now disconnect your lines. Goodbye.
Operator: Ladies and gentlemen, thank you for standing by. Welcome to Twist Bioscience Fiscal 2026 First Quarter Financial Results Conference Call. At this time, participants are in a listen-only mode. After the speakers' presentation, there will be a question and answer session. To ask a question during the session, you would need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would like now to turn the conference over to Angela Bitting, Senior Vice President of Corporate Affairs. Please go ahead. Angela Bitting: Thank you, operator. Good morning, everyone. I would like to thank you for joining us for Twist Bioscience's conference call to review our fiscal 2026 first quarter financial results and business progress. We issued our financial results press release before the market, and it is available at our website at www.twistbioscience.com. With me on the call today are Dr. Emily Leproust, CEO and co-founder of Twist Bioscience Corporation, Adam Laponis, CFO of Twist Bioscience Corporation, and Dr. Patrick Finn, President and COO of Twist Bioscience Corporation. Today, we will discuss our business progress, financial and operational performance, as well as growth opportunities. We will then open the call for questions. We ask that you limit your questions to only one and then requeue as a courtesy to others on the call. This call is being recorded. The audio portion will be archived in the investor section of our website and will be available for two weeks. During today's presentation, we will make forward-looking statements within the meaning of the U.S. Federal securities laws. Forward-looking statements generally relate to future events or future or operating performance. Our expectations and beliefs regarding these matters may not materialize, and actual results in financial periods are subject to risks and uncertainties that could cause actual results to differ materially from those projected. These risks include those set forth in the press release we issued earlier today as well as those more fully described in our filings with the Securities and Exchange Commission. The forward-looking statements in this presentation are based on the information available to us as of the date hereof, and we disclaim any obligation to update any forward-looking statements except as required by law. We'll also discuss adjusted EBITDA, a financial measure that does not conform with generally accepted accounting principles. Information may be calculated differently than similar non-GAAP data presented by other companies. When reported, a reconciliation between GAAP and non-GAAP financial measures will be included in our earnings documents, which can be found on the Investors section of our website. With that, I will now turn the call over to our CEO and Co-Founder, Emily Leproust. Emily Leproust: Thank you, Angela, and good morning, everyone. Q1 provided a strong start to fiscal 2026 and extended the pattern of consistent growth, marking our twelfth consecutive quarter of revenue growth. This performance builds directly on the operating momentum established in fiscal 2025 and reflects trends that remain intact as we move through the year. Notably, over the last three years, we have delivered a revenue CAGR of 24% and increased margin by 20 percentage points on relatively flat OpEx, materially outpacing growth across much of the life science tool industry. We believe the combination of sustained growth and meaningful operational progress clearly differentiates Twist Bioscience Corporation within our peer group. Going back to basics, at Twist Bioscience Corporation, our strategy is simple and very deliberate. We built a semiconductor-based DNA synthesis platform that gives us a technology advantage that translates into speed, scale, quality, and affordability for our customers. Everything we do builds on this differentiated and foundational platform. As we load more volume onto our chip, having more customers with more products improves our financial performance, strengthens our competitive position, and extends our addressable markets. This quarter's results reflect that our model is working as intended and we are building for the opportunities we see that leverage our advantage to accelerate growth. Over the last several years, we have transformed Twist Bioscience Corporation into what we describe as an NPI machine. We consistently launched new products that sit on top of the same manufacturing infrastructure, allowing us to expand into new applications and customer workflows without adding risk or complexity. As a result, our estimated serviceable market has expanded from approximately $2 billion in 2020 to roughly $7 billion today, driven by our current portfolio of products and services. Based on our market growth and customer adoption patterns, we continue to see a clear path to more than $12 billion of addressable markets by 2030, with additional growth opportunities as we launch new products. Importantly, this SAM expansion is occurring while serving some of the most sophisticated customers in life sciences across therapeutics, diagnostics, and applied markets. These customers choose Twist Bioscience Corporation because we future-proof their supply chains and innovation to enable them to move faster at scale with confidence. Javier will dive deeper into one of the opportunities in the DNA synthesis and protein solutions group to detail how we are playing to win in the AI-enabled discovery market as it forms and scales in real-time. For our energy applications group, we