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Operator: Good afternoon, ladies and gentlemen, and welcome to the Preliminary Results 2025 Conference Call of Raiffeisen Bank International. Today's conference is being recorded. At this time, I'd like to turn the conference over to Mr. Johann Strobl, Chief Executive Officer. Please go ahead, sir. Johann Strobl: Good afternoon, ladies and gentlemen. Thank you for joining us today. We are happy to report a good set of results for the fourth quarter and all in all, a very satisfactory full year 2025. . We finished the year with a consolidated profit, excluding Russia of EUR 1, 443 million, and a return on equity of 10.6%, slightly ahead of our guidance. The business year 2025 was again impacted by litigation provisions in Poland, although to a lesser extent than in previous years, and we expect further improvements here in 2026 and beyond. When we look at the future of the group and what it is capable of achieving as we exclude Russia and the legacy portfolio in Poland, what we see is a bank that achieved a 13.4% ROE in 2025. We are confident that the underlying business model is strong, that the balance sheet is healthy and well capitalized and that we are ready to grow for years to come. We finished the business year 2025 with 6% loan growth in line with our guidance. And while the first 2 quarters were slow, we are encouraged by the momentum that has built up in the second half of the year. We start 2026 in full swing with a solid CET1 ratio, improving liquidity costs and most importantly, good demand from our customers. Moving to Slide 6. We're happy to share with you the dividend proposal for 2025. With EUR 1.6 per share, we would like to see our shareholders participate in the good results of the past year. Please note that this is, of course, subject to the audited figures and will be voted on at our Annual Shareholder Meeting on April 9. RBI Supervisory Board has also announced changes to the Board of Management in 2026. First of all, Michael Hollerer will replace me as CEO for the first -- from the 1st of July. [ Magi ] knows RBI inside and out. He has previously held the role of CFO at RBI and prior to that, headed our Asset Management business. As for me, I will be turning 67 and with my mandate expiring in February next year, I'm happy to hand over at this time. RBI is in great shape and ready for growth, and I'm excited to see what the future holds. The Supervisory Board has also appointed Kamila Makhmudova as CFO and member of the Board of Management since January 1. Kamila has been with RBI for over 20 years and most recently was our CFO in the Czech Republic. Prior to that, she led our internal M&A and corporate development departments. Finally, the Supervisory Board has also appointed Rainer Schnabl to the Board of Management effective of March 1, where he will be responsible for corporate and investment banking products and solutions. For the past few years, Rainer was the CEO of our Bosnian subsidiary and prior to that, CEO of our asset manager. In the coming weeks and months, I expect you will get the chance to meet this accomplished new leadership team, and I'm certain that you will be as excited as I am about our future. Moving to the next slide, where we can show the good progress in the rundown of our Russian business. First of all, in terms of loans to customers, we finished the year having reached the targets that were set. Going forward, there are no new targets, but more importantly, all the measures and restrictions that we have implemented will remain in full force. This goes for our loans, for payments, for deposit collections, for liquidity investments and so on. Accordingly, you can expect the rundown to continue, and we will continue to update our regulators and investors on the progress. You can see how this rundown, which started on day 1 of the war and accelerated in 2024 has transformed the balance sheet in Russia. As of year-end, there was nearly 30% more equity than loans on the balance sheet. The loan-to-deposit ratio is now below 30% and the LCR above 500%. While the rundown remains our base case scenario, we do continue to explore transactions with interested parties. So far, we have not been able to identify a structure which meets the requirements of the local authorities, but we will not give up. And on the litigation side, I'm sure you are aware that a second court decision in December in Russia led to a further EUR 339 million penalty to be paid by our Russian subsidiary. This penalty can be added to the value of our claim for damages in Austria now equivalent to EUR 2.4 billion. And as to the Austrian claim and court proceedings, there's little I can say today. We have not filed it yet, but we will absolutely do so at the time of our choosing. The other option, which is to see our claim for damages satisfied in the next EU sanction package remains in discussion. I do not want to exaggerate the likelihood of this year today as it remains unlikely even though this would be in everyone's interest, not least of which our European partners. Let us now move to the next slide, the quarterly development, starting with the main revenue trends on Slide 8. Net interest income is broadly stable quarter-on-quarter and up slightly year-on-year with some modest interest rate headwinds throughout the year and the large part of the loan growth coming later in the year, we are satisfied with the stable development. More interesting, however, is our outlook for 2026. For one, these interest rate headwinds should become more neutral or possible even turn supportive. And more importantly, the good momentum in the loan growth is visible from the very beginning of the year and contributes to an expected 5% or so NII improvement this year. Fee income continued to tick up nicely in Q4, and we finished the year just over EUR 2 billion, up 8.5% versus 2024. Looking ahead, our initial guidance for 2026 is around EUR 2.1 billion. On Slide 9, we show the balance sheet development, and this is encouraging. I have mentioned the good loan growth and it's always good to see that it is being driven by key markets, including Czech Republic, Slovakia and Romania. In mortgages, specifically, we also see good progress in Hungary where retail expansion is important to our business mix. More importantly, corporate business in GC&M has picked up nicely, and the pipeline for 2026 looks equally promising. On the liability side, we see further deposit inflows and notably mid-single-digit growth in retail deposits in our network units. Slide 10. I'd be short. Liquidity ratio remains solid across the group, including, of course, in each of our key markets and in head office. Turning to Slide 12, our CET1 ratio, assuming a worst-case scenario in Russia, with 15.5% at year-end, we slightly exceed our guidance. I should also draw your attention an increase to an increase in the Russian op-risk RWAs with January 1. You may recall from previous presentations that in our worst-case scenario, we do not assume immediate derecognition of the op-risk RWAs stemming from the Russia business. The reason for this is that op risk is calculated on the group, fully consolidated basis and not booked at the individual unit level. This means that in any part of the -- if any part of the business is sold are deconsolidated -- the relief on the corresponding op-risk RWAs is not immediate. In 2025, we had agreed with our regulator to cap the Russian op risk which was retained in this price book zero scenario. This agreement expire at year-end and from January, we had recognized the full EUR 3.9 billion RWAs. The effect of this increase is around 29 basis points meaning that our CET 1, excluding Russia, is at 15.2% with January 1. On the right hand of the slide, you will see our capital stack also under the worst-case scenario in Russia. The AT1 bucket does not reflect the note, which was issued in January and where we added EUR 150 million to our AT1 stack all else equal. On the next Slide, 13, our CT1 ratio guidance for 2026, always under the assumption of a worse case in Russia. No surprises here. We continue to steer the bank to around 15% and above. Now let's jump to Slide 15, the MREL and funding plans. On MREL, first of all, with the start of the year, we have a subordination requirement of 26.71%. Considering the own funds in our AT1 capital stack. This new subordination requirement does not change our issuance plans. We have also issued a few senior nonpreferred in previous years, which add to the buffer year. I mentioned a moment ago AT1 note, which we issued earlier this month. And as you also mentioned, the senior issuance out of our Romanian subsidiary. This was their first Euro benchmark issuance and I would like to thank those investors who participated. For the rest of the year, we expect 1 to 2 senior preferred notes from Vienna and potentially a senior deal out of Croatia. The other MREL needs which you see here for 2026 across our countries are expected to be covered domestically. Moving now to Slide 16 and 17. On the following slides, we have shared our macro update, which I will let you go through at your leisure. Let's turn to our 2026 outlook on Slide 18, and starting with core revenues. We expect 4% to 5% improvements in NII and fees and a similar impact on the OpEx side. We aim for a small improvement in cost/income ratio next year to around 52.5%. The initial guidance on risk cost is around 35 basis points, and Hannes will share his thinking later on. We expect loan growth to continue in line with the positive trends that we have seen in the past few quarters and target 7% growth in 2026. As mentioned, we expect our CET1 ratio, excluding Russia to remain above 15%. For the group, excluding Russia, we expect a stable ROE around 10.5%. On the one hand, we expect improvements in the operating results and few litigation costs on the Polish legacy portfolio. This, however, is largely offset by larger bank levies and windfall taxes as well as the normalization of the risk costs. When we look to the future of the group, excluding both Russia and Poland and illustrated here with the yellow line, we expect to be closer to 12.5%. In this case, the improvements in operating income are not enough to offset the announced increases in bank leverage and the high assumed risk costs. Going forward, however, we continue to expect that the core of the group will sustainably earn 13% and above. And with that, allow me to hand over to Hannes. Hannes Mosenbacher: Thank you very much, Johann. Good afternoon, ladies and gentlemen, and thank you for spending your Friday afternoon with us here today. I guess that by now, you have seen the numbers, and I will keep it short. We finished the business year 2025, with risk costs of EUR 192 million, down EUR 95 million from a year ago. In basis points, this is a provision ratio of 20 basis points for full year 2025 which I'm happy to report is inside our guidance. Overall, we remain very satisfied with the quality of our portfolio and our nonperforming exposure ratio is at record lows. We continue to make good progress on our workout strategy, as you can see with the further drop in NPE volumes. Beyond NPEs, the trend in the performing book are healthy, and we continue our proactive workout strategy. In Q4, we released the overlays, which we have built up in Russia, where the bank is so well capitalized and the loan book has shrunk so much that the overlays have become redundant. In the core of the group, we have made minor adjustments leading to around EUR 45 million of releases in Q3 versusQ4. Going into 2026, we still have EUR 413 million of overlays available to us, equal to more than 1 years' worth of standardized risk costs. Risk cost guidance for 2026 is around 35 basis points, which, as you know, always includes a degree of prudency this early in the year. I do not need to remind you of the geopolitical turbulences that we have witnessed in 2025 and since the start of the year, which also led us to start the year with a modicum of caution in our risk cost guidance. Away from asset quality, let me touch briefly on Poland, where the trend is clearly improving and where we believe that the worst of the litigation provisions are behind us. The inflow of new Swiss franc claim continues to decline, while the inflow of Europe claims has stabilized. Uncertainties remain, not least coming from the craft law, which aims to accelerate settlements in court proceedings. For 2026, we assume somewhere between EUR 200 million to EUR 220 million of litigation provisions, which is around 60% coming from Swiss franc and another 40% or so coming from euro-denominated loans. Having said all this, we are now more than happy to take your questions. Operator: [Operator Instructions] And our first question comes from Benoit Petrarque with Kepler Capital. Benoit Petrarque: Yes, Benoit Petrarque from Kepler Cheuvreux. I've got a couple of questions. So the first one will be on the net interest income. Looking at your guidance and also your loan growth guidance, it looks like you still expect net interest margin to remain relatively stable in '26 and therefore, NII to be mainly driven by volume growth. We see some key rate cuts in '26. So I wanted to check with you if the margin pressure will be indeed relatively limited as per your forecast in '26. The second question is on the operational risk in Russia. I was wondering if it's purely a mechanical process? Or is there any rationale behind or any discussions with the regulator? Do they fear any operational risk from Russia? Or is there any discussions on that item? Or this is pure mechanical adjustment based on your income generated in Russia? The number three will be on M&A. And I think you commented on the fact that you might be looking into Romania. Just wondering if you could update us on your M&A appetite now that, clearly, the group is focusing on its own future. And then finally, on the bank levies, we have a big step-up in '26 in Hungary. And I was wondering if your first look on this is that it's going to be a one-off item, i.e., recovering in '27 or you assume kind of stable high bank levies going forward also in '27, '28? Johann Strobl: Thank you for your questions. And I start with the NII guidance. I mean, you're definitely right. I mean when you look at the Q4, you might maybe need some 1 or 2 adjustments to get the run rate of the Q4. So there was a minor one-off of minus [ EUR 7 million ] in Czechia. If you add this as part of the run rate and if you then consider that you have at the very end of the quarter, the loan book was really building up, then probably the run rate is closer to EUR 1.70 billion and if you analyze this, okay, here, we assume then also, to some extent, stable net interest margin to 4.3% or maybe a touch less, and then you have a 7% growth again with a net interest margin range of around 2.3% or so, then you achieved this EUR 4.4 billion. Yes, I think the rate cuts are partly still covered by these model books and by investments. On the other hand, I see your point that if competition moves more and more to price topics as well, which as of this point in time, I do not expect at a very intensive level, then it could be that there is some pressure on that as well. But as of now, we are optimistic on that. Hannes? Hannes Mosenbacher: Johann and [ colleagues ], the question regarding the op risk on Russia. You know that there has been quite some adjustment on the CRR3 and so therefore, we're using the regular op risk approach within the CRR approach where you have 2 main components, the one is the operating income, and you have seen the numbers and also, of course, which must be partly incorporated legal provisions. So it means Rasperia I and II are also now included in the 2025 RWA basis. Thanks for the questions. Johann Strobl: So then coming to your M&A appetite here, I would -- I hope you understand that I will not comment on recent rumors, but what I confirm is that we have, in some markets interest and would appreciate to participate and also be successful when we participate and the countries are well known. So it's -- Romania is on this list. I always said, Hungary is quite difficult because of the competition, one might expect Slovakia, it's not a must, but still could be of interest. Serbia achieved something, but still, yes, in the past, I also said that Croatia may be difficult, but it would help the development of our bank for sure. Czechia is in these days, very expensive, but it will be good for our development here. So it would depend on the structure. To your question -- to your last question about Hungary, difficult to say. I have no indication that it will continue also in 2027. And I hope it is as I expect. So only '26. Operator: And our next question is by Ben Maher with KBW. Benjamin Maher: I just have a couple. That's just on the Czech NII, which was down a lot Q-on-Q. I think you mentioned there was a one-off negative. Can you to give a bit more color on what was that one-off? The loan growth guidance appears quite conservative given you're already delivering close to 6% ex-Russia and you're seeing potentially a positive turnaround occurring in Austria. So I was wondering about just some of the cost of risk [indiscernible], has that just been prudent at the beginning of the year? Or do you expect a slowdown in kind of your wider footprint? And then I was just hoping if you could give any guidance on the overlay usage in 2026. That would just be helpful to kind of frame that. Hannes Mosenbacher: Well, I may start with the question on the overlay releases. I think what I have said in my statement, the 35 basis points is the guidance what we may use for the regular business, so not just the running business. If things would really [indiscernible] are, we would also be tempted to make use of the overlays, which are being available to us. And a big part of overlays is anyway to be attributed to our Ukrainian operations, and that's the way how we think about using and making use of our overlays. Thanks for the question. Johann Strobl: Yes. To your Czech question, this was a sort of reclassification between trading result and net interest income. So this is to the small amount, yes, unfortunate. But I think with this correction, we see the right number. So I think if you then add the EUR 7 million, as I said when answering your question before you then get a better understanding of the run rate also in Czechia. Now to your second question, the loan growth guidance of 7% seems conservative. Yes, indeed, we have mixed signals. So we see some loan growth forecast for the overall market, which is even below the 7% from research. On the other hand, I can confirm that given the base what we have so far, it's strong. On the other hand, if you go a little bit deeper than for example, in Slovakia, you have seen an enormous and enormous growth in mortgages. And here, the question is to what extent is this somehow front loaded or how shall I say, the demand came strongly in questionable here if it continues. So the one or the other market might be below this 7% and then in combination. So if it would be a little bit more, we'll be happy and celebrate. But I think, the 7% is to be achieved. Operator: And our next question is by Mate Nemes with UBS. Mate Nemes: I have 2 questions, please. The first one would be a follow-up on the risk cost guidance of 35 basis points for '26. Hannes, would you mind elaborating on the drivers of this and then perhaps shedding some light on the conservative assumptions going into this guidance? Where do you feel you've been conservative when issuing this guidance? And which trends you would need to see perhaps to revise this? And the next question is on loan growth, particularly in Group Corporates & Markets. I was just wondering if you could talk a little bit about what sort of loan growth you're seeing in the business? And what is your expectation into '26? And how do you see the outlook for the business in general after a slower period, I think, in the past couple of years? Hannes Mosenbacher: Thanks again for giving me the opportunity to talk about the risk cost guidance for 2026. I'm really sure you can recall that when we talk about standardized risk cost, we talk at a level of around about 40, 45 basis points. So this would be a through-the-cycle risk cost guidance. So what made us coming in slightly a bit lower with 35 basis points. On the one hand side, as you can see in our macroeconomic outlook, we see in many countries that the macroeconomic environment is getting better, first thing. Second thing, a big part of our portfolio is also being built up on a retail portfolio. And of course, a very, very strong employment rate, a very low unemployment rate in our market is very much supporting a very robust credit loan growth. And secondly, also a really benign risk cost development in the mortgage business anyway, but even more so also on consumer lending. Then we see good demand on consumer lending and some investment needs and ask for money. We have EUR 430 million of overlays. We have EUR 10 billion of significant risk transfers outstanding. And yes, Mate as you said, if all things turn and if I would be terrible wrong with my 35 basis points, we still have our overlay pool available. Hopefully, this gives some hints what was the thinking and the mechanics, how we came to the 35 basis points. And yes, you're right, we again came in slightly below risk cost guidance for the year-end, but I also gave you the reason. One of them was that we have -- that we released our overlays in Russia, and I was giving the background having more capital than loans outstanding, we felt that this is an appropriate time to release the overlay in Russia. Johann? Johann Strobl: Okay. Now to the GCM, what type of business would we expect also for 2026. So we have -- I have to state -- you are aware of it, but let me state it that GCM is not only Austrian large corporate, but this is our international portfolio. And this comes partly from Austrian customers, partly from customers being in the Western countries, so not necessarily in our core markets, but with a relationship to our markets. And finally, the international customers in the CE countries. Here, we usually support and we split the -- so if there is a local take Czechia, if one has a big demand in one of these loans, then part of it we take also here. And the areas what we do, this can be project finance. We are very proud of something -- I mean, it still in Bosnia, where I say energy part. So it goes throughout the range. I think all of all, quite healthy business. Yes, quite a lot of competition. And if there would more come I would be very happy. So what gives you some numbers what I touched before, I think in corporate, if the -- overall the markets where we are in can achieve from market research, we wouldn't expect more than some 4% to 5%. And we are optimistic that -- and this is built also on the pipeline, what we have or what we are closing to be in the business what we book here. So in the GC&M and yes, the level where we have, we see some markets in corporate where we see in our books where we hope for an increase, which is Czechia, which would be very important. And then also maybe Croatia, okay, it's not big, but it will improve and Romania. Romania has been strong in the recent years. I mean you didn't ask for retail, but let me share some flavor as well. So I think that in the smaller countries, you still could expect double-digit loan growth and in the others, 8%, 9% like this. And if we achieve that, then the combination will be 7%. And if we are lucky, a little bit more. Thank you for your question. Operator: And our next question is by Gabor Kemeny with Autonomous Research. Gabor Kemeny: I have a question on your ROE guidance, please. You are guiding 12.5% core excluding any Polish Swiss franc charges. Can you give us a sense of what you expect to drive the expansion towards 13 plus beyond 2026. The drivers that would be interesting. And the other question I had was a technicality on the ROE guidance. I see it on Page 37 that you assume EUR 13.3 billion of average equity for 2026. I believe your end '25 equity core was EUR 13.8 billion. So if you could elaborate on this, why you assume less than that? And the other -- the final question would be if you could give us an update on Russian litigation, please? And what is the likelihood of recurrence of the litigation provisions in the coming quarters? Johann Strobl: So let me start with the guidance and where do we expect? What are the drivers for 2026, if I may start with this. Yes, if we achieve the net interest income, as I have outlined, then this could be positive for our ROE, maybe by 1.5% yes, and then the others, relatively small fee and commission income, EUR 0.6 billion. Net trading income, which was more or less 0 coming in 2025, coming from credit spread and the one or the other topic, we assume that this negative effects will not reoccur, and then we would be back at around 60, what we usually should have, so 0.5. So if you add these up, you might come to 2.7 improvement. We also -- I mentioned it, have OpEx increase by 4% to 5%. So minus 1.2%, something like this. Other results improving by 0.6, governmental measures, minus 0.5. And then I have the normalization, what Hannes talked about impairment losses, which might be minus 1.5 -- 1.4, sorry. So little bit more income taxes probably. And yes, then we would be at some -- I would have explained I guess, the developments, what you would expect. And as I said, in the coming years, '27, '28, yes. Maybe the one or the other headwind comes from the extra bank tax. We'll see. Of course, here, Croatia is good attitude, but taking example, Austria, there was a tax increase from EUR 23 million to EUR 70 million something, so up EUR 50 million. This was at least still now limited for 2 years. So '25, '26. If they keep and we are aware, they have huge needs, then this should drop by EUR 50 million something. And so one or the other, we talked about Hungary that we still believe or hope that it's this huge increase is a one-off. So part of it comes from the bank levies being reduced. The other part comes from the Polish improvement, where we then hope that the litigation goes down from 200 to 100. And finally, yes, we see a further improvement in the GDP growth in '27 and beyond. And maybe even that then the cycle in some rate decrease, cycle in some countries might still go on in '27, but in others, it might even turn around. So a combination of what we have. Now to your quite difficult question. And here, I -- can I come back to this a little bit later to see the average, it's -- give me a few moments that I find my, here, I would have a look to my notes. Before that, I would come to the other question, which is further litigation and balances in Russia in the coming quarters. That's very difficult to answer for one reason. And the reason is I was negatively, very negatively surprised by the second Rasperia litigation and penalties. And this is really a very negative development in Russia in that area. Because the first litigation, at least from my view, covered everything. So coming back again with a second litigation. Okay. There had been some reasoning which a judge might accept. Economically, it's impossible. That's the negative signal. The positives are that this second litigation is the only one which we have seen and where we say, okay, it's difficult to explain anything else so far did not happen. So this gives us some hope in the balanced view. Now to the equity. It's calculated on '26 budget numbers and did not fully include the year-end and OCI effect. So you are right that we will redo this and give in the course of the time some more detailed information. Operator: Our next question comes from Riccardo Rovere with Mediobanca. Riccardo Rovere: Two if I may. The first one is that your NII guidance '26 is up versus '25, about 5%. The loan growth is 7%. So it looks like you embed some margin pressure. Now we've been talking about margin pressure for quite a long time. It has never really come through. I was wondering while all of a sudden, given the rate environment provided the rate environment in consensus expectation and market expectation is kind of correct, why that should happen over the course of '26? And the second question I have is how much of your time and managerial time now is devoted to dealing with Russia after 4 years. Does it take a good part of your working days? Just to be curious on that. Johann Strobl: Yes. Indeed, when we talk about margin pressure, I think it's very different from market to market. But what you see, what you see is everyone is going for additional customers. We did so one way to achieve this is by whatever offer you can have in mobile banking, whatsoever. And the other way, I think we have been successful is your liabilities part, so offering nice term deposit whatsoever. This can be at a significantly competitive levels. And this is the type of margin pressure what we see. And the other is in the mortgage business. So we have been very successful. Sometimes in some markets, it happens that then for 1, 2, 3 quarters, it's really difficult. This comes and goes. So there is no long-term strategy what we see from competitors, but it's adjusted. And here, when we talk about margin pressure, there is always the uncertainty. Is it just one who has more appetite and keep the others cool? Or are they defending and then -- so this is the core of questions what we have when we talk about -- it's more about -- when I talk about margin pressure. So we have the 2 elements. The one is if the Central Bank rates go down, then of course, the everything what is on the current accounts is under pressure. And here, it depends then on the model books, what we have and the investment books and more of the timing. Still here in '26, we have a positive impact still from earlier hedgings and therefore, we -- I was not so much worried about these developments for 2026. And as I said, the other is coming from these topics of competition. We'll see. And to your second question, management time spent on Russia. It's nowadays mainly me when we talk about potential transactions. And of course, to some extent, then Hannes as being responsible for compliance issues now and then there come topics. But it has reduced significantly compared to earlier years. So I dare to say it's fairly stable in 2025 for we didn't have any questions from authorities on the business. So all these, which are also time consuming has diminished significantly. So not big time anymore. Riccardo Rovere: Thanks, Johann. If I may get back one second to your competitive pressure statement, why competitive pressure in 2026 should be more as a burden than it has been in 2025. I mean with 7% loan growth that you project, it sounds like with the pie seems to be large enough for many banks operating in those countries. So I was wondering why all of a sudden in 2026, the competition should be heavier than we have seen so far. I mean margins at the very end of the day were kind of stable in Q4. Is there any... Johann Strobl: You are fully right. If the pie grows by 7%, then I should not be concerned at all. I had seen the one or the other research where I was rather thinking of maybe 5%. And then we -- it would mean that we continue to get market share and then I mean the good thing about Raiffeisen is, the good thing and they're not so good thing. The good thing is that in the big markets, our market share is not that huge. So increasing our market share is not too much painful to others. But you're right, if we see the 7%, 8% growth all over the markets in the loan book, then no need for any margin pressure. So yes, I agree with you. Operator: Our next question comes from Krishnendra Dubey with Barclays. Krishnendra Dubey: I think I have 3. To start with, just on Hungary, I guess, there was this big negative in the trading. So how should I think about this in terms of the rate cuts or no rate cuts that's going to happen in Hungary? That's the first. Second question is around the dividend payout. I believe the payout this year is around 40%. And then I guess you have a bigger range, which is 20% to 50%. For the future years, how should we think about the payout? And aligning to the ROE question, just trying to understand when you're trying to guide to greater than 13% ROE, does that have inbuilt some M&A or like reduction of capital via buyback or anything? Or is primarily like outside the scope? And the last one is on -- just on the M&A, just staying on the M&A bit, I guess you had in last 5 years, you had 2 acquisitions, one in Serbia, one in Czech Republic. If you could remind us like what was your cost takeout or what are the cost synergies that you were able to extract from those deals? Johann Strobl: Yes. Thank you for your questions. I probably did not fully get your question around Hungary. Was it just to confirm, was it again on this increased bank tax? Or I didn't get your first question? Krishnendra Dubey: On the trading part, like the negative was bigger this quarter. And so just trying to understand like on the trading result, it was a bigger negative compared to the -- or the first 3 quarters. So what was driving it? Johann Strobl: Now, I understand. I -- there is -- this is a valuation issue, and it comes from what the Hungarian calls baby loans. So this is sort of subsidized loan where the banks had to take over the part of the subsidies, which came from the state. And yes, this led to a reduction of the profitability of this product, which had to be considered in the valuation and therefore. So it's not trading what you presume from the typical capital markets trading also, but it's a valuation from this loan book, the baby loans. To your second question, the dividend payout. Yes, we are close to the 40% this year. And if we assume that maybe this for '26, you would keep this or so, then you might go up slightly. A couple of more cents