see a serviceable market of over $3 billion, with about 10% market share today. Looking at our serviceable markets within this group, we expect a blended CAGR for the industry of approximately 20% across oncology and rare disease diagnostics, microarray, biopharma R&D, and academic markets. Keep in mind, our revenue for NGS comes both through direct sales and also partners who sell our panel and reagents under their brand. Importantly, we expect our growth to outpace industry levels as we leverage our engine and commercial intensity to outperform our peers. We expect to drive growth in NGS applications by expanding volumes with existing density customers as their testing scales, particularly in oncology where recurring testing supports sustained demand. In addition, we expect to add new customers in the diagnostic space. Twist Bioscience Corporation will also pursue market share gains by converting legacy microarray workflows to sequencing-based solutions in agrigenomics and propagation genetics. In biopharma R&D and academic research, growth will be driven by increased adoption of Twist Bioscience Corporation's multiomics portfolio and by expanding product offerings to support new applications and workflows. The key to our ongoing success is that over the last decade, we have built deep, long-standing customer relationships that give us clear insight into unmet needs and emerging demand. We tailor customer insight with our proprietary platform to consistently deliver a strong product roadmap and a disciplined cadence of commercial launches. About a year ago, we recognized the early formation of a new category in AI-enabled therapeutics discovery, a market that was effectively nonexistent in 2024. At fiscal 2025, we had booked more than $25 million in orders, specifically tied to AI discovery. This exemplifies Twist Bioscience Corporation's ability to help define new categories by listening closely, adapting our roadmap ahead of market inflection points, and investing early to establish leadership. This was done with flat operating expenses through the fourth quarter of last year. Going forward, we see meaningful growth ahead as this category continues to develop. In the first quarter, we made targeted, deliberate investments to extend our advantages for all the opportunities we see across the business. Some of these investments are in the commercial team to amplify our success in the market. Others are in the infrastructure and operations to support the scale of the full portfolio. Importantly, we made these investments while remaining focused on our core financial priorities, including revenue growth, gross margin, and adjusted EBITDA breakeven. To be clear, we are committed to adjusted EBITDA breakeven in 2026. On top of this, we see an opportunity to increase our growth rate, and we have accelerated our operating expenses up by about $10 million per quarter without putting adjusted EBITDA breakeven at risk. As you know, investment in growth is like a turbo on an engine. There's a lag between pushing the gas pedal and the acceleration. On an ongoing basis, we expect approximately 75% to 80% of our incremental revenue growth across all product lines to drop to the gross margin line. We have worked hard to get to this point, and we'll continue to tune the machine. As a team, we are focused on three key performance metrics: revenue, gross margin, and adjusted EBITDA breakeven. We measure many other things within the company and the business, but ultimately, these three metrics drive our future growth. Our management team and every employee that we have are measured and incentivized on these three metrics. Overall, we are managing the business, keeping an eye on the gas, and the growth like ox. And we expect to become an even more formidable force in the coming years as we sustain growth through disciplined reinvestment of our profits. At this time, I'd like to turn the call over to Patrick Finn to further expand on our growth initiatives around AI-enabled discovery. Patrick Finn: Thank you, Emily. At Twist Bioscience Corporation, we're constantly engaged with our customers and key opinion leaders. Going back to December 2024, within a relatively narrow time window, we were in dialogue with several customers bringing forward new ideas for the use of our platform technology. Expanding beyond DNA synthesis and deeply into protein expression and antibody characterization for thousands of sequences. As you may remember from biology class, DNA encodes the sequence for protein, which can then be expressed in a cell. The proteins expressed within the cell can then be purified and run through specific assays to determine the protein's characteristics, including stability, developability, and more. Historically, we made DNA, but we've expanded to also expressing proteins from the DNA, opening up a $700 million market to Twist Bioscience Corporation. Because our semiconductor-based platform writes DNA sequences at scale, AI presents a fabulous use case that incorporates our unparalleled throughput, speed, quality, and cost advantages. All customers are engaged in a design-build-test-run cycle. The customer designs the sequences, we build the proteins, and then we conduct a series of assays to test the proteins. Once we deliver the products or data, the customer learns from the information and optimizes the cycle for the next iteration. These customers fall into three different buckets. First, we are currently working with large pharma companies who are building robust large language models and preparing training sets. We receive thousands of sequences to synthesize, but ultimately, this customer type does not want the DNA strands. They want Twist Bioscience Corporation to conduct protein expression and characterize the protein, delivering only a data file with the results of the assays. These customers have a wet lab but cannot handle the volume of sequences they want to test and may not be new to Twist Bioscience Corporation, with this being an expansion of our work with them. A second customer group includes large tech companies focused on creating or expanding their presence in life sciences. They do not have a wet lab and operate as a so-called dry lab company. This means they rely on Twist Bioscience Corporation to conduct all research experiments, and we deliver the data to them for evaluation and next steps. These customers are new to Twist Bioscience Corporation. A third customer group is well-funded biotech companies that need thousands of sequences and data, essentially pursuing similar paths to large pharma. Across all customers, the work is custom according to their requirements, but the work streams and margin profiles are similar across customer types, and we have the capacity to serve all. When we launch a new product or service, and the work in AI-enabled discovery is a series of both, we complete the work using the best tools, spending no expense to ensure the customer receives what they need. Once we know the product resonates with customers, we optimize processes, automate, and proceed through a series of improvements to rapidly bring the margin profile in line with the rest of the business, where 75% to 80% of incremental revenue drops to the gross margin line. We've done this time and time again with a repeatable process. In fact, we continued to strive in the first quarter with 74% of incremental revenue dropping through to gross margin. What began as exploratory work in early 2025, leveraging our platform to AI-enabled discovery market, is now transitioning into repeat production-level workflows with customers intrinsically focused on generating high-quality data at scale. As models mature, the constraint is no longer algorithm development, but the speed, quality, and economics of experimental data generation. That shift is driving demand toward platforms that can reliably deliver large volumes of data quickly and cost-effectively, and Twist Bioscience Corporation fits that need very well. Our platform is uniquely suited to this customer need, allowing customers to move from design to data in days, not months. We see this as a durable and expanding opportunity that aligns directly with Twist Bioscience Corporation's core strength of customization at scale, with an immediately serviceable market of $1.5 billion for customers of antibodies discovery services and $700 million for protein expression. With that, I'll turn it over to Adam Laponis to discuss the financials for the quarter. Adam Laponis: Thank you, Patrick. Revenue for the first quarter increased to $103.7 million, growth of 17% year over year and approximately 5% sequentially. Gross margin came in higher than expected at 52% for 2026, an increase of approximately four margin points over 2025, supported by increasing revenue and our continuous process improvement efforts. DNA synthesis and protein solutions revenue increased to $51.1 million, growth of 27% year over year, driven by strength from customers pursuing AI-enabled discovery, whether building models or testing molecules. NGS applications revenue for the first quarter grew to approximately $52.6 million. Excluding one large customer, NGS grew 18% year over year. For the quarter, revenue from our top 10 NGS applications customers accounted for approximately 36% of NGS revenue. Looking geographically, America's revenue increased to approximately $58.4 million for the first quarter, compared to $53.7 million for the same period of fiscal 2025, growth of 9% year over year. EMEA revenue rose to approximately $38.4 million in the first quarter, versus $28.3 million in the same period of fiscal 2025, growth of 36% year over year. APAC revenue increased to approximately $7 million in the first quarter compared to $6.7 million in the same period of fiscal 2025. Looking at revenue by industry, therapeutics revenue rose to approximately $37.2 million for 2026, compared to $26.8 million in the same period of fiscal 2025, an increase of 39%, reflecting the increased uptake of our products by large pharma and biotech customers in their efforts on therapeutics discovery, including AI-enabled discovery. Diagnostics revenue was approximately $35.3 million for the first quarter of 2026, substantially equivalent to $35.5 million in the same period of fiscal 2025. Excluding one customer, diagnostics was up 12% year on year. Adding to diagnostics, recall about 75% of our global supply partners' revenue is OEM partners selling Twist Bioscience Corporation products for NGS applications. Although we do not always know our OEM partners' end customers, we believe the vast majority of their revenue is focused on diagnostics. Industry and applied revenue were $6.1 million in 2026, compared to $5.5 million in the same period of fiscal 2025, an increase of 11%. Academic research and government revenue was approximately $12.2 million, relatively equivalent with $12.4 million in the same period of fiscal 2025. We saw fewer large-scale projects compared to the same period last year, but a large expansion in the number of customers purchasing from us based on our NPI and academic commercialization