might be possible. I mean our current thinking is we will see over time that when we -- it's too early to say now, but probably when we talk about Q1 we might have deducted a dividend of EUR 1.8 something of pro rata, but look, it's still January. So a little bit early to speak about this. In the -- all the targets what we give are without any impact on M&A. So it's pure organic what we had. And yes, it -- what we could say is in the recent M&A activities, what we did in Serbia and in Czechia, we could take out a considerable part of it. So you always say some -- what could be depending on the 50% maybe even more, depending on the overlap in the branches and so a couple of things. But you could -- if it's like -- it's quite similar to what we have in the geographic and local footprint and then it might be even more than 50% of the cost base maybe up to 70%. And yes, the second part is there are also some positive synergies. So why we would also like acquisition is it's -- what we have found in the last few months, it was very inspiring for the organization. So the organization itself improved also quite a lot. So it has not only the cost synergies, but here, there are some more benefits. Thank you for your questions. Krishnendra Dubey: I was just asking about this, the impact that you highlighted on the op-risk RWA, like earlier if you would deconsolidate it, it would go away. So does that mean if you deconsolidate the impact is going to be bigger ? Johann Strobl: Yes, yes, sorry. So you were talking about the deconsolidation of Russia and when will we lose the -- was this your question, the operational risk RWAs? So as Hannes tried to answer, it's in the, let's say, worse of base case, we have to assume that it's a very formal process, which over a period of 3 years, it reduced. We have currently a significant amount of this, not just consider this from EUR 2.6 billion to EUR 3.9 billion. So this EUR 1.3 billion adds to 30 basis points. So you can easily figure out what it means, but this means also that over 3 years, CET1 ratio, which is now decreased in January 1 from 15.5% to 15.2% should every year like-for-like increase by this 30 basis points over 3 years. If the regulator would be generous, it could grant us also within 1 year, but we report the very cautious one. Operator: We'll go next to Benoit Petrarque with Kepler Capital. Benoit Petrarque: Just to follow up on 2 questions actually. First on Hungary, the elections there. I mean, what do you expect? And could that change also your view on the local business depending on the outcome? I mean, is that a catalyst to think for '26 for RBI or not? And then just on Rasperia, the court case, what is your strategy? And why are you waiting now to file a claim and how long you will take to take a decision there? Johann Strobl: Yes. I'm -- to your first question, I'm not a political expert. So I read, of course, I read, and we have many sources which say their outcome might be close or there might be a change or not a change whatsoever. I think what -- I don't know what could be the difference is that maybe funds would flow easier if a regime change would come. We'll see. But our view is quite political. And we -- as we want to term there. And we of course, we always adjust to the situation, but it would not -- it does not change overall the direction. As I said earlier, I mean, for Hungary, it's important that we grow our retail business. So I believe we have a good corporate business and the mix could be a little bit more to the side of retail. And this dates back that for years, we were -- I dare to say, underperforming. We -- I think we more and more fix these issues. Recently, we have found some very attractive offers for our customers. What is also important when we talk around business, we're back in mortgages where we haven't been there for a long period of time, quite a lot of room for us to improve, but the '26 was quite good. And if we can build on that, then I think over time, it will independent from the elections go. I have no forecast now if there would be a governmental change if this significantly would then at the end of the day, change the windfall taxes and whatever we have. This is always to be seen then later on. Yes, I think that's currently the bad situation in Europe that banks are used to compensate for too much spending from governments. To your second question, the strategy and why we are waiting to file the claim. Look, the point is like this. There are 2 different views on this claim. And let me start with the Rasperia 1, the Russian 1. From the Rasperia perspective, they say, you have received the claim on the shares. And from Russian perspective, you have even received the shares. And for that reason, don't sue us, neither in Austria nor somewhere else. You have the shares. And if you're not able to get the share stock to your governments to Brussels whatsoever, but don't sue us. Because if you sue us, we might perceive this that you want more. You have the shares and you want more. Now the challenge is to find an understanding that we do not want more just the compensation for the claim. And as we are not able to solve this with, as I said in my incoming statement, now we need to file a lawsuit. Now I don't know if we can reach an understanding with Rasperia, which would take off the risk of anti-suit injunction what we currently face in Russia or not? We have a 3 years' time, definitely, if we neither get the unfrozen nor the agreement, the understanding with Rasperia and okay, I would recommend to my successor to file. So there is no reason to give up. The question is only can we get compensation for the damage without taking the risk of more damage? Or is it yes -- but we will, at some point in time, we will have to file a lawsuit if [ Russia ] does not defreeze these shares. Operator: We'll take our next question from Simon Nellis with Citi. Simon Nellis: Actually, one of my questions was around the Rasperia case, so I got an answer there. But actually, I'd be interested in any thoughts on the outlook for Russian earnings going forward. I know it's not something you tend to do, but there's obviously a portion of the market that thinks peace might occur, and this business will have value in the future. So any kind of broad brushed comments you can make on the outlook. And I guess related to that, are you looking to kind of further reduce the exposure of going forward and by how much? Johann Strobl: Yes. So when we talk about Russia, look at the balance sheet, what we have. So we don't grant new loans, so there is a runoff. The corporate portfolio, the runoff was around, I think, 90% or so. So there is a small amount there. And then you have the mortgage business, which is running off as well. But yes, according to the repayment schedule, there is, for the time being, no reason for the customers to early repay. The mortgages were granted in an rate environment, which was significantly lower than what we have now. So these are fixed. Operator: One moment, ladies and gentlemen, we have lost our phone line. We are reconnected. Go ahead, sir. Johann Strobl: Thank you. So Simon, I was -- I don't know when I dropped out. But coming back to your question and with the first part, I try to be shorter, so we have the runoff of the loan book from there, less and less will come. So the main earning comes from the money which is the surplus liquidity as well as the equity, which both are placed with the Central Bank. And of course, with the declining interest rates, the revenues will decline. The second part is -- and this is a little bit more difficult to forecast. You see that we make still some money in trading. So from the FX business, and here, this comes with international payments. And as we are restrictive there as well, it's a question of time to what extent we are perceived still as a partner in that field. So it's -- but I would say the bigger part comes from here, what you see as a future interest -- key interest rate from the Central Bank. And we still would expect some outflow in deposits, which might also reduce the surplus liquidity, which is placed at the Central Bank. So declining revenues with -- mainly driven by the key rate reduction. Yes, sorry. The second was the future outlook of Russia. It depends purely on the -- on 2 things, I would say, peace in Ukraine. This would be very important. And for us, the most important part, the second part is then what is the position of the Europeans because you see, we have all these restrictions from the European authorities. And it's unclear to what extent the Europeans will adjust. I think if there is peace, the rest of the world definitely will adjust relatively fast Europeans come to see Operator: [Operator Instructions] As there are no further questions at this time, we will now conclude today's conference call. Thank you for your participation. Johann Strobl: Thank you all to the participants for your time, your interest. Hannes Mosenbacher: Thank you very much. Goodbye. Johann Strobl: Have a good afternoon. Bye-bye. Operator: You may now disconnect.
Joost Uwents: Good morning. Wolvertem calling. Welcome team WDP wherever you are in Europe. Welcome also to the readers of the TET and LeKo and of course, welcome to our investor community. And I think we can say it's a good morning with the happy team around me for the Presentation of the full year results, '25. If we look to, let's say, other operations and the operational results, we can say, we delivered again a clean sheet with an EPS of EUR 1.53. It's an underlying growth of 7% year-on-year, an occupancy rate of 97.7%, more than 0.5 million of square meters new leases, a portfolio growing to EUR 9 billion, all backed by a perfect balance sheet with a loan-to-value of 40% and a net debt to EBITDA of 7.5. And as an [ exam ], we could indeed -- we can also use our balance sheet now as a real value enabler with our new rating, our A3 rating of Moody's, which gives us a top 5 balance sheet within the quoted real estate world in Europe. And if we look then a little bit close into our operations, we can really say that we did a perfect job. About 550,000 square meters of new leases, we can say that the WDP platform can capture market demand more than our market share. We secured EUR 600 million of new investments at a net initial yield of 6.8%, which means also that we could keep our investment pipeline in execution at a very high level, up EUR 700 million with the same expected net initial yield. And of course, for all this, the funding is in place. So we can really say that we are in full execution and fully on track to reach our EUR 1.7 EPS target for '27. So yes, indeed, we see the EUR 1.7 in '27 at the horizon, and we are fully on track. Yes, we still have to lease further and to execute our investment pipeline, but we see that most of our new initiatives are already looking beyond '27 and are value creating beyond '27. So this makes that we have to look further and that we are ready to extend our horizon. So yes, we extend our horizon to 2030 with a clear goal and a clear focus. Our goal is to scale into an integrated EU platform, providing total supply chain infra solutions with our classical focus, delivering above-average growth with below average risk profile. And this brings us to BLEND&EXTEND2030 as from now so much more than just a financial hedging project, it becomes a real plan, a real plan based on our proven building blocks, yes, built. Yes, there is structural demand and we are able to capture it. Yes, we will continue to load it with selective acquisitions, new developments in existing and in new markets like Spain and Italy. Yes, we still can further extract value from our internal, from our existing portfolio with indexation, rental growth and active asset management. Yes, we will neutralize further by adding total energy solutions and keep on decarbonizing the logistics supply chain. And yes, of course, we will stay disciplined. What do you want with Mick. Besides me, I have to stay disciplined and create value with risk-adjusted capital allocation. So a proven, scalable, multi-driver model that brings us and let us grow further into the future. Mick? Mickaël Hauwe: Yes. Thank you, Joost. Now how does that strategic picture translate into our target setting for BLEND&EXTEND2030. We believe that we can continue the envisaged EPS growth rhythm of our '27 plan and roll forward the attractive plus 6% average growth rate towards 2030 translating into an EPRA EPS of at least EUR 2 by 2030. Also, considering that we already generate a very high recurring cash return on equity of 7%, 8% to start with, even with a minimum portfolio revaluation of just over 1% per year, we believe we are set for double-digit total returns throughout the period of at least 10% per year, measured as NAV growth plus dividends paid. The key assumption here is that we have a fully internally funded EUR 500 million CapEx per year. Why EUR 500 million? Because that way it is designed to be independent of external equity raisings considering the higher cost of capital versus the past so we can make the 5-year plan fully internally funded, which we believe is a very strong message and attractive. How can we do that? Well, we have a recurring yearly strengthening of our equity of EUR 250 million to EUR 300 million being a combination of retained earnings, stock dividends and the regular contributions in kind. Hence, that should enable us to achieve that growth and maintain a stable capital structure with net debt to EBITDA staying around 8x and a loan to value around 40%, fully in tune with our top-tier A3 credit rating. On the next slide, you can see our multi-driver approach at work. As we have been seeing over the last couple of years, we have adapted ourselves to the current environment and a more complex world and the way we create value. And what we try to do is build layers. We have a first layer of internal growth coming from indexation, rent reversion and active asset management initiatives, then we add the impact of external growth, a balanced mix between acquisitions and developments, and we add another layer of our energy investments. And yes, we can cope with the cost of debt reset, which is manageable and only gradual and for which you can find more details in the remainder of the presentation. But combined -- and that is important, it gives us an average plus 6% throughout 2030, leading to, as you said, above average growth for the below average risk. Now turning to the outlook for '26. We have an EPRA EPS guidance of EUR 1.60. So that's 5% growth year-on-year with the key underlying assumptions being in tune with the drivers just mentioned, a combination of internal and external growth. And that's important as well, operational and financial KPIs staying strong with occupancy rates above 97% and in line with the long-term average and also with stable leverage metrics. This figure is also looking robust already now at the start of the year as most of the work has been done, and our teams are now working in full force to get to that finalization of the EUR 1.70 in '27 and are very eager to start the work for the 2030 plan. Joost, over back to you. Joost Uwents: Thank you, Mick. So we can say that we are ready to build the platform of tomorrow from a regional leader in the past to a core EUR 10 billion plus European platform, where we can use our scale in order to help our clients with cross-border solutions. We can do it efficient and profitable. And so enabling total returns and indeed, very important for us as a real estate company, this gives us a superior access to capital. And for this growth, we will be supported further by the next-generation of the family, De Pauw, who showed again their long-term commitment as a reference shareholder by appointing 2 new directors in our board. And besides this, we're also strengthening our Board with more international knowledge. And this is also important in order to become a real European player. So yes, indeed, we are ready for delivering today with a vision for tomorrow. And this all will generate an above-average growth with a below average risk profile. And now I will give the floor to Alexander in order to answer all your questions. But before we do that, we give you just a little overview of some recent real estate projects. See you in a minute. [Presentation] Alexander Makar: [Operator Instructions] Before we address the questions, maybe the first important one, Joost, what's your take currently on the market? Joost Uwents: Indeed, I think the first question of you all is still demand. And there, we can be -- give you -- we can give you a clear answer. But more than 0.5 million of square meters new leases in '25, a normalizing occupancy range between 97% and 98% and a normalizing retention rate around 90%, we can say that demand for logistics real estate in Europe is normalizing from the exceptionally high during the pandemic years towards the multiyear pre-pandemic average with the market balance gradually improving as tenants optimized their inventory and operations and new developments remain disciplined. Why is the pickup of market demand still depends on consumer spending and business confidence? The last quarter, we really witnessed an improving leasing momentum by our commercial teams. Of course, demand is still more dynamic for smaller and high-end units up to 10,000 square meters, but it is now also selectively extending into larger-sized units, mainly for those clients that are able to take strategic decisions in the still volatile world. And this is an important sign. And more recently, we even see some cautious, bigger tenders in the market again. Demand is mostly originating from specific sectors, such as food, pharma, e-commerce as well as strong performing companies expanding their market positions. Our commercial platforms remains well positioned to capture that demand. Considering our high-quality portfolio, it's about having the right building at the right location besides, of course, our deep-rooted international network and our flexibility to adopt buildings to meet the client needs. Looking ahead, the medium- to long-term fundamentals for logistics and industrial real estate remains positive, underpinned by limited land availability, constrained supply and the continued need for more resilient and regionally diversified supply chains. As I said in my intro, a resilient supply chain is not a nice to have, it's essential infrastructure. Alexander Makar: Thank you. The first question is coming from Marios Pastou from Bernstein. Marios Pastou: Perfect. I do have two from my side, I'll ask one by one. So just firstly, on the capital allocation across our country mix, can you maybe give us an idea of the order of priorities as part of your plan 2030. Will France and Germany be a priority, for example, as that's been your target for the last couple of years. The Germany hasn't really ramped up yet? Or will his be purely opportunity-driven? Mickaël Hauwe: We never give that split of our intended capital allocation because the moment we say X, the next day, it will be Y., but so it will be a balanced mix across the geographies and yes, if we can do something more in the new markets, then it's always a plus of course. Marios Pastou: So this is not purely opportunistically driven. There's no kind of priority in terms of which market to enter. Mickaël Hauwe: Where we can generate the value measured as EPS growth with a good long-term solid total return. Marios Pastou: Okay. Very clear. And then just secondly, in terms of the establishing the presence in Spain and Italy, are you looking land bank. Are you looking for existing portfolios with upside potential? And maybe give us idea of how many opportunities you're currently tracking there? Joost Uwents: Well, I think there, we will look as to those countries as we did in the past and as we do in every other country. So we will go -- first, let's say, there will be 1 difference. Before we always said, we need first the portfolio and then we go for a team, and I think we learned from Germany, which is, of course, a very difficult country that it is better to have first a country manager than letting them make a plan and then indeed starting it. So we will first go for country managers, letting them make a plan, and then we will go into the countries with a plan and that will depend on -- and it will always be a combination like in blend. Yes, we will look for existing portfolios. Yes, we will do the developments. And it's all based on with what can we create value that can be with an existing site, with a development, it will always be the combination. That's the reason why our plans are called blend, a combination of internal and external growth. Alexander Makar: The next question in line is from Suraj from Green Street. Suraj Goyal: There's a couple of questions from me, I'll also do it one by one. First one is, I guess you touched on it a little bit, but just on the desire for a presence in Spain and Italy. I appreciate you can't necessarily give any sizing by 2030, and you did touch on your approach. But just taking a step back and thinking higher level, what's kind of drawing you into these markets, what do you really like from a supply and demand perspective? Joost Uwents: Well, I think, first of all, we add them to the portfolio because it's logic. We come from the Benelux added France and Germany and then we go down so that we can offer better more international solutions to our clients. That's the first idea. And then for the rest, yes, it will indeed depend on opportunities and possibilities. And yes, it is part of the 2030 plan, but within the capital allocation of the EUR 500 million per year. Suraj Goyal: Perfect. Very clear. And just a second one, again, it's quite broad just on the Benelux as a whole. I know you mentioned the demand drivers earlier and occupancy has been increasing within your own portfolio. Do you think the vacancy has peaked for a wider market within the Benelux? And what are your thoughts for future rent growth? Alexander Makar: Yes. Suraj, maybe just a small add-on on the overall market. So what we basically have seen over 2025 is a bottoming in take-up levels over the first half of 2025. Q3, Q4, that data that is still out, you currently see a quarterly take up in most markets, and that's in our core markets as well as in Romania. When it comes to vacancy, stabilizing between 4.5%, 5%. What you, every now and then, see is when you look at the key figures of country level, you might see an increase in outlier in France, for example, 6% or in Netherlands. It's around 5%. But when you look through to micro levels, you typically see that, for example, in the Randstad, it's closer to 3.5%. So there, we actually see that the underlying vacancy is also very low. And as Joost already mentioned, it's also supported by land scarcity, permitting grid connection, which is also creating challenging times to add new space. So that's in terms of the spot vacancy that we see in the existing markets. When you then look at new construction starts, it's also broad-based down with 50%. Typically, you have closer to 5% of total stock being delivered every year, that's already down to 2.5% as well. And it's also 80% plus pre-let. So that's in terms of vacancy and in terms of rental growth. Mickaël Hauwe: Yes, on the market rental growth, we think the most logical picture would be that -- and the logic that in last year was a bit more difficult markets that it stayed flat after years of a very strong increase. The good thing is that we can really achieve those ERVs. And in some cases, we can also improve them by improving further the buildings. And the most logic thing would be when the markets as we expect starts to further recover that ERVs would first grow back in line with inflation. And then afterwards, in the mid- to long term, they would grow with inflation plus given the scarcity element and the importance of having lands and also now more and more power available. Alexander Makar: The next in line is Wim from KBC Securities. Wim Lewi: Yes. Congrats on your BLEND30 programs, especially in these uncertain times come out with such a long-term view. I also got one question and a small follow-up. My question is really on the internal financing. And I fully understand that you now give an outlook of EUR 500 million CapEx, mainly internally financed. Now although the market I believe is expecting because of your premium [indiscernible] to NPA that you might consider also rating equity. Now Joost answer to this, and I've heard many times is that, and I think also Mick mentioned that in the presentation, your cost of equity is too high. Recently, you had participated in the Catena issue. So my question really is how much do you see or do you need your cost of equity to decline or your share price to increase before you start thinking of, let's say, becoming a bit more aggressive on raising equity and maybe then growing also faster in certain regions that you've been eyeing or where prices have been too high. Mickaël Hauwe: Well, that's something we will not comment on, Wim, because then we start the speculation. We think the most important thing is, Wim, that we can have the internally funded CapEx of EUR 500 million per year and that we can achieve 6% growth to at least EUR 2 per share. And yes, if we see attractive opportunities generating a return above our cost of capital at that moment because cost of capital moves every day, interest rates moves, share price move. And then we will, obviously, when we see an accretive opportunity, we will not hesitate to use our share like we have done in the past when needed. But the most important thing is we can get to the EUR 2 fully internally funded. And also do not forget that we manage -- do not forget that we manage the capital structure on a forward-looking basis. And so with the EUR 250 million to EUR 300 million of equity coming in each year, already reduces without investments 3% the loan-to-value and 0.5x the net debt to EBITDA. So that's a very strong machine we have going on. Wim Lewi: Let me try it another way because I fully appreciate that you want to avoid speculation, but there is now exact speculation on something that might come where you think differently. So as I reiterate it, so you recently participated at Catena. Can you confirm that your cost of equity would be around the same of Catena data that... Mickaël Hauwe: But I don't think the link to Catena is really of importance. We supported Catena as a reference shareholder and maintain our 10% strategic stake, and we support the company, which is doing very well. And with respect to WDP and equity raising, I will quote what the famous Belgian politician once said, "we will deal with it when the opportunity arrives and then we will look at what our return on that acquisition is versus our cost of capital at that moment." Joost Uwents: And that's what Catena also did. They had a big opportunity, and then they looked at it and then they use -- let's say, based on the opportunity they had, they raised equity in order to make a creative deal. That's it. Wim Lewi: Okay. Let's -- just for a short follow-up. You also mentioned contributions in kind. Can you give an indication of what size that could be? Is -- are you thinking EUR 20 million, EUR 30 million, EUR 50 million max or could that be also a bigger size? Mickaël Hauwe: No. For the EUR 250 million to EUR 300 million per year, we have around EUR 100 million of retained earnings, EUR 125 million coming from the stock dividend and EUR 70 million, EUR 75 million of contributions in clients like we do each year, around EUR 50 million per year. Alexander Makar: The next question is coming from Jamie from [indiscernible]. Unknown Analyst: Congratulations on the results and thanks for the update. I have just one question. What occupancy assumptions are embedded in the 2030 EPS target and how sensitive are these to occupancy falling given you're already operating at high levels today? Mickaël Hauwe: Well, what we foresee in the BLEND2030 plan is that the occupancy stays around these levels and above 97%, which is normal and fully in sync with the long-term average. Alexander Makar: The next one is coming from Pierre-Emmanuel from Jefferies. Pierre-Emmanuel Clouard: Actually, the first question is a follow-up of the previous one. So on the 2% like-for-like rental growth that you're targeting for 2026, so first one, how much is coming from indexation and reversion on top. And if I'm looking at your 2030 target, what is the average like-for-like rental growth that you took at the main assumption? Mickaël Hauwe: Yes. So on the like-for-like breakdown for '26. So you know we have a guidance of like-for-like rental growth this year of around 2%. And the composition is that the inflation component indexation is a bit less than 2%, and then we had 50 basis points through the rent reversion and then minus 50 -- around minus 50 basis points due to the occupancy rate, and that is solely linked to tenants moving in and also a bit of frictional vacancy because yes, we were used to fantastic pandemic years where when a tenant moved out, then the next -- there was the next tenant coming in, and the rent just continued. Now you have just the normal typically -- typical short void periods like you have in a normal market like in the past and actually going towards that 2030 target, the organic growth we foresaw is pretty much the same as in '26, apart from the occupancy part, of course, and that we can then have inflation plus -- capture inflation plus with 2% average indexation, and we can capture per year around 50 basis points of reversion above indexation. That's the assumption in the 2030 plan. Pierre-Emmanuel Clouard: Okay. That's clear. And my second question is on the vacancy for 2025. What would have been the impact on vacancy if you would have kept the empty assets that you sold at the beginning -- at the end of the year -- of last year. And on top, can we expect more disposals of empty buildings in order to keep the vacancy below 3% in 2026. Mickaël Hauwe: The first one, I'll take that one. Joost, the second part, the impact was around 30 basis points. Joost Uwents: And concerning, let's say, we are always looking for the best value creation and doing good asset management indeed, normally, we don't sell assets. But sometimes, when it is -- let's say, when you can do an interesting deal, we are always open when, let's say, it creates value for WDP. Like, for example, at the end of last year, there, we could sell -- okay, it was a big unit, but it was a small unit in the bigger port of Liege, where we have, let's say, a very small position where -- we're only the third player on that side. So there was not -- we had not a lot of power to create value and then we could sell it to the neighbor. An example of a strategic buyer who said, "look, this is probably a once in a lifetime moment. So I'm ready. And I, of course, will have to pay the right price." But when he pays the right price, we said, okay, you can have it and you can buy it instead of renting it and then we could directly reinvest it from local Port, the Port of Liege towards the Port of Paris with a new strategic investment and a new strategic client Seafrigo. And yes, if we can do similar deals in the futures, we are always open for that, but always with the idea that it has to create value for WDP and not just selling a building because we want to sell something. We don't need to sell anything, but active creative asset management, we are always open. Like I said, sometimes you need to be creative and sometimes also a little bit contrarian. Pierre-Emmanuel Clouard: Understand. And just a quick follow-up. In your 2026 guidance of vacancy below 2%, does it take into account potential disposal of empty buildings? And on top, maybe it would be interesting to guide us through the lease schedule in 2026, how many leases are at risk, how many tenants are -- may leave in 2026? Joost Uwents: Yes, we are back at a retention rate at a normal retention rate of 90% and today, from the 10% tenants with a break in '26. There is already, let's say, almost 2/3 are already prolonged. So -- which is more than the -- the long-term average of 50%. And now there are no further, let's say, sellings of buildings foreseen in the plan in order to keep the occupancy high or higher. Alexander Makar: The next in line is Francesca from ING. Francesca Ferragina: I have just a couple. The first one is about the assumption that you took about the cost of debt over the 2030 plan? The second one is about the... Joost Uwents: One by one. Mickaël Hauwe: One by one, please. Yes, for the cost of debt assumption, we took into first for the base rate, the forward interest rate curve. So with Euribor rising from 2% today to a bit less than 3% by 2030 and the swap rate rising from 2.5% to 3%. And then with the margin added, we are below 100 basis points, which is what we currently pay for 5 to 7 years debt. That's the assumption. Francesca Ferragina: That's fine. So I move to the second question. How much of the [ EUR 1 billion ] in investment spending that you have for 2030 is going to be devoted to the Energy division? And what type of hypothesis you took behind this type of investment? Mickaël Hauwe: Yes. So the -- for the Energy division, it's a bit less than 10% of the EUR 500 million per year, so around, let's say, EUR 40 million per year and it's composed of the further rollout of our solar panel program and will go to 350-megawatt peak by '27. And there afterwards, we -- it will further grow in line with new development projects. Then secondly, we have the on-site batteries we are installing. And then we also have by commissions, by '29 a big stand-alone battery projects for which we just obtained the grid connection, which you can see on this slide in the green area. And that's the bulk of those investments. And then we will also add some first pilot projects in EV truck charging in mobility hubs as