efforts. We see the academic market returning to growth in Q2 with increased confidence in NIH funding for 2026. Global supply partner revenue was $12.8 million in 2026 compared to $8.5 million in the same period of fiscal 2025, an increase of 50% driven by three factors: a significant new partner for NGS coming online, substantive growth in our diagnostics OEM partners, and growth for our distributors in APAC. Moving down the P&L, our gross margin for the first quarter increased to 52%, an improvement of approximately four margin points versus the same period of fiscal 2025, reflecting our strong revenue growth and customer base as well as continuous process improvements. Operating expenses, cost of revenues for the first quarter, were $86.9 million compared with $77.5 million in the same period of 2025. The increase in operating expenses was driven by investment in our commercial group to drive additional revenue growth as well as digital capabilities. Looking at our progress and our path to profitability, for 2026, adjusted EBITDA was a loss of approximately $13.4 million, an improvement of approximately $2.8 million versus 2025. This improvement demonstrates our ability to scale efficiently, even as we front-load strategic investments in commercial and digital capabilities. These investments are expected to remain stable or moderate slightly in the second half of the fiscal year. For 2026, net cash used in operating activities was $24.8 million. Capital expenditures in 2026 were $10 million. We ended the quarter with $197.9 million in cash, cash equivalents, and short-term investments. Turning to guidance, for fiscal 2026, we expect total revenue of $435 million to $440 million, growth of approximately 16% at the midpoint. We expect the revenue increase versus prior guidance to be generally balanced across DSPS and NGS. For 2026, we expect total revenue of $107 million to $108 million, growth of approximately 16% year over year at the midpoint. For NGS, we expect strong sequential growth in Q2 and growth in key accounts, with sequential growth throughout the year as previously discussed. We remain confident in our trajectory and continue to forecast reaching adjusted EBITDA breakeven for 2026. With that, I'll turn the call back to Emily. Emily Leproust: Thank you, Adam. As we step back and look across the business, what stands out is how consistently the pieces are coming together. At Twist Bioscience Corporation, our growth is being driven by a repeatable model. We're expanding our addressable markets with disciplined product innovation, putting more volume onto the same silicon-based platform, and converting that scale into improving financial performance. This is not dependent on a single product, customer, or market. It is the result of an NPI engine that continues to deliver, paired with operational execution that scales efficiently. We continue to introduce newer products across both DNA synthesis and protein solution NGS applications with different adoption dynamics with the same underlying outcome. More customers, more applications, and more volume flowing through the manufacturing infrastructure. This is what allows us to support growth while maintaining margin discipline and capital efficiency. Importantly, we have built this platform with significant capacity already in place. We have both continued demand without introducing meaningful execution risk. As revenue scales, the economics of the model become increasingly favorable, reinforcing our confidence in the path ahead. This is why we remain very confident reiterating our expectation to reach adjusted EBITDA breakeven in 2026. The drivers of that outcome are already visible in the business today. Consistent revenue growth, gross margin above 50%, disciplined investment in operating expenses to accelerate growth, and a scalable cost structure. More broadly, Twist Bioscience Corporation is increasingly positioned as an enabling infrastructure provider across the biological continuum from early discovery through diagnostics and into therapeutic development. Whether it is enabling AI-driven drug discovery, supporting precision diagnostics, or scaling production for applied markets, customers choose Twist Bioscience Corporation because our platform allows them to move faster, reduce risk, and operate at scale. To help investors engage more deeply with our strategy, platform, and long-term opportunities, we plan to host an investor day in May. At that time, we will provide a deeper look at our customers with our products, our product roadmap, market expansion opportunities, and financial frameworks as we continue to scale the business beyond adjusted EBITDA breakeven. We expect to provide more event details in the coming weeks. In closing, Twist Bioscience Corporation enters the remainder of fiscal 2026 with a differentiated platform, expanding markets, consistent execution, and a clear line of sight to profitability. We are focused on doing what we have consistently done: launching products, serving customers exceptionally well, and scaling the business with discipline. With that, we're happy to take your questions. Operator? Operator: Thank you. As a reminder to ask a question, please press star 11 on your telephone. To withdraw your question, please press star 11 again. We ask that you please limit to one question only. And if you have any additional questions, please return to the queue. Please stand by while we compile the Q&A roster. Our first question is going to come from Matthew Richard Larew with William Blair. Your line is open. Matthew Richard Larew: Hi, good morning, and thanks for taking my questions. I want to follow up on the demand you referenced in terms of AI drug discovery. You know, Emily, talked about this being a durable opportunity, but we think about customers trying to build out a foundation model and building training models. Is that demand something you think that's measured in months or years? Or is this a reference just a new part of the drug discovery ecosystem will be the first part? The second part of that was you called out over 50,000 genes manufactured for data characterization in the quarter. Curious what that number was in the prior period and kind of how the economics of delivering data versus delivering DNA work for Twist Bioscience Corporation? Emily Leproust: Thanks, Matt. Great question. Yeah. So we're very excited about what AI is doing for Twist Bioscience Corporation by, you know, pulling volume onto our chips and enabling us to ramp revenue and definitely, this quarter, 27% growth in DNA synthesis and protein is very much driven by AI. In terms of durability, so it's still early days but, what we are seeing is, a customer that had big orders, over the last year quarters are coming back, with other big orders. And so doesn't seem to be letting down. And, at the same time, we're adding more and more of the top 20 pharma to our platform as well as the magnificent seven as well as the start-ups that are very well funded, but where we don't have full penetration. So we see that there's a lot of growth coming. And then long term, what we think is that AI is going to become the first path. Right now, in the past, in vivo or in vitro was the question you had to ask yourself. I think AI would be the first path. It would be about probably the same cost of about $250,000 to discover an antibody. But the data will be delivered in two weeks instead of six weeks with in vivo and in vitro. And then in vivo and in vitro are still going to be important, but as a second path. As far as the 50,000 genes that we use internally for characterization, I want to call it quite a hockey stick, but it is backloaded into our Q4 and Q1. And it's the first quarter we felt we had to share the number because 271,000 genes in a quarter looks good, but actually, it's a small number compared to the actual number. Because we have more than 50,000 genes. So the trend looks good. In terms of cost, of price for the data, it kind of depends. But in general, it's $50 for a fragment, $100 for clonal genes, $200 plus for an antibody, can be $300 to $400 for the data depending on what kind of data customers want. So, definitely, as we upsell customers to data, we get a great benefit to the top line as well. Operator: Thank you. And our next question will come from Subhalaxmi T. Nambi with Guggenheim. Your line is open. Subhalaxmi T. Nambi: Hi, good morning. Thank you for taking my questions. You raised guidance by more than the fiscal 1Q 2026 beat. Could you speak to where the increased confidence specifically coming for both DNA synthesis and NGS? And as we move past the single customer that created the fiscal 4Q, fiscal 1Q air pocket, are there any other single customer dynamics that you're carefully monitoring in your outlook for the rest of this fiscal year? Thank you so much. Emily Leproust: Yeah. Thanks, Subbu. But I think you're correct. We raised guidance by more than double the beat at the midpoint. This comes from all across the board confidence. The one customer dynamic that we mentioned in NGS applications, where it passed. That customer is back. The orders are in. So we think we are set up really well in NGS. Not just that one customer, but overall. When that customer, now that that customer is back, we think there's a great setup as we look at more and more data coming from bespoke MRD enabled by Twist Bioscience Corporation at super high resolution, high sensitivity bespoke MRD. We think there's lots of need ourselves there. And then in DNA synthesis and protein solution, we have a great platform with DNA. Head to head, we win pilots and with great growth, but now that we've added protein and data on top of it, it's really meeting the moment. And we see those big customers coming back for more. So overall, the strategy that we've had, which was to add great products that all feed onto the semiconductor platform, is working. And so we'll feed the NPI engine. We'll do it again. We'll deploy commercial balance. We have a lot of headcounts open for salespeople when our competitors are laying off people and laying out salespeople. It's just we have essentially meaning in the field. And we don't expect to have other one customer dynamics in the future. Operator: Thank you. And our next question will come from Doug Schenkel with Wolfe Research. Your line is open. Doug Schenkel: Good morning, and thank you for taking my questions. My first is a follow-up on the over 50,000 genes manufactured for data characterization. I just want to make sure that I'm thinking about it right when I think of that as being, you know, almost synonymous in pharma volume. So that's one. And then, kind of the follow-up there is I just want to make sure we understand what's in guidance for the balance of the year. So that's one topic. Sort of related to that, the second is the 271,000 genes shipped in the quarter was quite robust. That grew over 30% year over year. Can you just talk about what you're seeing competitively? And I'll leave it there. Thank you. Emily Leproust: Harry, you want to take that one? Patrick Finn: Yeah. Thanks for the