it is foreseen that our clients will and transport will change towards electrification. But there, it's too early -- already too early to make bigger assumptions on that because of what is happening now in the world around geopolitics, energy, self-sufficiency. So we believe that, that could come for a later plan. But that is the assumption we took, and you should take into consideration as there's profitability of solar panels then, let's say, 8% IRR, 10%, 15% yield on cost for the battery, it's around 15% IRR and 20% yield on cost. And those elements should bring us to a doubling of the revenue towards EUR 50 million in 2030. So I hope that's sufficient color. Francesca Ferragina: Yes. And then maybe my last question in the development costs, an important part is the [indiscernible] development project, development pipeline. Can you share your feeling about development cost for [indiscernible]? Do you -- do you experience any [indiscernible] about the overall operating...? Mickaël Hauwe: Well, we would say that over the last years after COVID, they have declined towards a level which is now broadly stable depending a bit on where you have -- how much work the construction companies have or per project or how big it is, but in general, they are okay and stable. And we can generate -- we can with those with the current construction cost, we can generate the targeted returns and let's say, the most distinguishing factor to achieve return -- the desired return on a development project is the availability of land, the cost thereof and the availability of power. These are the most important determinants of a development project today, right, Joost? Joost Uwents: Yes. But the good thing is that, let's say, we can create value with a combination. It's not only that we need developments to create value or that we only can buy. No, it is the combination. And you can do an acquisition. And based on that acquisition, there can be an extra development. So it's really -- the value is in the combination. It's not about developing or doing acquisitions or entering a new country. No, it is that combination, that blend element, that is really we blend everything and then we can create value. That is the most important future looking. Alexander Makar: The next in line is Paul from Barclays. Paul May: Thanks for presentation. Just a couple of questions from me. Just first one on the depreciation of the solar and other energy. I think currently running about 45% of the revenue is depreciation, which given there's arguably 0 value on solar panels are used up and batteries are used up. Surely, that is a cost that should be included in your analysis and probably shouldn't be added back when looking at your net debt to EBITDA just rather you're only taking 100% of the positive and 0 of the negative in your debt metrics. So I just wonder your thoughts on that and how that is included and you talked about in your plans? Mickaël Hauwe: Yes, it will be reflected in the end in our balance sheet as these investments come in the balance sheet at their fair value as they are for the property. And we believe the income -- the recurring cash income should be included in the EPRA -- in the EPRA earnings and also to take into consideration that the solar panels last a long time in the last 20, 30 years; batteries, 15, 20 years, depending on the intensity of the usage. But if you use them faster, then the income will have been higher as well. So yes, there is no land component like in the buildings. But yes, buildings are, in essence, also depreciating and we take the view that, that is more a revaluation component, and that will be reflected in the balance sheet rather than in our EPRA earnings. Paul May: Okay. I mean it's quite different given the 0 value, but that's fair enough. Just coming back on the leverage question, leverage continues to increase, which is sort of counter to what we're hearing most investors want companies to do. They tend to want leverage to move in the right direction rather than the wrong direction there, which is the way you've been going. I appreciate your comments around the cost of equity, but have you or the Board considers it -- looking at your company more in the U.S. way, so looking at implied cap rates rather than necessarily a made-up cost of equity, which nobody really knows what the answer is. And if you compare you to Catena, for example, you're trading pretty much exactly the same implied cap rate and yet you are happy for them to issue equity but not happy to do ourselves other than a payment in kind, which is an issue of equity or a scrip dividend, which is effectively an issue of equity. So just wondering why you have a different view on sort of your equity to Catena or others? And why not looking at it from an implied cap rate basis? Mickaël Hauwe: Well, we look at it from an implied earnings yield, so in first price earnings perspective, because that's the metric we need to look at to generate earnings per share growth and then it will simply depend on the opportunities. We will not -- we have not said we won't do it, we said if we don't need it for executing the growth plan, which we believe is a fantastic statement and reassuring also for you, the investors, that it is self-funded to achieve already 6% growth throughout 2030. And we have said that we have -- when we see attractive opportunities, generating an accretive return above our cost of capital, then we will not hesitate to use the share. That's how we are in it. Joost Uwents: And the cost of equity between WDP and Catena, there is a big difference still today. We are at a 7% earnings yield and Catena was at or is at a 5.5%, let's say, cost of equity. So there is still a big difference. And so then indeed, they have a better cost of equity and it was in combination with an opportunity where they could create value. So there, let's say, we followed, and we also say indeed that, that was a good deal and the right moment to do that. But it's really still the difference in cost of equity is still very big, and we are still below the sector average, while price earnings are today at 17 around for our sector, and we are still around 14. So our cost of equity is still higher. Mickaël Hauwe: Yes, and we are aware about the comparison you mentioned that we are a bit higher in leverage than our U.S. counterparts, but then on the other hand, we are much lower in a debt-to-EBITDA, which is the metric that matters in a European perspective. And also, we believe that having the A3 rating also gives us somebody to -- as in a story an act of confidence in our balance sheet strength towards the generalist investors and also do note that our balance sheet is still based on values per square meter less than EUR 1,000 on average. Paul May: I hear that. I mean, I think, surely, that looking at it from an earnings yield basis, you should adjust for your current cost of debt, which is lower than it than marginal whereas Catena is more in line with marginal costs given the variable exposure. So that's a large reason why they have a lower earnings yield than you do is that their debt is already repriced, whereas your debt will reprice at some point in the future. Hence the reason looking at on an ungeared or implied cap rate basis where you're basically trading at the same level. Let's say, a U.S. company would be looking at your equity and saying, issue equity every single day because it's cheaper to use your equity to buy assets. The market is overvaluing you on an implied cap rate basis. I think your equity is cheap, by the way. So as a separate point, hence the reason I wanted you to... Mickaël Hauwe: We agree to disagree. That's no problem, and we appreciate having exchanging the opinions. Alexander Makar: The next in line is Fred from Kepler. Frederic Renard: Just a question on my end. Maybe the first one, can you describe a bit the evolution of the ERV in your respective market, please? And how do you see it evolving in 2026 and just to link on that, you described an uptick in leasing momentum, also potentially for larger unit. Do you see more incentive to be given? That's the first question. Mickaël Hauwe: I think on the ERV, you answered it. So short term, it was flat. And now as the market starts to pick up again, we believe it will move back in line with indexation and in the mid- to long term inflation plus because of the scarcity element and then on the leasing momentum. Joost Uwents: Indeed on incentives, we can say that it is not a matter of pricing, so not a matter of incentives, it's about, am I ready to jump, do I meet that building? Do I can create value? Our clients also have to create value in by renting a building? Can they use it in a positive way and let's say, when they say, if I can use it, then let's say if they pay the price, there are not so many possibilities most of the time in the building they want on the location. So it's not a price discussion on the contrary. And I would say it would be only a matter of incentives I give for every empty building, 3 months' rent free and if everything would be rented, then I'm a happy man, but it's not the case. It is, am I ready to jump and then people pay the price. And indeed, most of the time, those prices are higher than the tenant who was in before. So everybody accepts the new price levels. Frederic Renard: All right. And then the second question on Catena. What has the company brought to WDP excluding dividend since you have this 10% stake? Because it seems that -- I mean, to refer to the question of Paul, but the company trades at a higher multiple than yourself, which means isn't there a better use of your capital allocation today, just wondering? Mickaël Hauwe: We believe it's a strategic stake and are very happy with that. The company is performing very well as said, and we are happy with that long-term strategic stake because we could never cover that -- those markets by ourselves, and now we can also offer solutions in other countries through Catena, we can help and reinforce each other. And we recently also did a deal with ... Joost Uwents: Indeed. And I think now, I'd say we did that not as a short-term opportunity, but as a long-term partner in order to be able and to become, let's say, a company that can offer solutions, let's say, from Stockholm and soon from Helsinki up to Madrid and Rome. So then we can offer to our clients total solutions on a whole Western Europe. This is important, and it is over the short-term cycles. And indeed, for example, the deal in Le Havre with Seafrigo, well, that was also, let's say, Seafrigo is a client of Catena before. And so Catena could introduce us and there, we could use the combination of clients, for example. And for us, it's really about long-term helping clients and giving -- being able to give a total solution to our clients and core Western Europe. Frederic Renard: All right. And therefore, does it mean that if you find, for instance, like company in the private market, which is active in Spain and in Italy, would you be happy to take a minority stake in order to invest indirectly into the market? Mickaël Hauwe: No. That will not be the case. Joost Uwents: No, there we really set... Mickaël Hauwe: We said we do it by ourselves. Alexander Makar: The next question is coming from Steven from ABN. Steven Boumans: On a specific question on Le Havre where you added investments. Any comments on the region and more specifically on where we are with permitting for your land there. And we have this project contributing in '27 or in 2030 and adjacent to it, do you see risk on permitting as a result of the coming regional elections. Joost Uwents: Dunkerque, yes, there, let's say, we are still waiting for permits. We have had a problem with the permitting time due to a bird like it sometimes happens when their strikes down a bird during the right period, you can do nothing. They have to investigate. So we got a longer option. And normally, but yes, in France, it can take a long time. We will -- we should get the permit, let's say, by the end of the year. So it will take still a long time. But in the meantime, of course, it is only an option, and we are not owner of the land, so it doesn't cost us anything. But that's just -- there is no specific reason that just the normal procedure in France, it takes 2 year to get your permitting and here due to the bird, then it will be 3 year, but that can also happen, let's say, in the Netherlands or other regions, yes. Permitting is taking time everywhere. Steven Boumans: Any potential risk of the local elections, could that be risk in your view? Joost Uwents: I think no, not really. I'd say there are always everywhere elections in Europe, there has been elections that are also elections, if I'm right, in the Netherlands and in France. And -- but let's say, logistics is not politically sensitive, it is a strategic sector, the strategic infrastructure. So let's say, we don't depend on, let's say, the local or more political waves. Mickaël Hauwe: And we also invest in industrial zoned land. Alexander Makar: And then we have one more question from Alex [indiscernible]. You're currently unmuted. Just for the other questions that are in the activity feat in the chat. As we try to respect the time, it's getting close to 11:00, we'll address them, but we'll reach out to you directly. The floor is yours. Unknown Analyst: One question on the scrip dividend. What's your assumption in your EPS growth target there? Mickaël Hauwe: Yes, that we do it in line with the historical of minimum 50% take-up rate. Alexander Makar: All right. Thank you very much. So this currently concludes the Q&A asset. We'll address the other questions in the chat directly. Any concluding remarks, Joost? Joost Uwents: Yes, of course. Thank you, Alexander. And to conclude, I can say that indeed, and thanks to our platforms, our strong fundamentals and our DNA of being effective, creative, entrepreneurial. And now and then a little bit contrarian, that DNA that Tony and I created together the last 25 years, well, that DNA makes that we can deliver today with a vision for tomorrow. So we are ready and looking ahead to 2030. Thank you all, and see you soon.
Operator: Good morning. My name is Krista, and I will be your operator today. [Operator Instructions] At this time, I would like to turn the call over to Stacy Alderson, Senior CN's Assistant Vice President of Investor Relations. Ladies and gentlemen, Ms. Alderson. Stacy Alderson: Thank you, Krista. Welcome, everyone. Thank you for joining us for CN's Fourth Quarter and Full Year 2025 Financial and Operating Results Conference Call. Joining us on the call today are Tracy Robinson, our President and CEO; Pat Whitehead, our Chief Operations Officer; Janet Drysdale, our Chief Commercial Officer; and Ghislain Houle, our Chief Financial Officer. You can turn to Page 2 of the presentation, which includes our forward-looking statements and non-GAAP definitions for your reference. These forward-looking statements reflect our current information and educated assumptions and include estimates, goals and expectations about the future. These involve risks and uncertainties, and actual results may differ from what we expect. As a reminder, forward-looking statements are not guarantees and factors such as economic conditions, competition, fuel prices and regulatory changes could impact actual outcomes. It is now my pleasure to turn the call over to CN's President and Chief Executive Officer, Tracy Robinson. Tracy Robinson: Thanks, Stacy, and thank you all for joining us today. I'm pleased this morning to share our Q4 and full year results. 2025 was a year in which this team delivered strong performance against the backdrop of significant volatility in a challenging macro. The actions we took over the past year were proactive and exactly what the environment demanded. We've been disciplined. We've completed an important investment cycle. We've maintained a relentless focus on productivity improvement and increasingly on commercial intensity. And these actions drove our 2025 results. They helped us navigate a tough year and have set us up well for when volumes start to grow across the industry again. Now on our last call, we made 3 commitments to ensure we deliver the type of returns we know CN is capable of. First was on performance. As Q4 demonstrates, we continue to intensify our commercial execution while maintaining strong disciplined network performance. Our focus is simple: concentrate on areas we can control and deliver through execution regardless of the macro backdrop. Our results today reflect this focus with improvement across all key operating measures. Second, on financial discipline. We reset our capital program to reflect today's environment with concrete actions to reduce costs and improve productivity. These actions are strengthening free cash flow, and we remain committed to returning excess capital to shareholders while maintaining a strong balance sheet. And third, on guidance. Now given the elevated level of macro and policy uncertainty and limited visibility, we think it's appropriate to provide directional guidance tied closely to volume trends rather than precise targets that can change quickly or become outdated. So let's turn to the fourth quarter. We closed the year with solid momentum, reflecting strong execution, reliable service and continued discipline on costs and assets. In the fourth quarter, we delivered 14% EPS growth and 7% for the full year, in line with our mid- to high single-digit guidance. I'm also pleased with our efficiency. In Q4, our operating ratio came in at 60.1%, our best quarterly operating ratio of the year and a 250 basis point improvement over last year. For the full year, we posted a 61.7% operating ratio, improving 120 basis points versus 2024. On cash flow, we generated $3.3 billion, up 8%, driven by cash from operations. And we remain disciplined on capital spending continuing to tighten throughout the year. Cash flow remains a top priority and the actions we've taken continue to support a strong trajectory. Now volumes held up well through year-end, led by Grain and Intermodal. We set a number of records on Grain. And on Intermodal, we benefited from an easier comparison as we lap the ILWU strike in 2024. We saw notable strength in segments where our service and commercial execution have helped us drive share gains. Janet will walk you through the key revenue puts and takes in just a few minutes. Across the network, we continue to make meaningful progress on operating performance and efficiency. In the fourth quarter, we saw improvement across all of our key operating measures. Car velocity improved, terminal dwell reduced, train and locomotive productivity increased, labor productivity strengthened materially, and we achieved a fourth quarter record in fuel efficiency. Now these gains reinforce my confidence in our ability to perform consistently even in a challenging demand environment. Pat will take you through the initiatives he and his team are driving to build on this momentum. So to sum it up, despite tariff pressures that intensified in the second half of the year and ongoing trade uncertainty, we executed, we stayed disciplined and we delivered. Now looking to 2026, our focus will continue to be on disciplined execution. We'll prioritize the levers we control, stay close to our customers and stay grounded amid a volatile macro environment. As we look ahead, uncertainty remains high and visibility limited. Economic growth looks muted, and it's hard to call where the tariff situation will land or what it means for trade flows. The outcome of the USMCA review could influence trade and freight demand in ways that are tough to size up today. So against that backdrop, we believe a more directional framework for guidance tied to volume trends makes sense. Given what we see today, our base case expectation is that volumes will be flattish with 2025. It's important to note that at this time, the most reasonable approach is to assume that current tariff levels stay where they are. So our base case expectations do not build in any upside or downside from further tariff actions. As the year unfolds and hopefully, visibility improves, we'll keep updating our view. And we're going to continue to pull every lever on productivity across the organization, and we will see incremental gains, although not as significant as those we achieved in 2025. We have some headwinds to work through in 2026 on mix and in some expense categories that Ghislain will take you through. So on relatively flat volumes, we expect EPS growth to slightly exceed volume growth. Free cash flow will continue to grow in 2026, and we remain firmly committed to returning that cash back to our shareholders. We're also taking a deliberate temporary step-up in leverage to drive share repurchases, reflecting our confidence in the underlying earnings power of this business when volumes return. And as a team, we're staying locked in on delivering for shareholders in any environment. Now we're building an engine with strong operating leverage, strong cash generation with resilience and with flexibility, one that will accelerate earnings and margins as volumes improve, whether through a better economic backdrop, clarity on a reasonable tariff arrangement or continued progress on Canadian trade diversification. And importantly, the muscles we have activated over the last 18 months around cost and productivity are now firing across CN. That gives us meaningful leverage as volumes return without requiring a significant step-up in capital, and our teams will continue to push hard for efficiency. Now just a few words on the proposed industry consolidation. We know this is top of mind for many of you, and it certainly kept us busy as we work through the details. UP and NS filed their application and the STB, as we expected, deemed the filing incomplete. The industry still has a long road ahead in evaluating this transaction. It is not at all clear that the transaction as proposed addresses many of the questions around the negative impact on competition as well as the bigger issue of increasing rail competition. The concessions required to achieve this will be significant. This should be the focus as UP and NS prepare their refiling, and we're eager to see how they'll address these issues in their revised application. I'd say they've got a long way to go. Now while this process plays out, the majority of our team remains focused exactly where they should be on running our business and driving value to our shareholders. The team is fully aligned on executing day-to-day, winning every carload, delivering safe and reliable service for our customers and continuing to convert strong execution into growing free cash flow. I am impressed with how decisively our team has stepped up, and you'll see this continue. Longer term, our opportunity set as the railroad of the North is compelling. We sit at top an incredible natural resource base with enviable access to North American markets and an unparalleled port network that provides a path to every global market. This uniquely positions us to support customers in both our current markets and as trade flows evolve. And we're seeing to start this play out in some sectors now. The decisions we've made over the last 12 to 18 months, we will continue to refine, positions us with strong operating and earnings leverage as these volumes lift. And throughout, we'll stay disciplined on capital and focus on execution and free cash flow. Pat, you're up. Patrick Whitehead: Thanks, Tracy. I'll be speaking to Slide 6 first. The team delivered a strong fourth quarter, and I'm pleased that the 3 areas we are laser-focused on are paying off. These are: one, ensure our people are at their safest and most productive; two, delivering our promise to our customers; and three, to maximize margin by controlling unit costs and asset utilization. It starts where it always does for us, safety on the ground. In Q4 and for the full year, we achieved the best injury frequency ratio in our history. That reflects consistent execution and is core to our performance this quarter and going forward. I want to first recognize our frontline teams who approach their craft as true professional railroaders. While this record is meaningful, our focus remains on every one of our CN family members going home safely every day. We want this for the families and the communities that count on us. That foundation allowed us to take on more work and deliver for our customers. Our workload increased 5% year-over-year, above partly supported by our Grain customers. We carried record-setting Grain tonnage for Western Canada for 4 consecutive months while maintaining reliable service to our merchandise customers with local service commitment performance well above 90%. From a network standpoint, Q4 tested resilience, particularly in December when winter operating conditions required shorter train lengths for the entire month. Despite this, car velocity improved 2% and dwell declined 1% year-over-year in the quarter. That tells us we're not trading service or velocity to manage disruptions. We're improving both. The takeaway from the quarter is straightforward. We handled more volume with discipline even under a full month of winter constraints. Turning to the next slide. This is where the operating model shows up in the bottom line. On labor, T&E productivity improved 14% versus Q4 last year. We entered the quarter with approximately 800 furloughs and exited with about 650, selectively adding resources to support the Grain program and winter readiness. On a full year basis, we improved our T&E labor cost per GTM by 6% with GTMs up by 1%. That's more output with a smaller cost base. That same rigor shows up in how we manage our assets. On locomotives, productivity improved 5% year-over-year in the quarter with roughly 10% of the fleet stored on average. Looking under the hood, locomotive availability reached an all-time high, nudging up 1% over 2024 to 92.5%, creating a knock-on effect that cleans up our balance sheet. The result was a $20 million reduction in our mechanical inventory or 14% fully year-over-year. We also achieved a record level of fuel efficiency in Q4, improving nearly 1% year-over-year with full year results just shy of our best performance on record. On infrastructure, we completed all 8 capacity projects we committed to at the start of 2025 on time. Our engineering team maintained its tight control over installation costs, totaling nearly $40 million of productivity gains from 2024 while materially reducing reliance on contractors. Where conditions allowed, including an earlier onset of winter in some regions, we advanced productive capital work deeper into the season rather than defer it, improving asset readiness while reducing contractor spend significantly. As we look to 2026, we're well positioned. The network, locomotive fleet and car fleet are in good shape, and we're not satisfied stopping there. To move from good to great, our focus is on precision. That means reducing yard dwell, eliminating non-value-added costs and ensuring cars spend less time waiting and more time earning. Yards are the anchors to the whole network. 3/4 of our traffic hit our major terminals and more than half of our staff work in these locations. In engineering, we're continuing to strengthen in-house capabilities, control unit costs and remove engineering-related delays. Reducing yard dwell only matters if cars move over the road without disruption. Together, these levers expand margins, strengthen cash flow and allow the railroad to perform through any cycle. We see an opportunity to lower our operating expense in 2026 through our cross-functional terminal reviews and continued operating discipline with additional margin upside as volume growth. With that, I'll turn it over to Janet. Janet Drysdale: Thanks, Pat, and good morning, everyone. Happy Friday. I am really pleased with the way the fourth quarter came together. We delivered 4% more RTMs and 3% more carloads, performance that reflects how hard the commercial team has been pushing on every opportunity, delivering 2% revenue growth in what remains a challenging market. What stands out for me this quarter is not just the growth itself, but how we achieved it. The team has been out in the market every day, winning share, capturing singles and doubles and staying relentlessly focused on what it takes for our customers to win. And while we did benefit from a relatively easier year-over-year comp, that tailwind was partly offset by continued softness in key markets like forest products and metals, which remain pressured by weak fundamentals and tariffs. So yes, we expected to outperform last year, but we also had real gaps to backfill. I'm really proud of the results the team has delivered. Turning to Slide 9. I'll provide a few highlights on the quarter before moving to the 2026 outlook. Within Intermodal, both international and domestic revenues were up 13% and 6%, respectively. International was notably strong at Vancouver and Rupert, aided by a favorable comparison against last year's port labor disruption. Prince Rupert also benefited from gains related to the new Gemini service. On the domestic side, we continue to realize service-related gains. Turning to Grain. We had very strong demand in the quarter, and our operating team did a great job in getting the Grain from the elevators to the terminals. So not only did we set an all-time annual record in 2025 for Western Canadian Grain shipments, we had monthly records in October, November and December. Within Petroleum & Chemicals, we saw growth in all segments, led by a 9% increase in natural gas liquids volumes, driven by strong domestic demand and continued export strength through Prince Rupert. Forest products remained under pressure due to weak demand and increased tariffs and duties. Within Metals and Minerals, we saw lower iron ore shipments driven by weak fundamentals, the mine closure in late Q1 of last year and some unplanned outages. With persistently high natural gas inventories in Canada, we also had a slowdown in drilling, which impacted frac sand. We continue to generate same-store price ahead of our rail cost inflation. However, our overall results reflected negative mix and a roughly $70 million headwind related to the repeal of the Canadian carbon tax. We had a fuel tailwind and an FX headwind that combined were a net impact of less than 1%. Tariffs, trade uncertainty and volatility impacted our full year 2025 revenues by over $350 million. Turning to the 2026 outlook on Slide 10. In terms of the macro environment, it doesn't look like it's going to be any better than last year. And recall that 2025 growth was helped by a favorable year-over-year comp. So we know we've got real work ahead of us, but we are leaning in hard. So starting with Petroleum & Chemicals, we expect to see positive momentum continue across multiple segments. We will benefit from a number of CN-specific projects, including Phase 2 of the Greater Toronto Area fuel terminal, new fractionators and crude oil expansion projects. Additionally, we expect a year-over-year comp benefit given last year's extended refinery turnarounds, which we don't expect to reoccur. We anticipate Canadian U.S. Grain to remain strong, particularly with the record Canadian crop as well as the recently announced improving trade conditions for Canadian canola. In terms of potash, we expect some pressure in the domestic market as farmers balance input costs against lower Grain prices. With respect to export markets, we handled some spot moves in Q2 and Q3 last year, which we generally don't expect to be reoccurring. So we have a bit of a tougher comp there. Turning to Intermodal. In domestic, we're continuing to leverage our strong service to drive growth. For international, it's pretty slow right now, and we expect that to continue into the second quarter. We continue to be very pleased with the growth in volumes related to the Gemini service through Prince Rupert. Within Metals & Minerals, we have some pluses and minuses. Weak fundamentals for iron ore are expected to continue, and we're still dealing with the tariffs on steel and aluminum. On steel, we are continuing to hustle hard on mitigating the transborder headwinds with opportunities in for Canada. Frac sand demand is unusually weak so far in Q1, but we have new terminals coming online and capacity for NGL exports is increasing, so we do expect improvement as the year progresses. The auto segment is expected to be flat. Forest products will continue to be challenged as U.S. housing starts are forecast to be flat and Canadian producers manage with the full year impact of the higher tariffs and duties that were applied in August and October of 2025. We expect persistent weak demand for U.S. exports of thermal coal. For Canadian coal, positive metallurgical coal prices are driving increased production. All in, we expect 2026 volumes to be more or less flat versus last year. Q1 will be the toughest quarter on a year-over-year comparable, and you're seeing that in our January volumes. We continue to price ahead of our rail cost inflation. Unfortunately, we do expect those mix headwinds to persist, driven by the ongoing weakness in forest products and metals. So let me wrap up. We are open eyed about the difficult environment in which we're operating, but we have a commercial team that is highly energized and moving with urgency and agility. We have available capacity, and most importantly, we're providing the service that our customers need to win. Ghislain, over to you. Ghislain Houle: [Foreign Language] Starting on Slide 12, we closed the year on a strong note. Thanks to the dedication of our commercial and operations team, we delivered solid performance across the board. Our financial results were further boosted by our continued focus on managing costs and driving productivity, and we remain active on share buybacks as part of our commitment to creating shareholder