question, Doug. Yeah. I mean, the growth you're seeing is primarily driven by, you know, the pharma segment and the interest in AI. You know, I think we're pretty clear on those numbers, and that the scale of the platform is resonating incredibly well with that customer base. I think I said in my words that when we're being approached, the typical experimental size is a few thousand genes, a few thousand antibodies, and a few thousand characterizations run in parallel, and that's where the power of a platform with, you know, scale and speed and quality and economics is very, very enabling. So that's a good start. We're starting to understand the reordering pattern of the customers. So just to echo Emily's comment, it's early, but we can see what's coming next. It's good. Then from a competitive standpoint, we, you know, we have a healthy paranoia and obsession with what's going on out in the market. We're starting to see the early benchmarking studies when customers in the segment are going to, you know, other vendors, and the data really shows how strong Twist Bioscience Corporation is compared to our competitors. We're weeks faster than the competition stands today. And just in general, on the competitive landscape, you know, we've got our eyes on our competition. We know where they are. We know what they're working on. We know where they're laying off. We know where they're resizing, restructuring. We know them at a very, very intimate level in the hand-to-hand combat of selling. But really for us, we are just relentlessly focused on our own game and we're looking to really scale and accelerate into this opportunity. Operator: Thank you. And our next question will come from Catherine Schulte with Baird. Your line is open. Catherine Schulte: Hi, guys. This is Josh on for Catherine. Thank you for taking my question. Yeah. I was wondering if you could walk through gross margin expectations for 2Q, how that should progress through the rest of the year? And then I was also wondering, should we still bake in sequential improvement for the rest of fiscal 2026? Thanks. Emily Leproust: Thank you. Adam, do you want to take this one? Adam Laponis: Thank you, Josh, for the question. We really see Q1 in the 52% performance as proof that our manufacturing engine is working as intended. Our decision to hold the full-year guidance at above 52% reflects a really deliberate choice in accelerating our top-line growth rather than maximizing short-term margin expansion. We do see continued improvements throughout the year coming, in terms of the gross margin. But what we're doing now is we're both hiring the operators, adding the additional automation to ensure we can handle the higher capacity and throughput things like AI drug discovery that Patrick talked about in the call. We've also introduced several new characterizations around the clip clip and other new technologies. When we launch these products, we do it with, you know, manual processes, often cold plating them to make sure we meet the customer's needs fast. We're now automating those over time, and this investment temporarily moderates the margin expansion. That's really the right trade-off for long-term revenue growth. Most importantly, the core engine of our business hasn't changed. We continue to see 75% to 80% incremental revenue drop through the gross margin line over time. So maintaining our above 52% on gross margins is about giving ourselves the flexibility to aggressively fund the growth we see right in front of us. And we always say it, but we'd much rather build a multibillion-dollar business at a 50 plus percent gross margin than a $500 million business at 60. So thank you for the question. Operator: Thank you. And our next question is going to come from Vijay Kumar with Evercore. Your line is open. Vijay Kumar: Hey, guys. Thanks for taking the question. This is Mackenzie on for Vijay. You talked a little bit about the strategic investments you made in the quarter, and I was just wondering if you could talk a little bit more about these investments. Why now and where specifically were the investments made? And the second question is you disclosed that the AI-driven orders were $25 million in fiscal 2025. How much of this came in the fourth quarter? And what did you see for orders in the first quarter? Emily Leproust: Yeah. Thanks for the question. The $25 million of all the growth that we saw last year were backloaded. So some came in Q4, but some also came into Q1, meaning that the orders came in Q4, but they shipped in Q1. So definitely, some of the Q1 performance comes from that order growth that we've seen. And those customers are coming back. So there's definitely a high confidence that it's not a one-time thing. It's not a flash in the pan. It's coming back. In terms of the investment, we think of the investment in two ways. One, a more structural investment and the other are transient investments. So to give you a flavor, the structural investments are mostly in hiring of sales and commercial people. We've always had the strategy of hiring a little bit ahead knowing of what the business will need. It takes one or two quarters for a salesperson to ramp rapidly. And so we definitely want to do that, and we see a lot of good growth coming our way. So we want to make sure that we're able to capitalize on it and that we're not short on salespeople. So those are structural investments that are here to stay. And then there's some transient investments to help improve the business, mostly around our digital infrastructure. So to give you a flavor for what that is, just last week, actually, we launched our first e-commerce for NGS application business. In the past, we've always had a very, very strong e-commerce presence for the DNA synthesis and protein solution. And a very large fraction of our revenue for that product group comes from e-commerce. However, we did not have any e-commerce for NGS application. So literally 0% of our revenues. But we hired some contractors, and we made what we called a transient investment in our digital infrastructure, to launch a new channel for e-commerce, and we anticipate that that channel will be a catalyst and complementary to the salespeople we are hiring. And over time, we have the ability to taper off that investment in our digital infrastructure. Again, a contract of we decide when to turn them on and off. There's still more work to do on our e-commerce platform. So, it's not totally finished yet, but we're excited in the first phase of the launch. So, hopefully, that gives you a flavor for what we call the structural investment and the transient investment. But at the end of the day, Q4 adjusted EBITDA breakeven is a given for us now. So now it's all about growth. We have that very high confidence in growth, and how much growth can we exit in Q4. And hopefully, the guide reflects that confidence. Operator: Thank you. And our next question will come from Brendan Smith with TD Cowen. Your line is open. Brendan Smith: Great. Thanks for taking the questions. Maybe just another one on NGS from us. Emily, I think you referenced plans to sign additional partnerships within the diagnostic space moving forward. So I guess first from us, I mean, do you all have kind of a target number of deals you expect to confirm this year? And maybe more importantly, how material do you feel kind of new partnerships will be to the growth of NGS and maybe hitting your own internal revenue expectations over the, let's say, one to two years? Versus really just core execution and advancement of the existing partnerships you already have. Thanks. Emily Leproust: Yeah. Thank you. That's a really important question and something that we spend a lot of time on. And actually, Patrick is our head of opening those doors for new partners. And so we think about it kind of in two ways. The first is, FY 2026 growth in NGS is going to come from existing partners. Those deals are already signed. The pilots are done. The validation and verification, it's done. And so now it's just being there for them as the volume ramps for our current investors, current partners. Make sure that our supply chain is there for them. However, when we look at the growth we're going to need in 2027 and 2028, we do need new partners for that. And we have a very sustained effort. And actually, you may remember that at JPMorgan, we split where Adam and I took investor calls, and Patrick and our CTO took the customer's call. And so we have a dual track where we're working actively to get new partners on board for diagnostics. We don't have all of the volume, but the performance that we have is very, very, very strong. The supply chain excellence that we bring, we're able to future-proof the supply chain of our partners. And so we are working on bringing more onboard. It's going well. But we don't need them for 2026, but we're counting on them for sustained growth in 2027 and beyond. Operator: Thank you. And our next question comes from Mac Etok with Stephens. Your line is open. Mac Etok: Hey, good morning. Apologies if you already answered this question. My connection's a little spotty. Just looking at the performance in 1Q and the continuation of 52% gross margin guide, how are you thinking about the cadence for the rest of the year just given the level of investments that you're making in the business? Emily Leproust: Thank you. Adam, you want to cover that question? Adam Laponis: No. Thank you, Mac. And we did have a chance to address that question. It really reflects our confidence in the business and our ability to drive growth and the choice to invest into that. And so while we do see continued improvement in growth margin throughout the year, it'll be at a more moderated clip. As we continue to invest into the CapEx and the infrastructure and the people to accelerate the growth. And, you know, we are maintaining, giving ourselves that flexibility. Really would rather, you know, I said it before, build the multibillion-dollar business at a 50% plus gross margin. And a $500 million business at a 60% gross margin. So, we are excited. We are looking forward to moving forward, and there's no looking back. And as Emily and Patrick have also mentioned, within line of sight, we are absolutely committed and focused on making sure that in any scenario, we're at adjusted EBITDA breakeven by Q4 of this year. Operator: Thank you. I am showing no further questions at this time. I would now like to turn the call back over to Emily for closing remarks. Emily Leproust: Thank you for joining us today. Twist Bioscience Corporation's growth is built on a repeatable, scalable model. Our innovative technology, increased platform volume, operational rigor, and commercial prowess are translating to improving financial performance. This is not driven by one product, customer, or market, but by a durable NPI engine and execution that scales efficiently. We remain confident in our ability to drive sustained growth. Thank you. Operator: This concludes today's conference call. Thank you for participating and you may now disconnect.
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