value, especially since we see our shares as undervalued relative to intrinsic value and an efficient way to return capital to shareholders. During the quarter, reported diluted EPS grew 12% year-over-year, while adjusted EPS was up 14%. These results reflect 2 notable adjustments: a $34 million pretax charge tied to the workforce reduction program we discussed on our Q3 call and a $15 million in adviser fees related to industry consolidation. We're very proud of the progress on efficiency this quarter. Operating ratio improved by 140 basis points to 61.2%. And on an adjusted basis, it even was stronger at 60.1%, a 250 basis point improvement. This reflects the hard work and discipline across the organization in managing expenses and driving productivity. Revenues were up 2% year-over-year, adding to the solid finish for the year. On Slide 13, let me walk you through a few key operating expense categories for the quarter on an exchange-adjusted basis. Labor costs were up 4% versus last year due to the workforce reduction charge and wage inflation, partly offset by 4% lower average headcount and higher capital credits from an extended construction season. Fuel expense was down 9% compared to last year, driven by 2 factors: the removal of the Canadian federal carbon tax and a 1% improvement in fuel efficiency. Overall, the impact of fuel prices on Q4 earnings and operating ratio was negligible, essentially flat for earnings and 20 basis points unfavorable to OR. Depreciation was down 7%, mainly due to 2 items: the benefit of a favorable depreciation study, which we do on a regular basis and the impact from certain assets recognized through purchase price allocations that became fully depreciated during the year. Other expenses rose 27%, mainly due to higher legal provisions, including a nonrecurring $34 million accrual related to an unfavorable court ruling in the fourth quarter of 2025, which we are in the process of appealing. The increase in legal provision is essentially offset by a $36 million gain on the sale of a portion of a branch line reported below the line in other income. The effective tax rate for the quarter was around 25%. Turning to Slide 14. Given the strong close to the year with earnings supported by strong cost management across the business, we delivered full year adjusted diluted EPS of $7.63, up 7% from 2024 and at the high end of our guidance range. Our adjusted operating ratio came in at 61.7%, an improvement of 120 basis points compared to last year, a clear reflection of disciplined execution across the business. Finally, we remain focused on free cash flow generation, ending the year at over $3.3 billion, up 8% from last year. We also finished the year $50 million below our Q3 capital projection, thanks to stronger capital discipline and real efficiency gains in engineering. We continue to lean into our share buyback program in Q4, repurchasing nearly 15 million shares in 2025 for around $2 billion, reinforcing our commitment to creating long-term shareholder value. I'm also pleased to report our Board of Directors has approved a 3% increase in CN's dividend, marking the 30th consecutive year of dividend growth, an important milestone and a reflection of our confidence in the durability of our cash generation profile. In addition, the Board has authorized a new share buyback program allowing the repurchase of up to 24 million common shares from February 4, 2026 to February 3, 2027. Looking ahead, we expect our debt leverage to increase temporarily to roughly 2.7x and then come back to 2.5x in 2027 as we take advantage of what we view as an attractive share price. The modest increase is intentional and fully aligned with our disciplined balance sheet strategy. Now let me turn to our 2026 financial outlook on Slide 15. As Tracy mentioned, given the uncertainty in the environment, we think a more directional approach is the right way to frame the year. For planning purposes, we're assuming revenue ton miles will be flattish with 2025 and importantly, that tariffs stay at their current levels throughout the year. On that basis, we expect EPS to grow at a rate slightly ahead of volumes. Pricing should continue to outpace rail cost inflation, and we're carrying a good momentum on the productivity side, recognizing that much of the heavy lifting on efficiency was done in 2025. That said, we do have some notable headwinds this year, which will weigh on margins, a continued unfavorable mix with less forest products and metal traffic, lower capital credits related to fixed overhead costs as a result of smaller capital program, a higher effective tax rate in the range of 25% to 26% and the fact that we're lapping last year's other income gains. In our modeling and guidance, we've neutralized foreign exchange, assuming the 2025 average rate of $0.715. Our FX sensitivity is unchanged at roughly $0.05 of EPS for every penny move. At current spot levels, that would represent about a $0.10 EPS headwind. With CapEx set at $2.8 billion for 2026, a $500 million reduction versus last year, we expect to see continued improvement in our cash conversion rate. In conclusion, let me reiterate a few points. We're very pleased with our Q4 and full year 2025 results, having delivered on our EPS guidance and build strong momentum heading into 2026. While the demand environment remains uncertain, our guidance approach is grounded in discipline and realism. At the same time, the fundamentals of our business remain solid. Our focus on pricing discipline, productivity and cost control, combined with the inherent operating leverage in our model positions us well to generate attractive returns when volumes return. As conditions evolve, the framework gives investors greater transparency into the sensitivity of earnings while underscoring our confidence in the durability of our cash generation and long-term value creation. With that, let me turn it back to Tracy. Tracy Robinson: Thanks, Ghis. Krista, we'll go to questions. Operator: [Operator Instructions] The first question comes from Cherilyn Radbourne with TD Cowen. Cherilyn Radbourne: Janet, I wanted to turn to you to just ask you if you could give some additional color on where your team is beating the bushes and whether there's any update on the incremental revenue target that was given in Q3. I think you generated $35 million in Q3 and we're approaching $100 million in Q4. Janet Drysdale: Yes, for sure. Thanks, Cherilyn, for the question. So we did kind of close with $100 million. Of course, that pipeline continues to develop, and we probably have another $100 million so far kind of in our scorecard that we're keeping track of in January. What I will say is that this is what's helping us to close the gaps in some of the weaker markets. So we do have seen forest products continue to deteriorate even since last quarter with some additional mill closures or curtailments, and we see the continued weakness in the metals and minerals side. So we are out there beating the bushes everywhere, I would say, across the board and even in the markets that are a little bit more pressured by the tariffs. For example, we are finding some stickiness and some new moves to ship metals from Central Canada to Western Canada. We actually have some optimism more recently around aluminum and the potential to move some of that back into the U.S. now that inventories are depleted, that's helping us there. I would say the service is an important one I want to call out that's been helping us win on the domestic Intermodal side. And we're leveraging the strength of our franchise in Western Canada around the NGLs and the frac sand, a little weak right now, but we do see that coming back. So hopefully, that answers your question. Operator: Your next question comes from the line of Scott Group with Wolfe Research. Scott Group: Ghislain, can you just clarify first if the depreciation is a onetime thing or if that's a new run rate? And then, Tracy, I just have a bigger picture question. If I think over a long period of time, the beauty of rails was the ability for earnings to decouple from volume and right, rails could grow earnings even with negative volume, right, because they have pricing and productivity and buyback. And I'm guessing you'd say you slow pricing and productivity and buyback, but I'm guessing I'm hearing a message of like volumes aren't growing, so earnings aren't really growing. Like is the historical sort of algorithm sort of broken? Or is this sort of -- we've got some unique headwinds? I just want to sort of really understand like the big picture message here. Ghislain Houle: Yes. Thanks, Scott, for the question. Let me answer the depreciation question first, and then we'll turn it over to Tracy. So when you look at the total variance of depreciation, it's composed of 2 things. One, the favorable result of depreciation study. And as you know, we do these on a regular basis, and we try to push the use of our assets and the life of our assets as far as we can. So that is about 1/4 of the variance. And then 3/4 of it is, in fact, we overdepreciated the purchase price allocation of some of the acquisitions that we've done in the past, and we discovered this in Q4, and we corrected it. That's about 3/4 of the variance. Maybe to you, Tracy, on the second piece. Tracy Robinson: Scott, so interesting question. So I would say that it's not decoupling. There's some unique things that are going on right now. If you think about the unusual impact of the tariff situation, particularly the tariff situation between Canada and the United States and the outsized impact that's had on a couple of our sectors, Janet has gone through them on forest products and on metals. That could correct itself over time. But right now, we're looking at pretty significant mix headwinds, which wouldn't be normally something you'd see. The other thing is as we look at how the economies are moving, we're getting some extraordinary movements in things like FX and the underlying assumptions. So that's something that we deal with, of course, more than most of our peers. And so those are moving around. So here's what we are doing. We're using this time of a quieter macro and while the tariff situation gets worked out to get pretty fit. We're getting leaner. We're focusing on structural cost reduction. This creates that operating leverage that you're talking about, and it will be considerable, but it will be operating leverage on -- and earnings leverage. And so as I look at our network and our opportunities going forward, it's pretty compelling. We sit on top, as I said, of a pretty strong natural resource base, continuing to develop. It's across ag, it's across mining, it's across the energy sectors across some of the industrial sector. And these are commodities that the world needs. We've got a pretty privileged position in the routes into the North American markets. We've got an unparalleled path to ports that access all of the global markets. And so we're positioned pretty well, whether it's at the exports or whether it's the import of consumer goods to North America. So these opportunities, we've seen them start, and we expect them to continue to accelerate. We've got capacity. We've done the investments in our network. So we're getting really fit. We've got considerable leverage. And as you see the tariff situation normalize, hopefully, that will happen this year, we'll see. You're going to see us -- you're going to see that leverage start to manifest. So we're pretty excited about that. Operator: Your next question comes from the line of Fadi Chamoun with BMO Capital Markets. Fadi Chamoun: Janet, is mix in '26 kind of flat versus last year, worse or slightly better? Just want some clarification on that. And the question I have is, so when you look at the outlook over the next, whatever, year or 2 or even 3, where do you see CN having differentiated opportunities to grow volume, to grow the business? What segment or what market do you feel that you have an opportunity to be differentiated versus the economy and kind of compared to the market? Janet Drysdale: Thanks, Fadi, for the question. So let me start with mix. And I want to take a minute to remind everyone, there's kind of 2 aspects to mix. There's the enterprise level where you see volumes move around, let's say, between Forest products, Intermodal, Metals and Minerals, but there's also mix within each segment. So for example, if we look at forest products and we think about lumber, even within that segment, we may be skewing more to shorter haul moves than longer haul moves just as some of the geography changes occur related to the tariff impact. So in terms of thinking about the '26 versus '25 and '25 versus '24, right now, it's looking to be about the same level of impact. I think that's how I would quantify it. But again, we're kind of forecasting on a forecast and at a more detailed level. So you're going to see some of that come through as you follow the weekly volumes and where they show up. In terms of where I think we have a great opportunity to differentiate ourselves going forward is really the northern nature of our franchise, the exposure that we have to Canada's natural resource base and the overall Canadian focus on diversifying trade and getting our products to new markets. I would call out, in particular, the BC North, which is just a tremendous region for us, including the Montney Shale, which has one of the largest unconventional reserves. So that's great for us from 2 perspectives. It's the natural gas liquids exports and it's the frac sand as an input. I would call out on a longer-term trend, our exposure to Canadian Grain and the yields that we're seeing improve there in the canola crushers, and I would particularly do that now in the context of some of the trade resolutions that we've seen with China. As we think about 2027, I like our exposure as well to potash. And I would say the -- just natural resources as these progress, things like critical minerals, I think that Canada has a lot of in just finding new markets. So there's a lot to be optimistic, Fadi, I would say, as we start to think about how we get into '27 and beyond. Operator: Your next question comes from the line of Chris Wetherbee with Wells Fargo. Christian Wetherbee: Maybe a question on the guidance as we sort of understand it. It seems like volumes may be a little bit more back half weighted. It seems like FX is maybe a little bit more of a headwind in the first half. So it's kind of the way to think about it, maybe down earnings in the first half, potentially higher earnings in the second half kind of gets you that little bit of a premium. I guess maybe the buyback could be something that we need to consider in there, too, but just maybe a little bit of help with the shape of 2026. Tracy Robinson: Chris, I think you've got the contour of the year pretty good. It will be a softer front end given the compare last year and what we're seeing with Janet went over on some of the volumes. We did have some onetime benefits from our cost reduction efforts last year in the first quarter. So you're going to see that lighter and it will continue to improve over the course of the year. Ghis, anything to add? Ghislain Houle: Yes. On buyback, Chris, absolutely. As you know, we're temporarily going to increase our leverage from 2.5x to 2.7x. We want to take advantage of the cheap share price. We're going to try to front-load that as much as we can. And then we plan on going back to 2.5x leverage in 2027. Operator: Your next question comes from the line of Walter Spracklin with RBC Capital Markets. Walter Spracklin: Back to you, Janet, on volume. When I look at your 2026 outlook slide, I'm seeing petroleum and chemicals up. You've got U.S. Grain up, you've got Canadian Grain up, you've got domestic Intermodal up. Those are big segments. The ones you have down is just forestry and fertilizers, so not quite as big. So when I eyeball that slide, it feels like 2026 volumes are more up-ish rather than flattish. So just curious if you could -- is there something I'm missing there and maybe flag some of your strongest upside, downside declines? And you could also -- is Prince Rupert, would you say that's still -- is that running at the 10% run rate that you were hoping for there when you had us up the last time? Janet Drysdale: Okay. So I mean, there is some art involved in the slide, obviously, Walter, but I appreciate your question. We see the greatest strength in ag and energy. So these are the 2 that I would call out. And on the energy side, it's really the petroleum and chemicals, and going kind of one level deeper, it's the NGLs, the refined petroleum products. And hopefully, towards the end of the year, we see some incremental crude come on as well. Now some of that growth depends, of course, on our customers and some of them are ramping up. And so you always want to be a little bit careful about how aggressively you forecast somebody else's ramp-up. So I would say that about the business. In terms of where things are expected to be weaker, I'm going to still call out the forest products as well as the metals and Intermodal. I think this one is a bit tough to call right now, and it really depends on the health of the consumer. I am pleased with the resiliency of the consumer, particularly on the U.S. side that we've seen so far. But the tariff situation has made that segment a little hard to predict, and we've kind of gone through these boom and bust cycles. So about some question marks around that. Really pleased with Prince Rupert. And really pleased with the growth that we're seeing there in terms of the Gemini volumes, in terms of the overall performance. And I'm really excited as well now that I have the mic, I'll take a few more minutes just to talk about a few other things that we see on the horizon, especially for those that had the chance to visit Prince Rupert last year. The can export facility is continuing to ramp up. So you'll remember that, that's really an innovative large-scale export transloading facility where we have the opportunity to do different types of commodities, be it Grain, be it plastics. And that expansion is really expected to take hold late this year, maybe a little bit into 2027. We didn't get time to spend while we were up at Rupert around IntermodeX, but I want to call that one out as well. So that's really import transloading, and that gives shippers the ability to consolidate and mix ocean containers into 53-foot domestic units. So both of these are examples of how we're continuing to invest in the end-to-end supply chain and our Intermodal ecosystem at Prince Rupert. So again, I see a lot of optimism on the horizon around that if we can get past some of the near-term macro issues. Operator: Your next question comes from the line of Brian Ossenbeck with JPMorgan. Brian Ossenbeck: Tracy, in terms of looking at the last couple of years, you highlighted a bunch of the headwinds that the business has experienced, but we've still gone from double-digit earnings growth to mid-single, now flattish, clearly excluding the headwind on FX, which will be volatile. So just wanted to understand maybe a little bit more in terms of what you think has changed or maybe not changed from the underlying earnings power in the business. And also wondering, is this a time where you need to spend a little bit more on CapEx through the cycle? I know it's coming down this year, but I think most of that's on equipment and other things like that. So maybe just some comments on the earnings power and the underlying investment you think you need to be there. Tracy Robinson: Thanks for the question. So as we look at what we've been doing over the last year and the last couple of years, you've seen us invest in the network. We had some really kind of important pinch points. If we think about what our portfolio base, what our commodity base is going to look like going forward. We've got the Edson Sub now 63% double track. We've added considerable capacity to the Vancouver corridor. We've got work going on at the Prince Rupert. We did a very high-return project around the EJ&E. So we've got our network set up now for the -- what we see happening and what Janet has laid out over time. That's been an important part of us getting set up for the future. And as you mentioned, we've done a lot of work on the locomotive fleet. We've gone from the oldest locomotive fleet in the industry to middle of the pack pad. And we'll continue to work a little bit on that over the time, and we've got most of our railcar fleets where we need them. So we're poised. Part 2 of that has been really taking a look at structural costs. And over the past 18 months, we have run really hard at structural cost reduction. And we've found along the way one-offs and just in-year cost reduction. We're always looking for those as well. And so the engine -- our underlying margin engine is healthier this year than it was last year, and it's going to be healthier next year. So we are right now under the weight of a pretty substantial mix impact and the tariff impact, which I'm hoping will normalize a little bit as we get through the USMCA review over the course of what I hope will be the next year. So I think we're poised. We're exactly where we want to be. We have a Western network that is very attractive from the perspective of exports in the global markets and imports out of Asia. We've got an ag sector that's incredibly strong and growing. The mining that Janet talked about is set to continue to grow as we go forward. So I like where we are. We sit at top an incredible resource base that's going to continue to develop. Thanks for your question. Operator: Your next question comes from the line of Konark Gupta with Scotiabank. Konark Gupta: Just a quick clarification before I ask my question. On the EPS, I don't think you guys touched upon the pension, if there's any nuance there? And just are you expecting the buybacks to be net accretive to EPS or not? And my question on free cash, actually, you talked about conversion being higher. If you look at the '25, I think the conversion on net income was about 70%. And if you just add on the $500 million CapEx reduction, that gets you to 80%. Is there anything else we should be thinking about on free cash conversion in '26? Ghislain Houle: So thanks, Konark. On pension, just in 2025, pension was -- versus 2024 was a tailwind of about $60 million. If discount rates and interest rates remain where they are, pension will be a tailwind of $40 million in 2026 versus 2025. On share buyback, if you look at it versus after financing costs and where interest rates are, it's very slightly accretive to earnings, not a whole lot. On the free cash flow conversion, we expect it with the reduction of capital, obviously, to improve. If you look at free cash flow conversion in 2025, it was 70%, so we'll improve on that. You've got to take into consideration when you look at cash that we have a sizable cash tax payment on a year-over-year basis in '26 versus 2025 because -- and this is the reason why our effective tax rate is actually increasing is because in our modeling, we expect more profits to be taxed in Canada at a slightly higher tax rate than it is in the U.S. So when you put all of this together, it reconciles to the numbers that you're coming up with. Operator: Your next question comes from the line of Ken Hoexter with Bank of America. Ken Hoexter: Great job on the OR for the quarter, looking for more next year. I guess, Tracy, let me get you back on your soapbox on the merger, right? You mentioned you're spending millions into the process. You target significant concessions you said. Can you talk about what that means? Like is that protecting sustained access? Is it a dollar amount? I just want to understand when you say significant, what does that mean? And then same thing for USMCA. Just big picture, if you're going to go in negotiations, what is the risk here? Or what is the benefits that you see come out of this? Or is the base case that it's just renewed and things stay the same? Tracy Robinson: Thanks, Ken. That's a couple of big questions. So first on the merger, listen, we are a very strong proponent of competition. And as we look at this application, we have great concerns and a lot of questions around how it does what it's supposed to do, including when it comes to the standard of increasing rail competition, which is a pretty big bar. And in our view, falls considerably short. It portrays the merger as a complete end-to-end in spite of obvious areas of overlap. They didn't use all the data. They didn't give us the projected market share of the new entity and therefore, how big it would be and the potential harm that would come from market power. So these are only examples that they suggest the gap in assessment of harm. And as importantly, I think it failed to propose conditions that would adequately preserve competition and it said nothing on how it was going to enhance competition, save an open gateway model that I think has been proven not to work and a gateway commitment that applies to, by our assessment, just a very small fraction of the impacted traffic and not at all the Canadian railways. And it expires with the merged entity. And of course, its impacts are permanent. So should this proceed, I think there needs to be a lot more data and information. There's a lot more we all need to know. And that will lead us to more information on the impact to the shippers across the network. And what I believe is a much more substantive portfolio of concessions to mitigate those impacts if we are held to the STB new rules. So as we look at it from a CN perspective, and we've run a number of scenarios, as you would expect. And based on the information that we have and what we think their intent is, which we need a lot more on that, there will be an impact to competitive access for our customers and for our business. Now our assessment would suggest that the impact on CN will be less than that of the other roads, but it won't be 0. And so if this merger is to proceed, we intend to rigorously pursue concessions that will protect and improve competition. And that means protecting the interest of our customers and our network and the competitive integrity of our network as we think about it. And we believe that there's opportunities if this is done properly for us -- for our network, for our operations to play a bigger role, an extended role in providing options to our customers in the regions that are going to have that negatively be impacted by the merger. So we think our network can be very helpful there. So they've got a lot of work to do. I'm interested in seeing what they come forward with and how they will step into this question of how they will not only offset the competitive impact, but also increase competition. It's going to be really interesting. We're ready. Our response will be informed by their next reveal and which I understand we will expect before too very long, but we're not getting ahead of them. In the meantime, the rest of the organization is focused on running the day-to-day business, which is equally important. The second question around the USMCA. This is -- right now, as you know, we've seen the impact. There are certain sectors that have been impacted. And some of them like Forest Products, quite significantly impacted. And we're continuing to work. Janet and team are working very closely with all of our customers in those sectors to try to get their goods into alternative markets. We've had some success on that. As we look forward, it's very difficult to say. Maybe you have a better view, but it's very difficult to say how this will work out. As I read the papers every day, I expect it's going to be bumpy. And there is a prescribed time line. July is an important month on the review of the USMCA. At the end of the day, as saner heads kind of prevail, we know the -- I think we all understand the importance of the relationship between these 3 countries and how much we depend upon each other. And I'm hopeful for a productive agreement. And now what that means is, I mean, the most important -- the biggest risk around the USMCA is uncertainty. There's investment that's sitting on the sidelines and our customers included, wondering under what rules they'll be investing in the future and whether they should do that. And I think that as we get an agreement, if it brings the kind of uncertainty that we all need, then that is an important first step. There is an opportunity for some mitigation on those sectors, so a reduction of impact on those sectors that have been impacted, forest products, steel and others. And then, of course, there's always the risk that there are certain other sectors that will have to deal with the level of tariffs. And depending on what those levels are and which sectors they are, we are working with all of our industries, all of our customers to understand the range of options that they look at. And so it's going to be a busy year from that perspective. I'm not equipped to tell you what to expect on where it will land. I think the good news is, is that we'll have folks at the table this year and hopefully come up with an agreement. Operator: Your next question comes from the line of David Vernon with Bernstein. David Vernon: So Janet, maybe I wonder if you can help us kind of how big of an impact this tariff stuff has had on overall RTM. It sounds like the Western Canadian stuff has been growing. It's just been offset by the tariff losses. I'm just trying to figure out like if you were to look at '24 to the end of your year plan at '26, like how much of your business has kind of come off purely because of tariffs? I think it would be helpful to just understand kind of what the relative weight of the changes in the trade regime has had on your business. Janet Drysdale: Thanks, David, for the question. So I don't have the volume numbers at my fingertips, but what I did say in the remarks is that for 2025, the tariff impact was in excess of $350 million. And the IR team can kind of help you with that after the quarter just to kind of translate that back to volumes. Obviously, it's been most impactful, as we've said, in Forest Products and Metals and Minerals. Feeling very popular today with the questions. I think the next question should go to Pat for anyone who's listening out there. Patrick Whitehead: And hopefully, it's going to be a tough one. Operator: Your next question comes from the line of Ravi Shanker with Morgan Stanley. Ravi Shanker: Maybe this is for Janet or Ghislain. I know you've changed your guiding philosophy, like you said last quarter. But when you look at the delta between your guide and your peers, particularly your direct peer, based on what you can see so far, kind of is that all down to your new approach to guiding? Or is there something idiosyncratically different with your end market approach or your comps relative to others this year? Tracy Robinson: I'm going to start off with that, Ravi. Listen, we did a lot of thinking around guidance, and we've seen over the last number of years in what is a very volatile kind of environment, a number of peers and including us that have had to change guidance, withdraw guidance or just miss guidance. And so that's not a very productive way to engage with you guys or a way to engage with our business. So we think that this is the right model for right now with this level of uncertainty. Next year, if we're in a different position, we will look at maybe something more precise. But as we look forward, we think that this is -- given the unique volatility that we're facing around the tariffs, the tariff impact that Janet has gone through, the currency and how it's moving this year in particular, we think this is the right way to go. If we look -- if you're talking about us and our Canadian peer, I would say that over time, as our networks and our business have evolved, we would have more exposure to Canada than I expect they would. They'll suffer, I'm sure, as we have, and I think they mentioned it on their call as well, the impact on tariffs. Ghis, do you have anything to add? Ghislain Houle: Yes. Maybe gave a little bit of visibility on some of the one-timers that I talked about in my prepared remarks. So obviously, having a smaller capital envelope, it impacts capital credits. And I would -- it's sizable. I would quantify it to be in the range of about $100 million. That will be mostly in labor and fringe benefits and a little bit in P&SM as well. When you look at other income, we have about close to $100 million in 2025. Now we always have some other income, but we don't believe that it will be probably as high in 2026 that it is in 2025. And as I said, our effective tax rate is increasing. We finished in 2025 at 24.7%. We're giving a range of 25% to 26%. To quantify this, I think it's close to $100 million. So these are sizable headwinds that we have to work to try to offset as much as possible in being more productive and being more efficient, which we have been tremendously in 2025. We did a heavy load over there, and we're still going to be -- we're still going to turn all the rocks in 2026 to try to offset as much of these headwinds that we had in 2026. Operator: Your next question comes from the line of Stephanie Moore with Jefferies. Stephanie Benjamin Moore: I wanted to maybe go back to the consolidation in the space. You did mention about $15 million in advisory fees associated with the industry consolidation. Can you provide a bit more color on maybe what drove the decision to bring in external advisers and what areas are helping you to evaluate, including the evaluation of potential further consolidation options? Tracy Robinson: Listen, yes, thank you for that question. Listen, this is a big deal. It's an industry-changing deal, and I think it inherent upon all of us who are going to participate that we understand the detail and there is a great level of detail that we're going to be looking at on how this is going to impact the industry. So I think where I would expect most or all of us to bring in experts let's make sure that we do that, and we do that in a way that isn't disrupting how we run the day-to-day business, right? Most, if not nearly all of this organization needs to be focused on delivering for our customers every day. On Pat, there he goes delivering the next level of cost reduction, Janet on growth. And so we have important and trusted advisers that we bring to bear on this. Ghislain Houle: And I would say that this is clearly nonrecurring, and it's not reflective of our operating performance, and this is why we have non-GAAP the amount. We're being very conservative on this stuff and very intentional. And this is the reason why we have non-GAAP it. Operator: Your next question comes from the line of Benoit Poirier with Desjardins. Benoit Poirier: I understand 2026 will be impacted by mix, tax, other income and FX. Ghislain, you provided great granularity for 2026. But looking beyond 2026, let's say, 2027 under a normal environment with stabilized mix FX environment, what kind of volume growth would you need in order to generate double-digit EPS growth? And I'm sure you already ran lots of scenario, but I would be curious to see what kind of volume growth you need in order to generate double-digit EPS growth under a more stabilized environment. Tracy Robinson: Benoit, listen, here's maybe the way to think about it. We are continuing to build a more efficient and lean engine, which is very good. That gives us great operating leverage. And as we go forward, the real catalyst for realizing that leverage is volume growth, as you know. And it always depends on which volume growth and where in the network it is. But in general, I would suggest that if you think about mid-single-digit volume growth with the cost structure that we've built and are continuing to build, you can see us generate double-digit EPS. Operator: Your next question comes from the line of Steve Hansen with Raymond James. Steven Hansen: I just want to come back to the contour aspect of your guidance, if I might. Is it possible that the belly of the year might not be stronger than the back half specifically? I'm just cognizant of the fact that I think petchem, coal, met min all got beat up last year through 2Q, 3Q on some onetime issues, either at the customer at the mine site level. And then we've got a record Grain carrier, harvest carry over here that should benefit those same quarters, all while we're looking at a comp in Q4 that's the record Grain movers, I think you articulated in your comments. I'm just trying to understand that contour side a little bit better and whether or not we have a better opportunity in the middle part of the year. Tracy Robinson: Yes. I think that's probably a great way to think about it. There's 2 pieces of it, of course. One is how the volume showed up last year, and I think you've got that right. We did also have the refinery shutdowns and what was it Q2, Q3, Janet. The other side of it, of course, is the cost and our efforts on cost and when some of those appeared over the course of the year, and that is a little lumpier, although a bunch of that was early on in the year. So I would say that the way you've constructed that is pretty good. So we'll go with that. Operator: Your next question comes from the line of Kevin Chiang with CIBC. Kevin Chiang: Maybe I will throw this one to Pat there. Janet laid out some of these unique opportunities. We talked about these Canadian nation building projects. It seems like a lot of it hits your Western network. And when I think back to the Investor Day a few years ago, it felt like a focus was creating a more balanced network, but this growth pipeline might actually exacerbate that imbalance. Just wondering how you think about the long-term capacity investments you might need to make on that part of your network? Or do you feel you have excess capacity now to absorb this growth? Unknown Executive: Kevin, I think Janet coerced you into the question by way, great question. Thank you for that. I would say this, the investments that we made in 2025 in the West, particularly, as Tracy pointed out, the Edson Sub being now 63% double track previously at around 40% has created about, we would call it, 6 trains of capacity in that corridor. So we have plenty of room to grow. We have locomotives that are stored. We have -- today, we're almost at 800 furloughed employees. So we have levers to pull as volume shows up. And I would say that as it relates to balancing, we do a lot of work around balancing each of the corridors. So I feel good about our ability to grow. The capacity is there. The locomotive fleet is more reliable than ever, and we feel very good about our ability to grow in that corridor. Janet Drysdale: And I would just add, we're going to take the growth where it comes, and we're going to figure out how to handle it. I think you have to appreciate as well that some of the weakness in forest products will actually help create some capacity in the Western region for other commodities as well. So Pat and I stay very closely connected on thinking about where the volumes are going to come online and how we're going to handle them. Operator: Your final question today comes from the line of Jonathan Chappell with Evercore ISI. Jonathan Chappell: Ghislain, further to Scott's question, you gave a good explanation to what happened to D&A in the fourth quarter. But as we think about that going forward, if we took the fourth quarter run rate, annualize that, put 4% inflation on it, you'd be looking at a D&A number that's down $40 million year-over-year. So I want to make sure we're thinking about that from the right starting point. And then also just overall inflation, you mentioned that $100 million potentially in the comp and ben line with some purchase services. What's the comp per employee look like under that scenario? Ghislain Houle: Okay. Well, depreciation, Jonathan, depreciation on a year-over-year basis, if you look in the past, it's always been about a headwind of about $100 million. It's still going to be a headwind between 2026 and 2025, but it's going to be smaller, call it, half of it going forward because we'll have the full year effect of the depreciation study impacting 2026. So that's going to help a little bit. That's your first piece of the question. In terms of inflation, when you put the all-in rail inflation, I think that it's smaller, it's lower -- slightly lower than 3%. And then comp per employee is -- when you look at comp per employee in Q4, it was about 7%, and it's going to be in the mid-single-digit range for 2026. I hope that answers your question. Operator: This concludes the question-and-answer session. I would now like to turn the call back over to Tracy Robinson. Tracy Robinson: Thanks, Christian. Now just before we conclude today, I've got one more piece of important news. Today was the last call for our Head of Investor Relations, Stacy Alderson. Stacy has elected to retire on May 1. So as you all know her, she's had an exceptional 30-year career here at CN, defined by leadership, integrity, lasting impact, and she's touched many parts of our business over those years, strategic planning, acquisitions, network development, financial planning. She's done it all, Stacy. And of course, our relationships with all of you. We see your fingerprints on this organization everywhere. Stacy, we're going to miss you, but we're very happy for you and happy for your family on the next chapter. Thank you. So we're not leaving the job open. I'm pleased to announce the appointment of Jamie Lockwood as Vice President, Investor Relations and Special Projects. Now Jamie is back in Montreal. He brings about 18 years of deep railroad experience. He's got a strong perspective. He's spanned finance, internal audit, supply chain and most recently, a big kind of job in engineering where with Pat, he's been leading the transformation of our engineering strategy and execution. Jamie, we're happy to have you back here in Montreal, and I know all of you will enjoy working with them. So Stacy and Jamie will work closely together over the next month or so just to ensure a smooth transition. I know you'll join me in congratulating both of them. And then just finally, I want to take the opportunity to thank the entire CN team for all of your contributions, your focus, your resilience all over the last year and in the year coming. Railroading isn't an easy business, but you all do it very well, and it's an honor to work alongside all of you. Thank you for joining us today, and we'll talk to you soon. Operator: Ladies and gentlemen, the conference call has now ended. Thank you for your participation, and you may disconnect your lines.
Operator: Good afternoon, ladies and gentlemen, and welcome to the Preliminary Results 2025 Conference Call of Raiffeisen Bank International. Today's conference is being recorded. At this time, I'd like to turn the conference over to Mr. Johann Strobl, Chief Executive Officer. Please go ahead, sir. Johann Strobl: Good afternoon, ladies and gentlemen. Thank you for joining us today. We are happy to report a good set of results for the fourth quarter and all in all, a very satisfactory full year 2025. . We finished the year with a consolidated profit, excluding Russia of EUR 1, 443 million, and a return on equity of 10.6%, slightly ahead of our guidance. The business year 2025 was again impacted by litigation provisions in Poland, although to a lesser extent than in previous years, and we expect further improvements here in 2026 and beyond. When we look at the future of the group and what it is capable of achieving as we exclude Russia and the legacy portfolio in Poland, what we see is a bank that achieved a 13.4% ROE in 2025. We are confident that the underlying business model is strong, that the balance sheet is healthy and well capitalized and that we are ready to grow for years to come. We finished the business year 2025 with 6% loan growth in line with our guidance. And while the first 2 quarters were slow, we are encouraged by the momentum that has built up in the second half of the year. We start 2026 in full swing with a solid CET1 ratio, improving liquidity costs and most importantly, good demand from our customers. Moving to Slide 6. We're happy to share with you the dividend proposal for 2025. With EUR 1.6 per share, we would like to see our shareholders participate in the good results of the past year. Please note that this is, of course, subject to the audited figures and will be voted on at our Annual Shareholder Meeting on April 9. RBI Supervisory Board has also announced changes to the Board of Management in 2026. First of all, Michael Hollerer will replace me as CEO for the first -- from the 1st of July. [ Magi ] knows RBI inside and out. He has previously held the role of CFO at RBI and prior to that, headed our Asset Management business. As for me, I will be turning 67 and with my mandate expiring in February next year, I'm happy to hand over at this time. RBI is in great shape and ready for growth, and I'm excited to see what the future holds. The Supervisory Board has also appointed Kamila Makhmudova as CFO and member of the Board of Management since January 1. Kamila has been with RBI for over 20 years and most recently was our CFO in the Czech Republic. Prior to that, she led our internal M&A and corporate development departments. Finally, the Supervisory Board has also appointed Rainer Schnabl to the Board of Management effective of March 1, where he will be responsible for corporate and investment banking products and solutions. For the past few years, Rainer was the CEO of our Bosnian subsidiary and prior to that, CEO of our asset manager. In the coming weeks and months, I expect you will get the chance to meet this accomplished new leadership team, and I'm certain that you will be as excited as I am about our future. Moving to the next slide, where we can show the good progress in the rundown of our Russian business. First of all, in terms of loans to customers, we finished the year having reached the targets that were set. Going forward, there are no new targets, but more importantly, all the measures and restrictions that we have implemented will remain in full force. This goes for our loans, for payments, for deposit collections, for liquidity investments and so on. Accordingly, you can expect the rundown to continue, and we will continue to update our regulators and investors on the progress. You can see how this rundown, which started on day 1 of the war and accelerated in 2024 has transformed the balance sheet in Russia. As of year-end, there was nearly 30% more equity than loans on the balance sheet. The loan-to-deposit ratio is now below 30% and the LCR above 500%. While the rundown remains our base case scenario, we do continue to explore transactions with interested parties. So far, we have not been able to identify a structure which meets the requirements of the local authorities, but we will not give up. And on the litigation side, I'm sure you are aware that a second court decision in December in Russia led to a further EUR 339 million penalty to be paid by our Russian subsidiary. This penalty can be added to the value of our claim for damages in Austria now equivalent to EUR 2.4 billion. And as to the Austrian claim and court proceedings, there's little I can say today. We have not filed it yet, but we will absolutely do so at the time of our choosing. The other option, which is to see our claim for damages satisfied in the next EU sanction package remains in discussion. I do not want to exaggerate the likelihood of this year today as it remains unlikely even though this would be in everyone's interest, not least of which our European partners. Let us now move to the next slide, the quarterly development, starting with the main revenue trends on Slide 8. Net interest income is broadly stable quarter-on-quarter and up slightly year-on-year with some modest interest rate headwinds throughout the year and the large part of the loan growth coming later in the year, we are satisfied with the stable development. More interesting, however, is our outlook for 2026. For one, these interest rate headwinds should become more neutral or possible even turn supportive. And more importantly, the good momentum in the loan growth is visible from the very beginning of the year and contributes to an expected 5% or so NII improvement this year. Fee income continued to tick up nicely in Q4, and we finished the year just over EUR 2 billion, up 8.5% versus 2024. Looking ahead, our initial guidance for 2026 is around EUR 2.1 billion. On Slide 9, we show the balance sheet development, and this is encouraging. I have mentioned the good loan growth and it's always good to see that it is being driven by key markets, including Czech Republic, Slovakia and Romania. In mortgages, specifically, we also see good progress in Hungary where retail expansion is important to our business mix. More importantly, corporate business in GC&M has picked up nicely, and the pipeline for 2026 looks equally promising. On the liability side, we see further deposit inflows and notably mid-single-digit growth in retail deposits in our network units. Slide 10. I'd be short. Liquidity ratio remains solid across the group, including, of course, in each of our key markets and in head office. Turning to Slide 12, our CET1 ratio, assuming a worst-case scenario in Russia, with 15.5% at year-end, we slightly exceed our guidance. I should also draw your attention an increase to an increase in the Russian op-risk RWAs with January 1. You may recall from previous presentations that in our worst-case scenario, we do not assume immediate derecognition of the op-risk RWAs stemming from the Russia business. The reason for this is that op risk is calculated on the group, fully consolidated basis and not booked at the individual unit level. This means that in any part of the -- if any part of the business is sold are deconsolidated -- the relief on the corresponding op-risk RWAs is not immediate. In 2025, we had agreed with our regulator to cap the Russian op risk which was retained in this price book zero scenario. This agreement expire at year-end and from January, we had recognized the full EUR 3.9 billion RWAs. The effect of this increase is around 29 basis points meaning that our CET 1, excluding Russia, is at 15.2% with January 1. On the right hand of the slide, you will see our capital stack also under the worst-case scenario in Russia. The AT1 bucket does not reflect the note, which was issued in January and where we added EUR 150 million to our AT1 stack all else equal. On the next Slide, 13, our CT1 ratio guidance for 2026, always under the assumption of a worse case in Russia. No surprises here. We continue to steer the bank to around 15% and above. Now let's jump to Slide 15, the MREL and funding plans. On MREL, first of all, with the start of the year, we have a subordination requirement of 26.71%. Considering the own funds in our AT1 capital stack. This new subordination requirement does not change our issuance plans. We have also issued a few senior nonpreferred in previous years, which add to the buffer year. I mentioned a moment ago AT1 note, which we issued earlier this month. And as you also mentioned, the senior issuance out of our Romanian subsidiary. This was their first Euro benchmark issuance and I would like to thank those investors who participated. For the rest of the year, we expect 1 to 2 senior preferred notes from Vienna and potentially a senior deal out of Croatia. The other MREL needs which you see here for 2026 across our countries are expected to be covered domestically. Moving now to Slide 16 and 17. On the following slides, we have shared our macro update, which I will let you go through at your leisure. Let's turn to our 2026 outlook on Slide 18, and starting with core revenues. We expect 4% to 5% improvements in NII and fees and a similar impact on the OpEx side. We aim for a small improvement in cost/income ratio next year to around 52.5%. The initial guidance on risk cost is around 35 basis points, and Hannes will share his thinking later on. We expect loan growth to continue in line with the positive trends that we have seen in the past few quarters and target 7% growth in 2026. As mentioned, we expect our CET1 ratio, excluding Russia to remain above 15%. For the group, excluding Russia, we expect a stable ROE around 10.5%. On the one hand, we expect improvements in the operating results and few litigation costs on the Polish legacy portfolio. This, however, is largely offset by larger bank levies and windfall taxes as well as the normalization of the risk costs. When we look to the future of the group, excluding both Russia and Poland and illustrated here with the yellow line, we expect to be closer to 12.5%. In this case, the improvements in operating income are not enough to offset the announced increases in bank leverage and the high assumed risk costs. Going forward, however, we continue to expect that the core of the group will sustainably earn 13% and above. And with that, allow me to hand over to Hannes. Hannes Mosenbacher: Thank you very much, Johann. Good afternoon, ladies and gentlemen, and thank you for spending your Friday afternoon with us here today. I guess that by now, you have seen the numbers, and I will keep it short. We finished the business year 2025, with risk costs of EUR 192 million, down EUR 95 million from a year ago. In basis points, this is a provision ratio of 20 basis points for full year 2025 which I'm happy to report is inside our guidance. Overall, we remain very satisfied with the quality of our portfolio and our nonperforming exposure ratio is at record lows. We continue to make good progress on our workout strategy, as you can see with the further drop in NPE volumes. Beyond NPEs, the trend in the performing book are healthy, and we continue our proactive workout strategy. In Q4, we released the overlays, which we have built up in Russia, where the bank is so well capitalized and the loan book has shrunk so much that the overlays have become redundant. In the core of the group, we have made minor adjustments leading to around EUR 45 million of releases in Q3 versusQ4. Going into 2026, we still have EUR 413 million of overlays available to us, equal to more than 1 years' worth of standardized risk costs. Risk cost guidance for 2026 is around 35 basis points, which, as you know, always includes a degree of prudency this early in the year. I do not need to remind you of the geopolitical turbulences that we have witnessed in 2025 and since the start of the year, which also led us to start the year with a modicum of caution in our risk cost guidance. Away from asset quality, let me touch briefly on Poland, where the trend is clearly improving and where we believe that the worst of the litigation provisions are behind us. The inflow of new Swiss franc claim continues to decline, while the inflow of Europe claims has stabilized. Uncertainties remain, not least coming from the craft law, which aims to accelerate settlements in court proceedings. For 2026, we assume somewhere between EUR 200 million to EUR 220 million of litigation provisions, which is around 60% coming from Swiss franc and another 40% or so coming from euro-denominated loans. Having said all this, we are now more than happy to take your questions. Operator: [Operator Instructions] And our first question comes from Benoit Petrarque with Kepler Capital. Benoit Petrarque: Yes, Benoit Petrarque from Kepler Cheuvreux. I've got a couple of questions. So the first one will be on the net interest income. Looking at your guidance and also your loan growth guidance, it looks like you still expect net interest margin to remain relatively stable in '26 and therefore, NII to be mainly driven by volume growth. We see some key rate cuts in '26. So I wanted to check with you if the margin pressure will be indeed relatively limited as per your forecast in '26. The second question is on the operational risk in Russia. I was wondering if it's purely a mechanical process? Or is there any rationale behind or any discussions with the regulator? Do they fear any operational risk from Russia? Or is there any discussions on that item? Or this is pure mechanical adjustment based on your income generated in Russia? The number three will be on M&A. And I think you commented on the fact that you might be looking into Romania. Just wondering if you could update us on your M&A appetite now that, clearly, the group is focusing on its own future. And then finally, on the bank levies, we have a big step-up in '26 in Hungary. And I was wondering if your first look on this is that it's going to be a one-off item, i.e., recovering in '27 or you assume kind of stable high bank levies going forward also in '27, '28? Johann Strobl: Thank you for your questions. And I start with the NII guidance. I mean, you're definitely right. I mean when you look at the Q4, you might maybe need some 1 or 2 adjustments to get the run rate of the Q4. So there was a minor one-off of minus [ EUR 7 million ] in Czechia. If you add this as part of the run rate and if you then consider that you have at the very end of the quarter, the loan book was really building up, then probably the run rate is closer to EUR 1.70 billion and if you analyze this, okay, here, we assume then also, to some extent, stable net interest margin to 4.3% or maybe a touch less, and then you have a 7% growth again with a net interest margin range of around 2.3% or so, then you achieved this EUR 4.4 billion. Yes, I think the rate cuts are partly still covered by these model books and by investments. On the other hand, I see your point that if competition moves more and more to price topics as well, which as of this point in time, I do not expect at a very intensive level, then it could be that there is some pressure on that as well. But as of now, we are optimistic on that. Hannes? Hannes Mosenbacher: Johann and [ colleagues ], the question regarding the op risk on Russia. You know that there has been quite some adjustment on the CRR3 and so therefore, we're using the regular op risk approach within the CRR approach where you have 2 main components, the one is the operating income, and you have seen the numbers and also, of course, which must be partly incorporated legal provisions. So it means Rasperia I and II are also now included in the 2025 RWA basis. Thanks for the questions. Johann Strobl: So then coming to your M&A appetite here, I would -- I hope you understand that I will not comment on recent rumors, but what I confirm is that we have, in some markets interest and would appreciate to participate and also be successful when we participate and the countries are well known. So it's -- Romania is on this list. I always said, Hungary is quite difficult because of the competition, one might expect Slovakia, it's not a must, but still could be of interest. Serbia achieved something, but still, yes, in the past, I also said that Croatia may be difficult, but it would help the development of our bank for sure. Czechia is in these days, very expensive, but it will be good for our development here. So it would depend on the structure. To your question -- to your last question about Hungary, difficult to say. I have no indication that it will continue also in 2027. And I hope it is as I expect. So only '26. Operator: And our next question is by Ben Maher with KBW. Benjamin Maher: I just have a couple. That's just on the Czech NII, which was down a lot Q-on-Q. I think you mentioned there was a one-off negative. Can you to give a bit more color on what was that one-off? The loan growth guidance appears quite conservative given you're already delivering close to 6% ex-Russia and you're seeing potentially a positive turnaround occurring in Austria. So I was wondering about just some of the cost of risk [indiscernible], has that just been prudent at the beginning of the year? Or do you expect a slowdown in kind of your wider footprint? And then I was just hoping if you could give any guidance on the overlay usage in 2026. That would just be helpful to kind of frame that. Hannes Mosenbacher: Well, I may start with the question on the overlay releases. I think what I have said in my statement, the 35 basis points is the guidance what we may use for the regular business, so not just the running business. If things would really [indiscernible] are, we would also be tempted to make use of the overlays, which are being available to us. And a big part of overlays is anyway to be attributed to our Ukrainian operations, and that's the way how we think about using and making use of our overlays. Thanks for the question. Johann Strobl: Yes. To your Czech question, this was a sort of reclassification between trading result and net interest income. So this is to the small amount, yes, unfortunate. But I think with this correction, we see the right number. So I think if you then add the EUR 7 million, as I said when answering your question before you then get a better understanding of the run rate also in Czechia. Now to your second question, the loan growth guidance of 7% seems conservative. Yes, indeed, we have mixed signals. So we see some loan growth forecast for the overall market, which is even below the 7% from research. On the other hand, I can confirm that given the base what we have so far, it's strong. On the other hand, if you go a little bit deeper than for example, in Slovakia, you have seen an enormous and enormous growth in mortgages. And here, the question is to what extent is this somehow front loaded or how shall I say, the demand came strongly in questionable here if it continues. So the one or the other market might be below this 7% and then in combination. So if it would be a little bit more, we'll be happy and celebrate. But I think, the 7% is to be achieved. Operator: And our next question is by Mate Nemes with UBS. Mate Nemes: I have 2 questions, please. The first one would be a follow-up on the risk cost guidance of 35 basis points for '26. Hannes, would you mind elaborating on the drivers of this and then perhaps shedding some light on the conservative assumptions going into this guidance? Where do you feel you've been conservative when issuing this guidance? And which trends you would need to see perhaps to revise this? And the next question is on loan growth, particularly in Group Corporates & Markets. I was just wondering if you could talk a little bit about what sort of loan growth you're seeing in the business? And what is your expectation into '26? And how do you see the outlook for the business in general after a slower period, I think, in the past couple of years? Hannes Mosenbacher: Thanks again for giving me the opportunity to talk about the risk cost guidance for 2026. I'm really sure you can recall that when we talk about standardized risk cost, we talk at a level of around about 40, 45 basis points. So this would be a through-the-cycle risk cost guidance. So what made us coming in slightly a bit lower with 35 basis points. On the one hand side, as you can see in our macroeconomic outlook, we see in many countries that the macroeconomic environment is getting better, first thing. Second thing, a big part of our portfolio is also being built up on a retail portfolio. And of course, a very, very strong employment rate, a very low unemployment rate in our market is very much supporting a very robust credit loan growth. And secondly, also a really benign risk cost development in the mortgage business anyway, but even more so also on consumer lending. Then we see good demand on consumer lending and some investment needs and ask for money. We have EUR 430 million of overlays. We have EUR 10 billion of significant risk transfers outstanding. And yes, Mate as you said, if all things turn and if I would be terrible wrong with my 35 basis points, we still have our overlay pool available. Hopefully, this gives some hints what was the thinking and the mechanics, how we came to the 35 basis points. And yes, you're right, we again came in slightly below risk cost guidance for the year-end, but I also gave you the reason. One of them was that we have -- that we released our overlays in Russia, and I was giving the background having more capital than loans outstanding, we felt that this is an appropriate time to release the overlay in Russia. Johann? Johann Strobl: Okay. Now to the GCM, what type of business would we expect also for 2026. So we have -- I have to state -- you are aware of it, but let me state it that GCM is not only Austrian large corporate, but this is our international portfolio. And this comes partly from Austrian customers, partly from customers being in the Western countries, so not necessarily in our core markets, but with a relationship to our markets. And finally, the international customers in the CE countries. Here, we usually support and we split the -- so if there is a local take Czechia, if one has a big demand in one of these loans, then part of it we take also here. And the areas what we do, this can be project finance. We are very proud of something -- I mean, it still in Bosnia, where I say energy part. So it goes throughout the range. I think all of all, quite healthy business. Yes, quite a lot of competition. And if there would more come I would be very happy. So what gives you some numbers what I touched before, I think in corporate, if the -- overall the markets where we are in can achieve from market research, we wouldn't expect more than some 4% to 5%. And we are optimistic that -- and this is built also on the pipeline, what we have or what we are closing to be in the business what we book here. So in the GC&M and yes, the level where we have, we see some markets in corporate where we see in our books where we hope for an increase, which is Czechia, which would be very important. And then also maybe Croatia, okay, it's not big, but it will improve and Romania. Romania has been strong in the recent years. I mean you didn't ask for retail, but let me share some flavor as well. So I think that in the smaller countries, you still could expect double-digit loan growth and in the others, 8%, 9% like this. And if we achieve that, then the combination will be 7%. And if we are lucky, a little bit more. Thank you for your question. Operator: And our next question is by Gabor Kemeny with Autonomous Research. Gabor Kemeny: I have a question on your ROE guidance, please. You are guiding 12.5% core excluding any Polish Swiss franc charges. Can you give us a sense of what you expect to drive the expansion towards 13 plus beyond 2026. The drivers that would be interesting. And the other question I had was a technicality on the ROE guidance. I see it on Page 37 that you assume EUR 13.3 billion of average equity for 2026. I believe your end '25 equity core was EUR 13.8 billion. So if you could elaborate on this, why you assume less than that? And the other -- the final question would be if you could give us an update on Russian litigation, please? And what is the likelihood of recurrence of the litigation provisions in the coming quarters? Johann Strobl: So let me start with the guidance and where do we expect? What are the drivers for 2026, if I may start with this. Yes, if we achieve the net interest income, as I have outlined, then this could be positive for our ROE, maybe by 1.5% yes, and then the others, relatively small fee and commission income, EUR 0.6 billion. Net trading income, which was more or less 0 coming in 2025, coming from credit spread and the one or the other topic, we assume that this negative effects will not reoccur, and then we would be back at around 60, what we usually should have, so 0.5. So if you add these up, you might come to 2.7 improvement. We also -- I mentioned it, have OpEx increase by 4% to 5%. So minus 1.2%, something like this. Other results improving by 0.6, governmental measures, minus 0.5. And then I have the normalization, what Hannes talked about impairment losses, which might be minus 1.5 -- 1.4, sorry. So little bit more income taxes probably. And yes, then we would be at some -- I would have explained I guess, the developments, what you would expect. And as I said, in the coming years, '27, '28, yes. Maybe the one or the other headwind comes from the extra bank tax. We'll see. Of course, here, Croatia is good attitude, but taking example, Austria, there was a tax increase from EUR 23 million to EUR 70 million something, so up EUR 50 million. This was at least still now limited for 2 years. So '25, '26. If they keep and we are aware, they have huge needs, then this should drop by EUR 50 million something. And so one or the other, we talked about Hungary that we still believe or hope that it's this huge increase is a one-off. So part of it comes from the bank levies being reduced. The other part comes from the Polish improvement, where we then hope that the litigation goes down from 200 to 100. And finally, yes, we see a further improvement in the GDP growth in '27 and beyond. And maybe even that then the cycle in some rate decrease, cycle in some countries might still go on in '27, but in others, it might even turn around. So a combination of what we have. Now to your quite difficult question. And here, I -- can I come back to this a little bit later to see the average, it's -- give me a few moments that I find my, here, I would have a look to my notes. Before that, I would come to the other question, which is further litigation and balances in Russia in the coming quarters. That's very difficult to answer for one reason. And the reason is I was negatively, very negatively surprised by the second Rasperia litigation and penalties. And this is really a very negative development in Russia in that area. Because the first litigation, at least from my view, covered everything. So coming back again with a second litigation. Okay. There had been some reasoning which a judge might accept. Economically, it's impossible. That's the negative signal. The positives are that this second litigation is the only one which we have seen and where we say, okay, it's difficult to explain anything else so far did not happen. So this gives us some hope in the balanced view. Now to the equity. It's calculated on '26 budget numbers and did not fully include the year-end and OCI effect. So you are right that we will redo this and give in the course of the time some more detailed information. Operator: Our next question comes from Riccardo Rovere with Mediobanca. Riccardo Rovere: Two if I may. The first one is that your NII guidance '26 is up versus '25, about 5%. The loan growth is 7%. So it looks like you embed some margin pressure. Now we've been talking about margin pressure for quite a long time. It has never really come through. I was wondering while all of a sudden, given the rate environment provided the rate environment in consensus expectation and market expectation is kind of correct, why that should happen over the course of '26? And the second question I have is how much of your time and managerial time now is devoted to dealing with Russia after 4 years. Does it take a good part of your working days? Just to be curious on that. Johann Strobl: Yes. Indeed, when we talk about margin pressure, I think it's very different from market to market. But what you see, what you see is everyone is going for additional customers. We did so one way to achieve this is by whatever offer you can have in mobile banking, whatsoever. And the other way, I think we have been successful is your liabilities part, so offering nice term deposit whatsoever. This can be at a significantly competitive levels. And this is the type of margin pressure what we see. And the other is in the mortgage business. So we have been very successful. Sometimes in some markets, it happens that then for 1, 2, 3 quarters, it's really difficult. This comes and goes. So there is no long-term strategy what we see from competitors, but it's adjusted. And here, when we talk about margin pressure, there is always the uncertainty. Is it just one who has more appetite and keep the others cool? Or are they defending and then -- so this is the core of questions what we have when we talk about -- it's more about -- when I talk about margin pressure. So we have the 2 elements. The one is if the Central Bank rates go down, then of course, the everything what is on the current accounts is under pressure. And here, it depends then on the model books, what we have and the investment books and more of the timing. Still here in '26, we have a positive impact still from earlier hedgings and therefore, we -- I was not so much worried about these developments for 2026. And as I said, the other is coming from these topics of competition. We'll see. And to your second question, management time spent on Russia. It's nowadays mainly me when we talk about potential transactions. And of course, to some extent, then Hannes as being responsible for compliance issues now and then there come topics. But it has reduced significantly compared to earlier years. So I dare to say it's fairly stable in 2025 for we didn't have any questions from authorities on the business. So all these, which are also time consuming has diminished significantly. So not big time anymore. Riccardo Rovere: Thanks, Johann. If I may get back one second to your competitive pressure statement, why competitive pressure in 2026 should be more as a burden than it has been in 2025. I mean with 7% loan growth that you project, it sounds like with the pie seems to be large enough for many banks operating in those countries. So I was wondering why all of a sudden in 2026, the competition should be heavier than we have seen so far. I mean margins at the very end of the day were kind of stable in Q4. Is there any... Johann Strobl: You are fully right. If the pie grows by 7%, then I should not be concerned at all. I had seen the one or the other research where I was rather thinking of maybe 5%. And then we -- it would mean that we continue to get market share and then I mean the good thing about Raiffeisen is, the good thing and they're not so good thing. The good thing is that in the big markets, our market share is not that huge. So increasing our market share is not too much painful to others. But you're right, if we see the 7%, 8% growth all over the markets in the loan book, then no need for any margin pressure. So yes, I agree with you. Operator: Our next question comes from Krishnendra Dubey with Barclays. Krishnendra Dubey: I think I have 3. To start with, just on Hungary, I guess, there was this big negative in the trading. So how should I think about this in terms of the rate cuts or no rate cuts that's going to happen in Hungary? That's the first. Second question is around the dividend payout. I believe the payout this year is around 40%. And then I guess you have a bigger range, which is 20% to 50%. For the future years, how should we think about the payout? And aligning to the ROE question, just trying to understand when you're trying to guide to greater than 13% ROE, does that have inbuilt some M&A or like reduction of capital via buyback or anything? Or is primarily like outside the scope? And the last one is on -- just on the M&A, just staying on the M&A bit, I guess you had in last 5 years, you had 2 acquisitions, one in Serbia, one in Czech Republic. If you could remind us like what was your cost takeout or what are the cost synergies that you were able to extract from those deals? Johann Strobl: Yes. Thank you for your questions. I probably did not fully get your question around Hungary. Was it just to confirm, was it again on this increased bank tax? Or I didn't get your first question? Krishnendra Dubey: On the trading part, like the negative was bigger this quarter. And so just trying to understand like on the trading result, it was a bigger negative compared to the -- or the first 3 quarters. So what was driving it? Johann Strobl: Now, I understand. I -- there is -- this is a valuation issue, and it comes from what the Hungarian calls baby loans. So this is sort of subsidized loan where the banks had to take over the part of the subsidies, which came from the state. And yes, this led to a reduction of the profitability of this product, which had to be considered in the valuation and therefore. So it's not trading what you presume from the typical capital markets trading also, but it's a valuation from this loan book, the baby loans. To your second question, the dividend payout. Yes, we are close to the 40% this year. And if we assume that maybe this for '26, you would keep this or so, then you might go up slightly. A couple of more cents might be possible. I mean our current thinking is we will see over time that when we -- it's too early to say now, but probably when we talk about Q1 we might have deducted a dividend of EUR 1.8 something of pro rata, but look, it's still January. So a little bit early to speak about this. In the -- all the targets what we give are without any impact on M&A. So it's pure organic what we had. And yes, it -- what we could say is in the recent M&A activities, what we did in Serbia and in Czechia, we could take out a considerable part of it. So you always say some -- what could be depending on the 50% maybe even more, depending on the overlap in the branches and so a couple of things. But you could -- if it's like -- it's quite similar to what we have in the geographic and local footprint and then it might be even more than 50% of the cost base maybe up to 70%. And yes, the second part is there are also some positive synergies. So why we would also like acquisition is it's -- what we have found in the last few months, it was very inspiring for the organization. So the organization itself improved also quite a lot. So it has not only the cost synergies, but here, there are some more benefits. Thank you for your questions. Krishnendra Dubey: I was just asking about this, the impact that you highlighted on the op-risk RWA, like earlier if you would deconsolidate it, it would go away. So does that mean if you deconsolidate the impact is going to be bigger ? Johann Strobl: Yes, yes, sorry. So you were talking about the deconsolidation of Russia and when will we lose the -- was this your question, the operational risk RWAs? So as Hannes tried to answer, it's in the, let's say, worse of base case, we have to assume that it's a very formal process, which over a period of 3 years, it reduced. We have currently a significant amount of this, not just consider this from EUR 2.6 billion to EUR 3.9 billion. So this EUR 1.3 billion adds to 30 basis points. So you can easily figure out what it means, but this means also that over 3 years, CET1 ratio, which is now decreased in January 1 from 15.5% to 15.2% should every year like-for-like increase by this 30 basis points over 3 years. If the regulator would be generous, it could grant us also within 1 year, but we report the very cautious one. Operator: We'll go next to Benoit Petrarque with Kepler Capital. Benoit Petrarque: Just to follow up on 2 questions actually. First on Hungary, the elections there. I mean, what do you expect? And could that change also your view on the local business depending on the outcome? I mean, is that a catalyst to think for '26 for RBI or not? And then just on Rasperia, the court case, what is your strategy? And why are you waiting now to file a claim and how long you will take to take a decision there? Johann Strobl: Yes. I'm -- to your first question, I'm not a political expert. So I read, of course, I read, and we have many sources which say their outcome might be close or there might be a change or not a change whatsoever. I think what -- I don't know what could be the difference is that maybe funds would flow easier if a regime change would come. We'll see. But our view is quite political. And we -- as we want to term there. And we of course, we always adjust to the situation, but it would not -- it does not change overall the direction. As I said earlier, I mean, for Hungary, it's important that we grow our retail business. So I believe we have a good corporate business and the mix could be a little bit more to the side of retail. And this dates back that for years, we were -- I dare to say, underperforming. We -- I think we more and more fix these issues. Recently, we have found some very attractive offers for our customers. What is also important when we talk around business, we're back in mortgages where we haven't been there for a long period of time, quite a lot of room for us to improve, but the '26 was quite good. And if we can build on that, then I think over time, it will independent from the elections go. I have no forecast now if there would be a governmental change if this significantly would then at the end of the day, change the windfall taxes and whatever we have. This is always to be seen then later on. Yes, I think that's currently the bad situation in Europe that banks are used to compensate for too much spending from governments. To your second question, the strategy and why we are waiting to file the claim. Look, the point is like this. There are 2 different views on this claim. And let me start with the Rasperia 1, the Russian 1. From the Rasperia perspective, they say, you have received the claim on the shares. And from Russian perspective, you have even received the shares. And for that reason, don't sue us, neither in Austria nor somewhere else. You have the shares. And if you're not able to get the share stock to your governments to Brussels whatsoever, but don't sue us. Because if you sue us, we might perceive this that you want more. You have the shares and you want more. Now the challenge is to find an understanding that we do not want more just the compensation for the claim. And as we are not able to solve this with, as I said in my incoming statement, now we need to file a lawsuit. Now I don't know if we can reach an understanding with Rasperia, which would take off the risk of anti-suit injunction what we currently face in Russia or not? We have a 3 years' time, definitely, if we neither get the unfrozen nor the agreement, the understanding with Rasperia and okay, I would recommend to my successor to file. So there is no reason to give up. The question is only can we get compensation for the damage without taking the risk of more damage? Or is it yes -- but we will, at some point in time, we will have to file a lawsuit if [ Russia ] does not defreeze these shares. Operator: We'll take our next question from Simon Nellis with Citi. Simon Nellis: Actually, one of my questions was around the Rasperia case, so I got an answer there. But actually, I'd be interested in any thoughts on the outlook for Russian earnings going forward. I know it's not something you tend to do, but there's obviously a portion of the market that thinks peace might occur, and this business will have value in the future. So any kind of broad brushed comments you can make on the outlook. And I guess related to that, are you looking to kind of further reduce the exposure of going forward and by how much? Johann Strobl: Yes. So when we talk about Russia, look at the balance sheet, what we have. So we don't grant new loans, so there is a runoff. The corporate portfolio, the runoff was around, I think, 90% or so. So there is a small amount there. And then you have the mortgage business, which is running off as well. But yes, according to the repayment schedule, there is, for the time being, no reason for the customers to early repay. The mortgages were granted in an rate environment, which was significantly lower than what we have now. So these are fixed. Operator: One moment, ladies and gentlemen, we have lost our phone line. We are reconnected. Go ahead, sir. Johann Strobl: Thank you. So Simon, I was -- I don't know when I dropped out. But coming back to your question and with the first part, I try to be shorter, so we have the runoff of the loan book from there, less and less will come. So the main earning comes from the money which is the surplus liquidity as well as the equity, which both are placed with the Central Bank. And of course, with the declining interest rates, the revenues will decline. The second part is -- and this is a little bit more difficult to forecast. You see that we make still some money in trading. So from the FX business, and here, this comes with international payments. And as we are restrictive there as well, it's a question of time to what extent we are perceived still as a partner in that field. So it's -- but I would say the bigger part comes from here, what you see as a future interest -- key interest rate from the Central Bank. And we still would expect some outflow in deposits, which might also reduce the surplus liquidity, which is placed at the Central Bank. So declining revenues with -- mainly driven by the key rate reduction. Yes, sorry. The second was the future outlook of Russia. It depends purely on the -- on 2 things, I would say, peace in Ukraine. This would be very important. And for us, the most important part, the second part is then what is the position of the Europeans because you see, we have all these restrictions from the European authorities. And it's unclear to what extent the Europeans will adjust. I think if there is peace, the rest of the world definitely will adjust relatively fast Europeans come to see Operator: [Operator Instructions] As there are no further questions at this time, we will now conclude today's conference call. Thank you for your participation. Johann Strobl: Thank you all to the participants for your time, your interest. Hannes Mosenbacher: Thank you very much. Goodbye. Johann Strobl: Have a good afternoon. Bye-bye. Operator: You may now disconnect.
Marta Noguer: Good morning, and welcome to CaixaBank results presentation for the fourth quarter and the full year 2025. We are joined today by our CEO, Gonzalo Gortazar; and by Matthias Bulach, our Chief Accounting Management Control and Capital Officer, who also sits at the Management Committee. Our CFO, Javier Pano, is temporarily away on sick leave, but he's recovering well and expected to return shortly. In terms of logistics, same as usual, we plan to spend about 30 minutes with the presentation and about 45 minutes to 1 hour with the Q&A. The Q&A is live, and you should have received instructions by e-mail on how to participate. Needless to say, my team and I will be at your full disposal after the call. And without further ado, Gonzalo, the floor is yours. Gonzalo Gortázar Rotaeche: Thank you, Marta, and good morning, everybody. Thanks for taking the time. And I will start with the highlights as it should be the case. A very good year for us. I think when I look back, it's probably the best year over the last 12, 13 years since the great financial crisis. And it is because we're really seeing a very balanced growth in the activity. Obviously, NII has recovered from June. And this quarter, you see again a 1.5% growth. But when I see a balanced growth is really that we are seeing volumes pretty much at 7%, both in the customer funds and on the lending side well above what we were expecting for this year, which was even at the time, you may remember when we presented the plan, it was seen as on the sort of too optimistic side. And in the end, fortunately, the economy has proved that actually that was possible, and we have our -- we have beat our targets with some ease and not just because the economy is growing also because we're gaining market share. Revenues from services are up, as we say, in line with the improved guidance. We started with low to mid single-digits growth for the year. And in the end, we have that 5.4% with a strong fourth quarter. Asset quality has been a trend for some time now, but the fourth quarter has shown an acceleration in terms of the reduction of nonperforming assets and the cost of risk has ended up at this 22 basis points. So when you look at it, it's been sort of very round in terms of capital creation, also a fairly positive year. It is allowing us to set the dividend per share, which is growing 15% and really establishing the payout at the upper limit of our 50% to 60% range. Very complete. And it also feels the year that is not just a one-off, but is part of a trend and a year which we want to capitalize on to 2026, which has started I'd say, in very -- with very good conditions and basically a continuation of what we have been seeing. Return on tangible equity at 17.5%. With all what I've said, we obviously have reconsidered our targets for now next year for 2027. I'm sure by this time now, you're all familiar with the new targets, but I think it's important to reiterate which they are. Return on tangible equity at 20%, give or take. That compares to the above 16% that we set a year ago. So it's obviously a remarkable 1 year, allowing us to increase 4 percentage points. Our guidance for return on tangible equity. And for the average of the period, now we expect it to be above 18%. So obviously, that's probably the headline, but the other important targets for us, cost income from low 40s to high 30s. NII now seeing EUR 12.5 billion as the reference figure for 2027, which means a 4% annual growth versus a flat that we had said in November last year, revenue from services and cost in both cases, we're maintaining our guidance, mid-single-digit growth for services. and 4% area for costs. Volume growth, we said 4% in the case of lending and above 4% in the case of customer funds. We're now rounding all that up to around 6% compared to that -- above 4%. And again, I think we have a pretty good traction here to be not necessarily just at or around 6%, but possibly slightly above that level. Nonperforming loans below 1.75% compared to below 2% and most importantly, cost of risk, which we feel confident now we can stay below the 25 basis points number compared to 30 basis points that we said a year ago. So this is our revised ambition for 2027 or for the 3-year period. In terms of capital, no real change, same payout, 50% to 60%, same capital target of 11.5% to 12.5% and the threshold for additional distribution, which for 2025 is 12.25%. And obviously, we are clearly above that level. And for 2026 and '27, it will stay at 12.5%. So this is a revised ambition. I'd say the strategy is very similar. It's just that we can do more, and we're obviously going to try to make it happen. Macro, we should be seeing they may be public already because I think it was expected at around 9:00, the GDP figure for Spain. We are expecting 2.9% for this year, 2.1% for 2026. I have to say this is a relatively old projection. And based on the most recent data, I think it's likely that this figure will be revised upwards, but that's subject to the information that we get on the fourth year economy for Spain. Portugal is doing fairly well, again, with pretty strong dynamics also in the Portuguese case. So we feel there's clearly some upside. In any case, since the pandemic, you see both Portugal and Spain as a very much leading growth in the Eurozone. And the factors behind that are still there. Population growth, employment growth. We had 600,000 new jobs created last year, 2.8% growth in employment, pretty impressive. Finally, the unemployment rate becoming a single-digit one, hopefully, will continue to go that way. At least that's what we are seeing an economy that is now powering ahead on the back of private consumption and investment. So the domestic strength is pretty relevant. And hence, it also gives us some protection of international environment, which despite all the risk is still doesn't look that bad either. High saving rates, growth in disposable income and a very low private sector leverage, which is still, as you see, 31 percentage points below the Eurozone. All of that gives us sort of room to grow, also comfort if or [indiscernible] if at some point, news are not as good. And the rate environment is obviously more positive than we had a year or not at year-end because our strategic plan was based on September figures as you see there. But obviously, the current yield curve is more attractive, is higher and steeper. And from that point of view, it's obviously a tailwind for our NII. So I start saying growth and had a very strong year for us compared to the previous decade, I would say. And this is why when you look at clients growing 390,000 in the year, look at market shares. And there, you have client penetration up to 40.4%, customer lending and customer deposits in both cases, 14, 12 basis points growth in market share. These are not huge growth, but with our size and also with our prudent approach, this is exactly the kind of market share gains that we're looking for savings insurance. And then on the life risk, you can see 158 basis points market share gains on the non-life. We've also had very significant market share gains across the board, really in health, in motor and in household. Now payroll deposits, very important, also up 27 basis points. So it's not only what you can see on the right-hand side, which is volumes doing very well, close to the sort of 7% area versus the 4% in general case by case, but I won't go through it because it's pretty visual for you. But it's not just volumes, it's also relative performance and market share that indicates that the organization is in really full shape with all engines working. Imagin continues to be a key part of our growth strategy, particularly in terms of number of clients, clients that bank with Imagine. They're not clients that just do 1 or 2 specific transaction categories, but have imagin as their bank. And you can see that because when you look at the business volume, it's actually fairly balanced and ample. Transformation, I talk about growth, but transformation was the other pillar of our 3-year plan. And obviously, a bit more difficult to measure. Growth is easier from that point of view. But just a few highlights, the new app, which we have deployed during the year actually gradually through small improvements rather than sort of a big one-off. And it's worked out very well because it hasn't created turmoil. The app is rated now #1 in Spain, and that includes sort of established banks and new entrants makes us obviously very happy with that, but we need to continue and we are continue working daily to make sure we keep improving it. And some of the onboarding and digital sales numbers that you see there are clearly results of that strategy. AI, we are making major efforts in adopting AI throughout the organization. Every employee has access to AI tools, namely Copilot. But we have obviously developed use cases throughout the organization in all areas. I would just highlight that we have, I think, an important progress this year when we get all commercial managers through the Salesforce platform to access AI, and that is going to lead one example to 75% reduction in the prep time for client interviews, which is obviously very significant productivity improvement. The quality, the depth of the interviews will also be improved as we obviously have more information. I didn't want to go through a very long list of things we're doing because obviously, this is affecting back office. It's affecting IT, client claims, client support, all areas in the organization. But some of these, I think, are going to bring results sooner. IT professionals, we remember in this transformation, we wanted to internalize and in-source many capabilities and that's what we have been doing, expanding our digital capabilities during last year. It's remarkable to have been able to hire 650 new IT professionals when there's obviously strong competition for talent, they like to come and work with us. And new solutions, you've seen the development of Facilitea Coches and on the car side of Facilitea Casa during this year. Both are, I think, very significant successes for us, working very well. And some of the results you see there in financing for vehicles has increased 30% this year. And we have developed this new portal with 1.6 million visits already. The cash back that we launched just in November already has 1.3 million clients. So certainly a pretty -- pretty significant sort of development of new solutions. So this is obviously something to continue for us. Lending growth, 7% on the performing side. And you can see residential mortgages, 6.5%; consumer lending, 12.4%; business loans, 7.6%, very strong growth across the board, very balanced. That 7.6% is both in Spain and internationally, but Spain is up 5.5%, again, basically gaining market share and defending profitability across the sector. And on the customer fund side, again, almost 7% growth, 6.8%. You can see that finally, market effect has been positive, almost EUR 10 billion, EUR 9.7 billion, but net inflows and growth of on-balance sheet deposits have been very significant as well. So again, outperforming, growing market share, and I'll get into some more detail, but obviously, this is a key strength and a key attraction of our business going forward. Wealth Management, we have grown net inflows almost 40%, a lot of it mutual pension funds, but also a strong performance in savings insurance with market share gains that as I said before, and basically a business that keeps doing very well. The figure for AUM at the end of December is already 7% higher than the average AUM during the year. So it gives you an indication that we're clearly seeing good potential and the market in January have been positive for -- certainly for our AUMs. Protection insurance has been stellar 13% growth. And you can see that both life risk with very strong mortgage market, but also with very strong MyBox Jubilación and our sort of stand-alone life risk products doing very well, but non-life has picked up to 11.7% as well. And here, you see on the right-hand side, precisely the gains in market share that I mentioned before in non-life and in life risk, even more significant. But it's pretty good outcome for the year. The speed at which we continue to grow this business is remarkable. And obviously, as you know, it adds quite a lot to our bottom line. And with that, comment on shareholder value creation and shareholder remuneration. Earnings per share up 5%, dividend per share up 15%, round number, EUR 0.50 per share. Look at growth in book value per share and dividends in the year, basically 16%. And obviously, on the share buyback front, we are not even half through the seventh share buyback with EUR 0.5 billion. And obviously, as our capital is at 12.56%, our threshold for 2025 is at 12.25%. We have excess capital, again to continue with this share buyback program, which, as you know, we'll announce when it is formally approved by the ECB and the Board. In the meantime, we still are -- have time before we conclude our seventh share buyback. Distribution plan for next year stays the same. The only difference is while the threshold for this year was 12.25% in capital, as you know, because of the countercyclical buffer, it will move to 12.5% in 2026 and beyond. So that's my part. And with that, Matthias, the floor is yours. Matthias Bulach: Thank you very much, Gonzalo. Good morning to everybody. Today it is up to me and to guide you through a little bit more detail on the income statement and on the main caption of the balance sheet. Starting with the income statement for fiscal year 2025. As Gonzalo said, EUR 5.9 billion of net income, up 1.8% in the year and actually checking on all the boxes of what was our guidance that we gave out and updated throughout the year 2025. NII down 3.9%, in line with the minus 4% guidance. Revenue from services in line with the mid-single-digit guidance, up 5.4%. Expenses up exactly 5.0%, in line with the guidance and cost of risk, we guided for below 25 basis points, and we are closing with 22 basis points, so clearly below that guidance with return on tangible equity standing at 17.5%, so on the higher end of the around 17% guidance that we updated. Looking into Portugal. Portugal net income reported of EUR 473 million on the back of very strong commercial dynamics, business volume up 7.5% and actually with a stronger dynamic than the group as a whole, gaining market shares across the products, but specifically on the liability side on deposits and on savings insurance, another year with strong market share gains, helping bringing down efficiency all the way to 42% on very solid levels. Profitability up to 19.2%, also above overall group levels and already a significant characteristic of BPI with a very strong asset quality, 1.5%, almost half of the sector average and with very strong coverage ratios. And that is also taken into consideration by the rating agencies, which are upgrading throughout the year or putting us an outlook positive in BPI. Moving to the typical quarterly income statement analysis, and we will be getting into the details of some of the income lines, obviously, NII up 1.5% in the quarter, another quarter of strong NII recovery. Results from services, revenues from services with a very strong quarter, up 6.3% Q-on-Q and 4.7% year-on-year, both on the back of a strong wealth management contribution, but this quarter, specifically on protection insurance, which is up 7.5% on the quarter. The expenses line down on the quarter, 0.2% to meet that 5% guidance on the fiscal year 2025. And net income pro forma the accrual of the banking levy of 2024 of a linear accrual up 5.5%. Maybe a couple of comments here on the tax line. The tax levy on the banking industry, we registered EUR 611 million throughout the entire year, which is a little bit higher than the EUR 600 million that initially we guided for basically on the back of stronger performance both in NII and in fees, and that is the basis for the calculation of the levy. And on DTAs, we wrote up EUR 171 million in the fourth quarter for a total of EUR 420 million of DTA write-up throughout the year, basically given the better visibility and the full visibility that we had in the last quarter, both on pretax income for the year as well as on future profitability, which is the basis of those write-ups. So a certain acceleration of the pace to an overall year of EUR 420 million. Going line by line, looking into NII, as I said, a strong quarter again, consolidating our recovery, leaving clearly behind the trough of NII in the second quarter of '25, up 1.5%, still obviously impacted by client yields and loan yields, which are still reducing, but on a less intensity, I would say, than the last quarters. So a fading impact from client yields compensated -- more than compensated both by a strong evolution of business volumes, both in the asset and the liability side, as Gonzalo was pointing out, and an increase of the contribution of the ALCO to EUR 45 million. We increased hedges on the quarter by almost EUR 10 billion to stand at EUR 68.4 billion, and the ALCO book was stable Q-on-Q to stand at EUR 76 billion by the end of the quarter. Customer spread down by just 4 basis points to 302 basis points if we adjust for hedges. And this is on the back of a positive evolution of our client fund costs, which go down 2 basis points from 49 to 47 basis points, again, ex hedges. And the reduction of the loan yield, as I said, is fading, 6 basis points down in the quarter to 349, and that compares to 20 basis points down last quarter. So clearly, fading impact from negative loan rate resets. Looking at the crown jewel of our balance sheet and hence, the supporting factor of that NII evolution of our noninterest-bearing deposits, up EUR 17 billion in the year, EUR 2.2 billion in the quarter with respect to -- or in contrast to interest-bearing deposits that are just up EUR 5.6 billion over the year, EUR 2.2 billion over the last quarter. The total average share of interest-bearing deposits is stabilizing at around 27%, and that is at lower levels than we initially expected in the strategic plan when we were guiding for around 30% of that share, which is now clearly stabilizing below those levels. I would like to point out also the reduction of 10 basis points of our deposit costs in that in a quarter, and I think this is remarkable, where the overnight rate actually was stable on average levels in the quarter and still the deposit cost is coming down. That means that the 50% of indexed rates was pretty stable, but the other part, which is term deposits, we still have been able to reprice them down by almost 20 basis points, leading to this 10 basis points of reduction of overall cost. So there's still some room of positive repricing downwards of our term deposit base. Moving to revenue from services. As I said, a very strong quarter and a very strong evolution year-on-year, focusing on the year-on-year, 5.4% up on the back of Wealth Management with 11% growth. Protection insurance, 4.8% up. And if we adjust for an extraordinary impact from BPI last year in 2024, that would be actually up 6.3%. And banking fees still subdued at 0.6%, but supported by CIB fees that are up actually 33% year-on-year on the full year number. So if we take only these driving forces in our growth engines, wealth management, protection and CIB revenues, actually, that composition would be up almost by 11% year-on-year. So putting a clear sign on the strength of our growth engines here. Costs, not much more to add to what was said already. Q-on-Q, stable, down by 0.2%. Cost to income remains at very low levels and is now below 40% at 39.4%, clearly below peer average in European peers and also with a much stronger evolution over the last 5 years, outperforming the evolution of European peers by 10 percentage points, as you see on the down -- on the bottom right side of the page. Moving to the balance sheet. Asset quality, very, very strong again in this quarter, down 20 basis points, our NPL ratio to 2.07%. And this is bringing forward actually by 2 years, what was our target set in the strategic plan where we wanted to be at around 2% by the end of 2027. So we're bringing forward the completion of that target by approximately 2 years, nice reduction across all the segments, as you see on the bottom left part. So there's no single segment. There's no single part of the portfolio actually that is not experiencing that positive evolution. Coverage up by 8 percentage points in the year to 77% and remarkable that we are still holding EUR 311 million of unassigned collective provisions. That is down EUR 30 million in the quarter and also in the year as in the end of the year, we've been assigning part of that provisions to specific provisions, but the bulk of it still available and still available to protect into the future and into 2026, our cost of risk. Cost of risk down to 22 basis points in this last quarter, down from 24 basis points in Q3, and that is basically on the back of slightly lower seasonality this quarter of provisions than we experienced last year. And hence, cost of risk standing at those 22 basis points, clearly below the 25 basis points that we guided for. Liquidity, I think already very structurally messaged here. Very strong LCR above 200%, NSFR just below 150%. Loan-to-deposit stable at 87% as both loans and deposits are growing approximately at the same speed and hence, loan to deposits still very comfortable, EUR 226 billion of liquidity sources with very positive comparison to peers and to peer levels as well as a very strong and stable deposit base based on transactional retail deposits and with a very high percentage of them being insured by the deposit guarantee fund. And moving typically to the annual review that we share on the MREL position, MREL standing at 28.18%, and that is 327 basis points or EUR 8 billion of M-MDA buffer over requirement mainly covered by subordinated MREL instruments, actually subordinated MREL stands above the total MREL requirement. After a year of very intense activity in the markets, EUR 9 billion of issuances across all the asset classes and 2/3 in euro, but 1/3 also in currencies that are not euro, specifically in dollars. We started 2026 already very successfully with a senior nonpreferred issue combined with the tender offer, EUR 1.25 billion of issue and EUR 0.5 billion from the tender offer, and that is supported by the positive and strong view of our rating agencies, which similar to what I explained in Portugal, actually upgraded us throughout the year or put us an outlook positive as the case of Fitch. And coming to capital. Gonzalo already went into some detail, 12.56%, 13 basis points up in CET1 and clearly above this 12.25% threshold that is in place for the end of year 2025. Capital accretion positive of 63 basis points. Organic RWA increase just 5 basis points, and this is supported by 3 SRT transactions, significant risk transfer transactions that we executed actually in this fourth quarter, impacting positively by just below 15 basis points on that caption. So positive evolution supported by market activity. Dividend accrual and AT1 coupons, obviously, then distracting 38 basis points and Markets and others coming down 8 basis points. And here, as every fourth quarter, we are updating our operational risk RWA models. That is a yearly update, and that impacts also just below 15 basis points on that part. That means that the remainder moving parts of this market and other bucket are slightly positive. On shareholder value creation distribution plan, nothing to add to what Gonzalo has been pointing out. And fiscal year '26 guidance, you've seen that all this morning already. Gonzalo mentioned 2027 view. And just to say that the 2026 view is fully consistent, obviously, in this journey towards 2027 targets. NII expected to be above EUR 11 billion. And that is bringing forward by 1 year the initial target that we had for the fiscal year 2027 clearly on the way then to move up to that around EUR 12.5 billion target for 2027. Revenue from services up 5% within that mid-single-digit range that we also are envisioning for the entire 3 years horizon. Operating costs up by approximately 4.5% after a 5% increase in 2025, 4.5% in 2026 and clearly on track, and we reiterate our commitment and our guidance of 4% CAGR for the entire 3 years of the strategic plan horizon. Cost of risk below 25 basis points on the back of that very strong asset quality and return on tangible equity at around 18% to fulfill that around 18% average return on tangible equity over the 3-year horizon and the approximately 20% in 2027. On capital targets and distribution, nothing more to add. This is all well known to you. And with that, I think we are ready for questions. Marta Noguer: Yes. Thank you, Matthias. Thank you, Gonzalo. Operator, we are ready for Q&A. So you can come in the next question please. Operator: Next question is from Antonio Reale, Bank of America. Antonio Reale: Antonio from Bank of America. A couple of questions from me, please. One on NII and one on use of capital. So starting with NII, you're guiding to be around EUR 12.5 billion in 2027, and you've added in the quarter, almost EUR 10 billion from structural hedges alone. Volumes are growing 6%, 7% a year. So just my question is, what are the key assumptions you've made that drives your NII outlook here, particularly if you could talk about rates and volumes assumptions, please? My second question is on use of capital. You are at 12.56%, just above the new go-to level, and you've been paying 100% of your excess capital out in the form of share buybacks. With the balance sheet that's growing and the returns that you're now making, you're guiding for 20% RoTE in '27. How should we think about sort of best use of capital for Caixa? What's your appetite for additional buybacks here? Gonzalo Gortázar Rotaeche: Thank you, Antonio. Let me start with the second question, and I let Matthias address the NII in some detail. There's nothing new about use of capital. You're seeing higher growth, which means obviously more capital that we can employ in the business. And as the business is targeting a 20% return on tangible equity, that's great news. Really, that's what we would like to see become -- we discussed this a year ago or become a compounder in terms of high RoTE and good growth. That's, I think, what will lead us to the best outcome for shareholders. And the reality is that as the growth is coming together with higher profitability, we still see the future as in a scenario in which we can have a high dividend per share as this year in that 50% to 60% payout, grow the business and grow faster than we were expecting at 6% rather than at 4%. But still in our numbers, we continue to generate capital. And obviously, one proof is that we already have excess capital at the end of 2025. So you know there's sort of cash in the bank for further share buybacks already. And going forward, we continue to see that despite higher growth, we will be generating excess capital between our targeted levels. Now we'll continue to monitor developments. We are using slightly more intensively SRTs as well. Matthias mentioned that we had some positive impact in the fourth quarter that will continue to be there. So no change in capital. This is higher growth, higher profitability, but also higher capital available for shareholders. So it looks too good, but it is really how we're seeing the business. It's very strong conditions. Matthias, NII, all yours. Matthias Bulach: Sure. Thank you very much, Antonio. What are the main drivers behind what we see for NII evolution both into 2026 and specifically beyond? I think on the one hand, obviously, it's volumes. We guided now for an update of around 6% CAGR, both on loans as well as on liabilities, up from that 4% guidance that we gave you back in the strategic plans Investor Day. Now that obviously volume growth that we've seen already this year at around 7%. The guidance is for a CAGR of 6%, that means we are positioning volume growth both in 2026 and 2027, probably around 5% to 6%. So that is, I think, the main driving force behind our expectation for NII evolution over the next couple of years or even beyond. Secondly, obviously, rates evolution. Rates has been a drag on our NII over the last quarters, obviously. We expect that drag actually to fade out over the next 2 quarters. The loan yield resets should move into positive territory from the third quarter onwards of 2026 and hence, still a certain drag over the next 2 quarters, compensating partially that volume effects that I was talking about. But then from the second half of 2026 onwards and specifically into 2027, and I would say, beyond into 2028, we see a clear positive evolution on the back of rates. On the back of rates because as you know, there's a significant part of our portfolio, which is actually on variable rates. And we do believe that we will be able and capable of controlling client fund costs, controlling and limiting growth of deposit costs, as we said currently at 47 basis points. We believe actually those levels of year-end to be quite structural. We should be able -- even though there might be some pressure from the index part of our deposits, we should be able to control that evolution of deposit costs over the next quarter. I would say if 47 basis points is our year-end number, we should be in the mid-40s probably during 2026 as the certain pressure that we might have from the index part, we should be able to control and to limit that both from still some repricing from the term deposit part as well as increasing the share of growing stronger in the noninterest-bearing deposit part than in the interest-bearing deposit part, and that should help us to control and to keep deposit costs down over the next quarters and also actually to very nicely control that once rates are picking up. So volume effects, which are already occurring and which we expect to keep on in that benign macroeconomic environment, rates should be picking up and helping us on that front. A small detail on what we see in the more quarterly evolution over the next few quarters. We do expect NII 2026 actually on a quarterly level to grow year-on-year in each and any of the quarters. But there might be a certain reduction -- a limited reduction in the Q1 NII respect to Q4, basically for some seasonal effects that typically happen in the first quarter. The first quarter tends to be somewhat weaker in terms of average fund balances as January tends to be clearly weaker month than December. We do have 2 days less in the first quarter than we do have in the fourth quarter. And also there's more negative loan repricing actually in January. There's a certain seasonality here. So what we would expect is Q1 to fall slightly against Q4, but then picking up growth right after and specifically accelerating growth into second half of 2026 and obviously into 2027. On the back of all those, let's say, more business and external rates factors, we do have also significant idiosyncratic factors, let's say, that are based on our -- the structure of our hedges. Recall in the Page 30 of the webcast presentation, you have got all the details, but recall that between the fourth quarter end of '26 and the first quarter of '27, actually, we do have around EUR 15 billion of legacy deposit hedges that are maturing. They're maturing actually at negative rates. So we would assume a rollover of that hedges at current market forward rates that would give us an uptick of about 2.5% on those EUR 15 billion of legacy deposit hedges, and that is annualized around EUR 400 million of NII boost that will be coming from this natural rollover of those hedges. So there's no external factor that is pretty much already in our balance sheet, and it's a natural and automatic thing to happen. So there's a clear boost for 2027 NII from that front. And on the other hand, we also disclosed the maturity profile of our ALCO book. Actually, in last year 2025, EUR 6.5 billion already matured at 0% rates. And you have seen that our ALCO portfolio actually grew by EUR 12 billion in 2025. So that is renewed and that generates obviously some support for the 2026 NII as this is maturities from 2025. And once they are renewed, obviously, they help in the year-on-year evolution into 2026. And that goes on in 2026, there is EUR 9 billion maturing at a 0.4% yield, and there might be a reinvestment capacity of increasing that yield by 2.2 percentage points, generating EUR 200 million of annualized NII through that 2026 maturities. And that goes on in 2027, there's EUR 8 billion maturing at 1.6% that would reinvest it would lead to EUR 100 million of annualized NII. And in 2028, also, there's EUR 14 billion actually maturing at 1.1% that also would give EUR 300 million of annualized NII support. So from all those factors, both external factors, let's say, business evolution and market rates, we feel very upbeat specifically in 2027 as we are guiding for this EUR 12.5 billion as well as beyond looking into 2028. And then there's those internal factors from the maturity of hedges as well as from the ALCO book. So we actually feel very strong in 2027, and we do feel similar also into 2028 based on all these factors that I was just explaining. Operator: Next question is from Ignacio Ulargui, BNP Paribas. Ignacio Ulargui: I have 2 questions. I mean one is on deposit growth. I'm coming a bit back on what you were commenting, Matthias. Looking a bit more on the volume. So you said 6% customer funds growing in the plan. If you could break that down between deposits? And how do you think kind of interest-bearing and noninterest-bearing could grow into 2026 and '27, that would be very helpful. And a second one on credit quality. I mean, asset quality has performed very strongly. I think it's the lowest 4Q gross inflows into NPLs in a decade. Your target of NPL is 1.75 which, I mean, if we extrapolate a bit the trends that you have seen in 2025, probably it still is very conservative. So I just wanted to get a bit of your views about cost of risk, asset quality dynamics so that to get a bit of comfort on the improvement of the 5 bps of cost of risk and how much generic overlays you have still? Gonzalo Gortázar Rotaeche: Thank you, Ignacio. I'll take the second question as well. I'll start with asset quality is -- starts from the economy. The economy, I was saying that the GDP numbers were about to be published. And in fact, they have been a very strong fourth quarter for Spain, 0.8% growth quarter-on-quarter on GDP. To give you an idea, we were more in the 0.5% expectation. We knew based on the numbers of the last few weeks that this was going to be higher. But clearly, a very good number. There's been some revision of previous quarters. So the overall growth has been 2.8%. But most important is just looking at 2026, the outperformance of the fourth quarter already gives us automatically just if we don't change any other assumption, just the rebase of the fourth quarter would mean that growth would be 2.3%. And looking at the numbers, private consumption is up 1% quarter-on-quarter. Gross fixed capital formation, so investments basically is up 2.2% in the quarter. Exports are up 0.8% is -- these are very, very strong numbers. And as long as the numbers continue to be there, there's absolutely no reason to think that asset quality is -- we're going to have any negative surprise. We -- Matthias mentioned, we have still this stock of non-assigned provisions above EUR 300 million. Economy is doing well. Our clients are less leveraged than ever. And we do not see any problem in any part of sort of big broad categories, be it mortgage or consumer segment. The statistics for January in terms of asset quality make it the best January I remember. January is typically a bad month, the famous Cuesta de Enero, as we say in Spanish, that's reflected. And this year, we're seeing a much lower impact than others. So we internally have all the confidence that, yes, that should make sense for us to be below 25 basis points. And we tend to be conservative, particularly in cost of risk because there's an element of unpredictability on it, and you cannot rule out completely. Obviously, the international environment and whether we have a sort of a major crash in markets or some other big impact elsewhere that eventually feeds into the economy and hence, changes things is always a possibility. It seems unlikely and in any case, something where we have pretty good cash. 175% may actually be conservative, I agree. I think if the trend continues, we will go beyond that number fairly soon. But you know we're a conservative organization when giving guidance. We look at guidance, and there's a very high percentage of cases where we have better guidance versus occasions that have happened where we didn't meet our guidance because something happened. So I would be pretty confident on these numbers on cost of risk for the next years as long as the economy stays where it is, which we have no indication that is changing from that position. We're seeing on the opposite sort of stronger numbers. Matthias Bulach: Thank you very much, Ignacio. On deposit growth, I think we have been guiding for overall customer funds to be growing at around 6% now during the 3-year horizon versus the initial target that we have of around 4%, of which we said 3% of that would be customer deposits. So I think it's -- 2025 might be a quite good starting point when thinking about composition. So obviously, we do still see significant upside on wealth management after 9.7% year-on-year growth in 2025. And we do see CapEx to grow in deposits over this 5.3% growth in 2025 also. We move that target to now 6% overall. That means, as I said before, we might be somewhere around 5% to 6% on the overall customer front. And the structure that we've seen in 2025, we expect that more or less to be also into 2026 and beyond. So having said that, we do think -- we do see deposit growth now very clearly in the mid-single-digit zone for the strategic plan horizon. That is outperforming our target of above 3%. And why? Because we do believe, and as Gonzalo was just pointing out on the macroeconomic evolution, we do still see a very strong disposable income growth and savings rates actually remaining at high levels. It is coming down slightly, but we still do see at very high levels with respect to historical average. Loan growth is strong and that multiplies also into deposit growth in the sector and hence, gives us opportunities to keep on growing significantly here. And as I said, we have a focus on growing nicely the client base, 390,000 clients this year, and that obviously also gives capacity to grow in deposits from new clients, and that means in transactional deposits and not shifting around the savings of our existing clients, but actually growing into new client base and growing into transactional deposits. So thinking then about what is the part of noninterest-bearing versus interest-bearing I would say, the current rate environment, which is stabilizing after the up and down over the last 3 years, stabilizing and with certain tendency to -- and the forward rates to increase, but clearly on a very gradual pace, we would expect that actually noninterest-bearing deposits being rather stable, and I would say rather stable even in absolute terms, not necessarily in relative terms, obviously, potentially growing slightly, but we would expect that the noninterest -- the interest-bearing part actually clearly growing slower than the noninterest-bearing part. And hence, we don't expect any shift from one to the other. As I said, growth should also come from new clients, new transactional relationships with our clients. And hence, we see strength in the growth of that crown jewel of ours, which are the noninterest-bearing part. Marta Noguer: Thank you, Ignacio. Operator, next question please. Operator: Next question is from Maks Mishyn, JB Capital. Maksym Mishyn: Two questions from me, please. The first one is on loan book growth. Your peers mentioned that mortgage market is less attractive due to competition at the moment, and you seem to be growing above the market. Could you share your thoughts on why it is attractive for you and not your peers? And then if you could also break down the upgraded loan growth target by segment, that would be very helpful. And the second question is on capital. Just wanted to hear your thoughts on the recent proposal by the ECB to simplify capital regulation. Operator: Maks, we are not hearing you properly. Can you -- maybe take the cellphone a little bit away and repeat the question because we lost you. Maksym Mishyn: Is it better? Operator: Yes.Yes, this is better. Maksym Mishyn: Sorry. So the first one is on loan growth. Your peer mentioned that the mortgage market is less attractive due to competition, and you seem to be growing above market. Could you share your thoughts on why it is attractive for you and other peers? And also, if you could upgrade the loan growth target for the next year, that would be super helpful. And the second, I just want to hear your thoughts on the recent proposal by the ECB to simplify regulation for banks in the Eurozone. Gonzalo Gortázar Rotaeche: Thank you, Maks. I will start. And Matthias, you want to complement anything you tell me. On the mortgage market, I would say there's a very strong competition. There's always been 10 years ago, 5, 15, 20, it has typically been more on the floating rate mortgages. The market has moved almost completely, but not completely, but to a large extent, on to fixed rate mortgages. And that means that different players find it more or less attractive. I think depending on the structure of the balance sheet, there are core liabilities, the liquidity position. I'm just saying this is an important factor to keep in mind. But whether it was floating or now on fixed rate, we have obviously very competitive margins. And what we are doing, our share of new production is pretty much in line with our stock, around 25%, slightly it's 26% in the figures up to November in terms of share of new production versus a 25% stock. So that's why we're gaining 12 or 10 basis points in market share. But it's basically, we're maintaining our position. I think that's reasonable for us. And what you see is some players have been much more aggressive than others. And I think it has something to do with the structural balance sheet. And then the other big factor, which obviously is also differentiating is to what extent you cross-sell because we know mortgages are now below funding costs after the various sort of subsidies that are given by banks and on average, the market rates that are being given to the ECB latest numbers I've seen in November is 2.4% for fixed rate mortgages, obviously, below the swap rate, but that's after the modifications for all kind of business that clients bring in. And on that front, we obviously have an insurance business that is absolutely different from what others have. I was just looking at the premiums on the non-life for our affiliate Adeslas is around EUR 6 billion. You look at the numbers of our 2 main competitors, the premiums for non-life are around EUR 600 million. So it's not just a bit more than our fair share. It's 10x more. And that gives an indication that with -- once a client is in the Universe Caixa, clients more profitable. And hence, when you incorporate that, you probably see that both because of our funding position and our ability, given our sort of 36% market share in payrolls, our ability to hold long-term fixed rate assets, number one, and our ability to cross-sell, the market has moved to an area where we have a competitive advantage versus others. But still, I think we're being very disciplined because, again, stock of back book and the market share in new lending is very much aligned. So that's the background. And in terms of simplification, we're watching and obviously would love to see moves from that point of view on simplification for banks. And I think something is going to happen. I'm a trading maybe less than we would have hoped for. And I think the progress we're seeing so far deals more with operational issues, which is great because it's going to lead us to sort of spend less time and maybe have less people sort of spending time on supervisory matters, and that's good, but that's not really going to change the game. I think sort of changing capital requirements is something that is unlikely. I personally don't find it desirable. I think the current capital requirements, yes, are very ample and solid and gives us as a system, a great degree of stability. And I think that's good over the long term. What I think is important is that we provide stability and that there's no doubt about capital levels going forward because the current levels are more than enough. I think supervision needs to be simplified. We have 27 supervisors, and we're not one of the most complex financial institutions in Europe. We're operating basically in the Eurozone and mostly in 2 markets. It gives you a sense of complexity and some of that should be addressed. There's obviously progress specifically on disclosure on topics affecting sustainability on securitization, which is very likely. I think the sort of development of instruments for saving and investment union, which is not exactly simplification, but it has a relationship with are also quite relevant. We'll have to watch and see. But this is, I think, going to take quite some time, and we may actually end up in a position that is not too far away from where we are now, barring sort of some, as you say, operational matters. And the other one, which I think is very important, is stopping the flow or significantly slowing down the flow of new rules, Level 2, Level 3, which is obviously, I think, more of a concern and easier to stop because it's more a political willingness to change the way future things are done to change the status quo is going to take time and may not be as significant as we would hope for. Matthias Bulach: If you allow me to complement Gonzalo on Maks. On your question on breakdown by segments of that loan outlook that you're asking for. 2025, we grew 7%, our performing loan basis, of which 6.5% was growth in mortgages, 12.4% in consumer lending and 7.6% in business lending. Now we are guiding for a 6% CAGR over the horizon of the strategic plan, and that implies somewhere between 5% and 6% for the remainder 2 years. And hence, let's say, the adjustment you would have to make to the 2025 numbers, I would say the structure of 2025 is a reasonable one that we would be seeing also in the future as basically the main driving forces macroeconomically speaking as well as from the market, we still see them holding true also for 2025 -- for 2026 and 2027. So let's take the structure of 2025. And as Gonzalo said, we want to be active in business lending, specifically in SME lending. We want to be active and gaining market share in consumer lending and typically be more in line with the market and hence, maintain our position for all the reasons that Gonzalo was commenting on mortgages. And that is more or less the structure that we had in 2025, and that is what we would be expecting in 2026. Why do we guide for slightly lower growth rates on the business volume? Even though macroeconomic performance is strong and keeps us strong, there is a certain reduction in the pace of growth, obviously, as Gonzalo said, 2.8% this year with the figures that were just published, and that might be slowing down slightly over the next 2 years, obviously. So together with that evolution of macroeconomic growth, obviously, we see nominal GDP growth as an anchor point both for growth in assets and liabilities. And this is why we are thinking that there might be a certain slowdown from 2025 levels. But then again, the future will tell. And obviously, we will do all the best to do better than that. But this is what is our current view. Operator: Next question is from Francisco Riquel, Alantra. Francisco Riquel: The first one is on fee income guidance that you are not changing, but wealth management and long-term savings volumes are growing ahead of expectations. So if you can explain what is the offset here, if it is, again, banking fees that you see weak trends? Or if you can please elaborate on the fee income guidance given that wealth management is ahead of expectations? And second is on the cost guidance that you have maintained also for -- in the new plan. I wonder if you are investing more in AI and in the technological transformation that what you were anticipating at the beginning of the plan? And what type of productivity gains shall we expect and when? Gonzalo Gortázar Rotaeche: Thank you, Paco. I would say, again, leaving the fees for you, Matthias. If you agree on cost and AI, yes, this is a key factor for our investment program, which is going according to plan. So in terms of the big numbers, we are reiterating the cost and the OpEx, CapEx spend last year, this year, 2027. And in terms of the efficiencies of the productivity that we expect here from AI, I think, is twofold. Most importantly, in a growing market and in an organization that is actually growing market share, it's going to allow us to have more revenues over the same platform basically. And I think this is very important for us. So that's the main factor. And the second one, obviously, is on the cost base. We -- and particularly when you look at sort of the engine room. I would say there are 2 places where we expect efficiencies. One is IT, and this is one where it's actually -- first, we need to invest more also in terms of people and with this Cosmos program, which is the whole sort of technology upgrade that we're doing, we now have over 2,000 people working full time on that. Now some of them are internal. Some of them are from partners and hence, call it outsourcing. And this is going up. It's going to come down. We said at the time of the plan, we will start with 6,000 people, of which basically 1,000 were internal IT employees and 5,000 external. We expect by the end of 2030 to have reduced that to 4,000 people, but to have more people internally. So we are basically in-sourcing, but the total FTE expense internal and external is going to come down. And this is something that you're going to start feeling really 2027 onwards because in the meantime, what we need to do is, as we transform, have actually more resources. And then there's operations as well where we have significant outsourcing, and I think that's likely to come down. So those are the sort of big areas to look for. But again, I'd say most of these efficiencies are coming into 2027 and beyond. That's why also if you look at our implied guidance for 2027 is more in line guidance of growth in order to make the numbers is more aligned to the 3% number compared to the 4.5% that we're doing this year. That's because not only, but among other things because we're having efficiencies already materialized in 2027. And obviously, that should continue beyond. Matthias Bulach: Thank you. On fees, Paco, I think, obviously, as you said, we are very upbeat on wealth management fees coming from that capital. As we said in the -- actually in the strategic plan, mid- to high single-digit growth here. 2025 has started very, very strong, and we do see strong growth also going into the future. As Gonzalo said, year-end balances in wealth management are 7% higher than average year balances of 2025. So we do see a very good starting point also here into 2026 and beyond. So that means that, yes, we are more cautious on banking fees. Actually, of our fee structure of our banking fees 20% more or less are CIB fees and 80% are recurring banking fees. We said CIB has a very strong dynamics. We've been growing 33% year-on-year full year 2025. So there's a very strong backwind and tailwind here, even though, obviously, those growth rates tend not to be sustainable. We do believe the levels are sustainable, and we should be able to grow still from there, but obviously at a certain lower pace. And that means that the drag we still do see coming from recurring banking fees and that 80% of fees, of which more or less half probably are in types of fees, which are basically exposed to quite some competitive pressure, namely speaking about account maintenance fees, payments and transfer fees or credit card fees, which obviously in that competitive environment and that profitability environment of client relationship are under pressure because they are lower value-added services. And in that capital, obviously, we still do believe that there is actually potential that these type of fees are still reducing over the next years as competition will be fierce in that area. And innovation in those areas, obviously, will also have an effect of bringing fees down. And that should then be compensated and this is our job by the other part of the fees on other transactional services, security trading, foreign exchange or loan-related fees, where we do expect a positive evolution, obviously, from the macroeconomic environment and from transactional increases. So there, we do see a positive way to partially compensate that reduction in recurring banking fees. Operator: Next question is from Cecilia Romero Reyes, Barclays. Cecilia Romero Reyes: The first one is on deposits. Obviously, the reduction in deposit cost is slowing and in part is because obviously, rates are stabilizing. Some competitors have standard attractive campaigns. How do you assess the current state of deposit competition in Spain? And are you seeing any incremental pressure from neobanks? And my second question is just a follow-up on the fee question. Could you remind us where are SRT costs included within your fee line? And is an acceleration of SRT making your view on banking fees more conservative if included there? Or is this not having a big impact? Gonzalo Gortázar Rotaeche: Thank you Cecilia. On deposits, I would say no change. We're not changing our strategy, and we are very comfortable about our position. We're not seeing any particular negative impact or difficult environment associated to neobanks. On fees? Matthias Bulach: Yes, the SRT Cecilia, the SRT part is in the banking fees. And hence, yes, there is a certain impact there. And as we are speeding up and as you have seen in the fourth quarter, SRT activity, there will be a certain drag also on banking fees, on other banking fees based on the SRT activity. Actually, in Q4 '25, there was EUR 12 million of impact, that is EUR 5 million down year-on-year, if you look at the quarterly data. And in the full year 2025, there was EUR 36 million, actually EUR 12 million more of fees paid on that capital. So yes, that is generating, obviously, as we are picking up activity here, a drag on banking fees. Operator: Next question is from Sofie Peterzens, Goldman Sachs. Sofie Caroline Peterzens: This is Sofie from Goldman Sachs. So my first question would be on your customer margin, which came slightly below 300 basis points. I know you talked quite extensively about kind of deposit costs and also lending rates. But how should we think about the customer margin? Is it fair to assume that the 297 basis points is a trough? Or could it kind of fall a little bit more in coming quarters? And then my second question would be the 20% return on tangible equity that you guide for in 2027. Is that sustainable to assume that will be the new run rate beyond 2027, so '28, '29, considering volumes are good. You mentioned cost efficiency should start to kick in post kind of '26. So how do you think about like the longer-term return on tangible equity level? Gonzalo Gortázar Rotaeche: Thank you, Sofie. On the profitability, I think we said and Matthias also mentioned NII and others, we see environment continue to be fairly positive beyond 2027. So by definition, that should be positive for return on tangible equity. You are somehow asking about our next 3-year plan, and that's a bit too early for us to get into the detail. But to be honest, my sense is this is not just a level that is sustainable, the 20%, but it should be actually the level on which we start working towards further improvement in profitability. But that's my qualitative sense based on all what I have seen. And obviously, we also have a very positive view for 2028 in particular. On customer margin, Matthias. Matthias Bulach: Yes. Thank you very much, Sofie. On customer spread, I'm afraid to say that the 297 or 302 depending on whether it's with or without hedges, has not yet been the trough. As I said, customer deposit cost at 47 basis points might be rather stable or we do see some potential here still for certain improvement, but probably a minor one. And yes, we do still see negative loan yield repricing specifically into the first quarter and the first 2 quarters of this year, 2026. So we would expect that to come down still slightly into the second quarter, but then we should be starting to see a recovery. And we still see the area of 300 basis points as our sustainable level once rates are picking up slightly over the next quarters. Operator: Next question is from Alvaro Serrano, Morgan Stanley. Alvaro de Tejada: It's kind of a follow-up, one for you, Gonzalo. The implied cost growth in '27 looks like around 2.5%. And with the revenue growth, your cost income is going to be in the mid-30s. And obviously, you've laid out both Matthias and yourself, how there's more to go for in '28. So the question is kind of where is the -- should we be thinking that 30% cost/income ratio over time is possible? Or the bigger question is at what point, Gonzalo, do you think that it's better to invest in the business because you think you might be missing out on growth or underinvestment? Just help us through think how you're thinking about the business and the long-term potential in the new world? And second, on the 6% loan growth CAGR, I realize it's a touch lower in the outer years, but still above what Spain is growing. And of course, there's some international growth there. But the question is, are you factoring further sort of market share gains? Or you're expecting the growth in the market to accelerate significantly or a bit of both? Just a bit of sort of color on your market share expectations. Gonzalo Gortázar Rotaeche: Yes. On the second one, market share, I'd say, yes, we are gaining market share now. We gained market share this year. It's likely if we have a position that I think is very strong on -- from a competitive point of view that, that process will continue. And we aim to do that subject to appropriate risk and pricing decisions. So if the profitability is not there, the risk criteria is not strict enough, we will certainly not grow faster than the market. But we have seen that the market is very big. And given our positioning, we can do that. And I think there is clearly a potential to see lending above nominal GDP, which is kind of the logical assumption to be made. But when we look at relative to our past and relative to Europe with 31 percentage points lower leverage of the private sector and an economy that is clearly outperforming, you can see obviously some cycle there. So I think 6% is reasonable. And yes, it includes some market share gains. But again, when we talk about market share gains, we're talking about 10, 20 basis points. Generally, this is the kind of market share gains that are consistent with good pricing decisions and good risk decisions, not something that is huge. And in terms of the cost income, I think it's important to say cost income for us is an output. It's not the target by itself. We -- now you look at our numbers and round numbers, we have 18% return on tangible equity this year, 40% cost income, a bit below the cost income. But our aim is not to bring down the cost income at our cost. Our aim is to create value. And obviously, if we can do the same volume with lower cost income, that's great. But very often, if you just focus on bringing down the cost income, you're not going to do investments at 18% return on tangible equity. So once you get to -- and many banks would dream in Europe, as you know well, Alvaro, to have a 40% cost income. And once you have a very profitable platform, you actually want to create value and that means growth. And that may mean doing and taking business initiatives at 40% cost income that create a lot of value, 18% return on tangible equity, but do not contribute to the objective of reducing further cost income down to 30%. Now as an output, if our strategy is successful and we continue to grow the business, the cost income should continue to go down. But it's not going to be our target. It's going to be a consequence of sort of management of revenues and costs to make sure that we produce sort of value when we make investments. So it will come down, but we're not targeting a given cost income. We're targeting shareholder value creation. I may just remind you of the case of Banco Popular 25 years ago, they were managing for ratios and return on tangible equities and cost income. And at some point, that doesn't make sense. And we're certainly going to be looking at NPV positive value decisions and that if our strategy is successful, will lead to lower cost income. We'll see when and to what extent. Operator: Next question is from Marta Sanchez Romero, JPMorgan. Marta Sánchez Romero: I got 2 questions, one on the structural hedge and the other one on capital. So on the structural hedge, you're adding receiver swaps, but you're reducing your holding of sovereign bonds. Can you explain the rationale of that? Any worries on the sovereign debt market? And also what is behind keeping the sensitivity still at 7.5% versus the 5% you had at the beginning of the year? If you could help us model how the ALCO portfolio size should expand going forward, that would be very helpful. And then on capital, 2 quick questions. What are you expecting in terms of RWA growth? In the previous plan, you were growing more slowly than loans. I think 3% CAGR you had at the time. Now you've got 6% growth in performing loans, how RWA should grow? And just quickly on the buyback, have you already put forward a request to pay that surplus capital to the ECB and the Board? Gonzalo Gortázar Rotaeche: Thank you, Marta. On the second point, capital, we are not -- we've made a policy out of it finally to say let's be consistently. We will not talk about when we do internal approvals and discussions with the ECB. We'll just communicate to the market when we have it and it's formally approved by the ECB and the Board. Absolutely no change in what we've been doing. We're talking about the seventh, eighth share buyback now. And you know how we behave that we're fairly quick, very disciplined. Look at all the banks in Europe, they say this is our target, but then you look at the capital, and it's way above that target. We are -- it's a bit like an ATM. As soon as we generate the capital, we give it back. So don't worry about that is something we're going to continue. RWA growth, obviously, it's going to be a bit higher if lending grows at 6% than at 4%. And I'll let Matthias elaborate on to it. Matthias Bulach: Yes. Thank you very much, Marta. As you said, we were guiding for a 3% performing loan growth in the -- back in the Investors Day, and that translated into about 2% growth in RWAs. Now we are guiding for 6% growth, and we do think that also helped by both the Basel IV impact that at the end of the day was more positive than we expected as well as an uptick most probably in SRT activity that we should be able to actually adjust that growth rate downwards and actually generate a sort of potential 2 percentage point gap between loan -- performing loan growth and RWA growth helped by these 2 factors. And on sensitivity, we do feel quite comfortable in that 7.5% sensitivity that we are managing right now. Recall that we are coming from ranges of 20% to 30% back in 2021 when obviously rates were negative or very, very low, bringing that down to 5% last year, and now we are hovering around those 7.5% levels in that environment where the ECB signals that the rate cutting cycle may have come to an end and the market expects certain increases from the current state. And the yield curve is actually pointing out to a steepening. We do think that, that 7.5% level is a level that we feel comfortable with in an environment in which we obviously would have been or are exposed to macro risks, both on the upside as well as on the downside. As to hedging strategy, we use both instruments, both ALCO book in order to invest and structural hedges. This quarter, we've been using approximately EUR 10 billion of structural hedges to hedge and to assure the sensitivity of 7.5%. And that might change depending on the size of the books, depending on sensitivity depending on opportunistic behavior also if sovereign spreads we feel are at the level they should be, we feel investment opportunities, we might be using more longer maturity instruments such as adding to our ALCO portfolio and picking up some of that sovereign spread or being more in the shorter range of maturities, which we typically do with the deposit swaps. So I would say we will see in the future. We want to keep some flexibility here to be able to react to market circumstances as they unfold and no clear guidance at that point on to which part of the portfolio should be growing more or we would be using more. Operator: Next question is from Ignacio Cerezo, UBS. Ignacio Cerezo Olmos: So I have 2 small ones actually and one slightly more qualitative. And the numerical ones are, if you can give us the NII in 2027 with no rate hikes. So we have actually flat as pancake type of yield curve. The second one is if you can give us actually the percentage of natural attrition you have on your headcount every year. And the qualitative one is on consumer lending, obviously growing quite strongly, 12%, I think it is at the end of the year. I mean, mimicking view on actually the trends we're seeing on a sector basis. I mean, does this raise any concern around asset quality about the kind of clients actually you're targeting or you're still within pretty tight kind of risk standards with your own client base preapproved like you have been doing in the last 3, 5 years. So if there is any change in terms of the risk profile of the clients you're acquiring on consumer? Gonzalo Gortázar Rotaeche: Thank you, Ignacio. Risk profile, no change in asset quality. We keep our standards. We're very comfortable with them. And that's perfectly consistent with good growth when you have such a large position and a lot of information with clients. Natural attrition for the headcount, I think we may actually want to come back to you, obviously, I want to make sure we give you the right number is small. NII? Matthias Bulach: Yes. NII, 2027 actually is not largely dependent on interest rate hikes. As I said, typically, the repricing of the portfolio is somewhat backloaded. And in the current interest rate curve, that increase that we are expecting slightly for 2026, but slowly and a little bit into 2027 actually would not have a significant impact on our EUR 12.5 billion guidance. As then the interest rate hike is much more backloaded and would much more positively affect 2028 and beyond. So I would see, obviously, that would have an impact, we would be below most potentially that 12.5%, but not far from guidance if interest stayed on current 2% deposit facility rate. Operator: Next question is from Andrea Filtri, Mediobanca. Andrea Filtri: You said consolidation will continue in Spain and that you're not interested in moving abroad. Can you elaborate on what you meant by that? And also, you made positive considerations on the U.S. as a market. What do you plan to do there? Gonzalo Gortázar Rotaeche: On the U.S. as a market? Operator: What you said -- last question, Andrea, we didn't hear it properly. Andrea Filtri: I also read positive comments on the U.S. What do you plan to do there? Gonzalo Gortázar Rotaeche: Yes. Consolidation, very clear, no change. We are not interested in consolidation. We have a very strong position in Spain. And we do not want to grow and we do not need to fill any product areas through consolidation. We want to grow organically. In Portugal, we have a great operation. We have a lower market share, but actually a business that is growing even faster than the Spanish one. So we're very happy with what we have. And what we see is increased value creation by combining the engines and the way we do business between Spain and Portugal with the whole, obviously, autonomy that BPA has because it's a great Portuguese and it needs to say as a Portuguese bank. And we're not seeing value creation in cross-border, to be honest, this is sort of a discussion that takes a very long time, but we don't see synergies. And as we look for shareholder value creation, we do not think we're going to find it in cross-border M&A. The U.S. is certainly even further away for us from the point of view of M&A, absolutely no interest there. Still it's a market where, obviously, we bank with many U.S. companies that are mostly operating in Europe. It's a market that we follow closely because it's relevant for the whole world. Operator: Next question is from Borja Ramirez, Citi. Borja Ramirez Segura: I have 2. Firstly, on the NII guidance, I would like to ask if you could provide the assumption on the deposit hedge growth? And also this EUR 10 billion of deposit hedges, could you remind me on which interest rate they have been acquired? And then my second question would be on the SRTs. If you could remind me what is the expected delay benefit and the fee cost, please? Matthias Bulach: On the deposit hedge growth, we don't give a specific guidance on what the volume is. But structurally thinking about what we should be doing is, obviously, we are adding, let's say, nonmaturing deposits on our liability side. And by the way that we are adding those nonmaturing deposits, we need a natural hedge on those, either through increase of the mortgage -- fixed mortgage portfolio, for example, or other fixed rate assets in the loan book or if that is not enough, then in order to manage the 7.5% sensitivity, obviously, other types of instruments should be used, namely being either hedging our deposit base or investing into fixed rate assets. So structurally, I would be thinking about the evolution that you're putting into your model in terms of noninterest-bearing deposits, which is our fixed rate liability side and then a combination of investing into fixed income assets, both on the loan side as well as on either of the 2 instruments, fixed income portfolio on the ALCO book or structural hedges. And -- sorry, on the interest rate acquired in the -- we do disclose the detail of the information of the next actually 4 to 5 years of the maturities of the ones that we acquired. So you have a very detailed portfolio evolution of those. Obviously, in the moment we acquire, as I said before, we typically tend to invest a little bit more long term when it is ALCO book and fixed income portfolio and a little bit more short term in duration when it comes to hedges. And this is already obviously then already -- and you can see that in the differences of those maturity rates that we have in the Page 30 of the disclosure. Marta Noguer: And then the SRT, Matthias mentioned that before, but it's also in the presentation, it's minus EUR 12 million in the fourth quarter and minus EUR 36 million for the full year '25. So for the cost of SRTs in the fees. Operator: Next question is from Miruna Chirea, Jefferies. Miruna Chirea: It was on costs, more specifically on your investments in digital. I think 1 year ago at the Investor Day, you were talking about EUR 5 billion of total investment in digital over '25, '26, '27. Could you remind us, please, what is the phasing of this in each of the 3 years? And how should we think about investment in digital going forward? So what is the run rate from 2028 onwards? Gonzalo Gortázar Rotaeche: Run rate from '28 onwards, we will obviously explain at the time. There's no decision made. But clearly, the effort that we're doing with '25 to '27 is a special effort that is not something we're going to repeat or planning to repeat in '28, '30. But again, specific numbers, we need to wait. And in terms of the breakdown of that investment, I think there's no change from what we said. But Matthias, do you want to... Matthias Bulach: Neither change in the breakdown nor on the phasing in of that. Obviously, there's a certain ramp-up phase when it comes to the investments in the first year in terms of incorporating the staff and incorporating the workforce that we wanted to incorporate, and this is obviously a phasing. On the other hand, there's a certain front-loading then with expenditure with our partners. So I would say the most reasonable assumption is that is in that 3-year horizon, rather stable in terms of investment needs over these 3 years. Marta Noguer: Okay. Operator, I believe we have time for one more question, please. Operator: The last question is from Lento Tang, Bloomberg. Lento Tang: I have 2 follow-ups, please. The first question is on structural hedges. On Page 30 of the slides, you have this maturity profile. In the past few quarters, they were mainly added in the second quarter of '27 to the third quarter of '28. But this quarter, you added significantly in 2029. So just wondering if you could give me your thought process why the change? And the second one is on SRT. So you previously guided EUR 6 billion by 2027. I just wonder if you have any change of view there given some of your peers have ramped up activity there. Matthias Bulach: Starting with the second one on SRT. We guided for the EUR 6 billion gross issuances by 2027. And as I said before, loan growth is stronger. We expect now 6% performing loan growth with respect to 4% that we expected in the strategic plan. So there will be an uptick most probably of volumes. We don't have a specific updated number on those as we will be making that dependent on market conditions. We want to be active in that market, but we also want to be very sure that we well manage maturities that we will manage the reinvestment risk of those and obviously, that we -- to some extent, don't go crazy about it in the sense of adding too much reinvestment risk in our CET1 capital ratio. So yes, expect us to be more active in that market, expect us to add some billions on that target, but not excessively neither. And on structural hedges, as I discussed before, we are typically taking those decisions to a certain extent on an operational basis each quarter when we see what is the interest rate curve environment, we are updating our business volume forecasts, obviously, into that 12- to 24-month horizon, which we are managing our sensitivities. And then depending on the structure of the curve, depending on the structure of the sovereign spreads, we are managing that more on an opportunistic basis. There's no such a very predefined strategy other than, as I said, on the long tail of the curve, we tend to be in fixed income instruments and for the rather short term, we tend to be in deposit hedges. And then we will be deciding quarter-by-quarter depending on business outlook and market conditions. Marta Noguer: Okay. Thank you, Lento. So that's all we have time for today. Anyone left out the queue, IR team will contact them later. Thank you all for joining us. Thank you, Gonzalo. Thank you, Matthias, and bye-bye. All the best. Gonzalo Gortázar Rotaeche: Thank you very much.
Operator: Good morning, and welcome to the Minerals Technologies Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Lydia Kopylova, Head of Investor Relations. Please go ahead. Lydia Kopylova: Thank you, Gary. Good morning, everyone, and welcome to our fourth quarter 2025 earnings conference call. Today's call will be led by Chairman and Chief Executive Officer, Doug Dietrich; and Chief Financial Officer, Erik Aldag. Following Doug and Erik's prepared remarks, we'll open it up to questions. As a reminder, some of the statements made during this call may constitute forward-looking statements within the meaning of the federal securities laws. Please note, the cautionary language about forward-looking statements contained in our earnings release and on the slides. Our SEC filings disclose certain risks and uncertainties, which may cause our actual results to differ materially from the forward-looking statements. Please also note that some of our comments today refer to non-GAAP financial measures. A reconciliation to GAAP financial measures can be found in our earnings release and in the appendix of this presentation, which are posted on our website. Now I'll turn it over to Doug. Doug? Douglas Dietrich: Thanks, Lydia. Good morning, everyone, and thanks for joining today. I'll start today's call by giving you a high-level overview of our performance for 2025, and then Erik will walk you through our fourth quarter and full year financial summary and -- as well as give you a first quarter outlook. I'll then take a couple of moments toward the end to give you an overview of how we see 2026 shaping up in terms of our end markets and the sales growth we expect to see over the year in each product line. After that, we'll open it up to questions. 2025 was a more challenging year for us, especially compared to the record year we had in 2024. Like other companies, we experienced the impact of a dynamic and at times volatile operating environment, including geopolitical uncertainty, changing tariffs and softer market demand. The ability to make the ongoing adjustments to these changing conditions, while at the same time, remaining focused on delivering the key drivers of our long-term strategy is a testament to the strength of our team. I'd first like to highlight that in 2025, the employees at MTI achieved a world-class safety performance and one that was the best ever in MTI's history. The health and safety of our people, partners and communities are our top priorities. And that we continue to reduce the number of injuries that occur at MTI, we still haven't reached our goal of eliminating them altogether. But the progress we made as a team this year is a positive step towards that achievement. Moving to our financial results. Full year sales came in at $2.1 billion, a similar level to last year. Full year operating income was $287 million and earnings per share was $5.52. Many of our key end markets either remained flat or weakened throughout the year. Our teams moved quickly to adjust to these conditions in our facilities by maintaining control of costs and managing inventories, while at the same time, navigating changing tariffs and remaining focused on quality, customers and safety. We also took proactive steps to improve our cost structure, including a company-wide cost savings program that we announced in the first half, which we will see the full year impact from this year. Despite the market and operating distractions, we meaningfully advanced the 3 pillars of our organic growth strategy in both of our segments, including expanding into higher-growth consumer-oriented markets, positioning ourselves in faster-growing geographies and introducing innovative higher-margin products. We outlined for you a few examples of the investments we've recently made to support this strategy, including upgrades to our pet litter facilities in the U.S., Canada and China, expanding our natural oil purification operations in Turkey, building several paper and packaging satellite plants in Asia and expanding our production of FLUORO-SORB. Each of these investments has led to significant new sales growth in 2026, and I'll give you details on this later in the presentation. It was also a strong year on the technology and new product development front. Sales of our newest products accounted for 19% of our total sales, which is the highest level we've achieved and points to both the strength of our innovation engine and ability to continue to bring new value to our customers through the application of our core technologies. Further, we remain strong stewards of our capital, returning $73 million to our investors through dividends and share repurchases while also maintaining a strong balance sheet that is well positioned to support both our organic and inorganic growth initiatives. With that, let me have Erik take you through our financials in more detail. Erik Aldag: Thanks, Doug, and good morning, everyone. I'll start by providing a summary of our fourth quarter and full year 2025 results, followed by a review of our segments, and I'll wrap up with our outlook for the first quarter. Following my remarks, I'll turn the call back over to Doug for additional perspective on 2026. Now let's turn to review our results. The fourth quarter played out largely as we expected. Sales, operating income and EPS were all roughly in the middle of the ranges we provided on our third quarter earnings call. Sales were $520 million, up slightly from prior year as 2% growth in Engineered Solutions offset a 2% decline in Consumer & Specialties. Operating income was $67 million and operating margin was 12.8% of sales. Operating margin for the quarter was impacted by lower residential construction and foundry volumes in the U.S. as well as lower productivity and fixed cost absorption at our plants serving those markets. Turning to the full year. Sales were $2.1 billion and operating income was $287 million. You can see in the sales bridge on the upper right that sales were 2% lower than prior year, driven by $74 million of unfavorable volume and mix impacts, which was partly offset with $21 million of selling price increases and an $8 million benefit from foreign exchange. You can see in the bridge on the bottom right that unfavorable volume and mix impacted operating income by approximately $27 million from the prior year. Our selling price increases completely offset inflationary impacts, including the impact from tariffs. However, we also experienced unfavorable productivity and fixed cost absorption, primarily due to volume challenges in the first and fourth quarters. And as we mentioned, we had some temporarily higher logistics costs associated with our cat litter plant upgrades. Operating margin was 13.9% of sales versus 14.9% in the prior year. Lower volume was the biggest driver of the change and was worth about 80 basis points. We see this margin reverting back towards 15% as volume improves, and we won't have these onetime cost impacts I just mentioned. Earnings per share, excluding special items, was $1.27 in the fourth quarter and $5.52 for the full year. Now let's turn to a review of our segments, beginning with Consumer & Specialties. Fourth quarter sales in the Consumer & Specialties segment were $274 million. Sales in our Household & Personal Care product line increased 2% sequentially to $133 million and were 1% below prior year. Momentum continued to build for our cat litter business with sales up 8% sequentially and up slightly from prior year. We also saw continued growth in edible oil and renewable fuel purification as well as animal feed additives. However, this growth was offset by lower Fabric Care sales as customers reduced their inventories in the fourth quarter. In our Specialty Additives product line, sales of $142 million, were 2% below prior year as higher sales to paper and packaging customers were offset by a pronounced slowdown in residential construction, which resulted in several customers taking unusually long downtime in December. These customers resumed ordering in January, but we are not expecting this market to improve significantly from the fourth quarter to the first quarter. Operating income for the quarter was $29 million, $9 million lower than prior year, driven by unfavorable volume and the associated impact on fixed cost absorption at our plants, particularly those serving residential construction. Turning to the full year. Consumer & Specialty sales were $1.1 billion. Household & Personal Care sales of $513 million were down 3% from prior year overall, but improved by 5% in the second half of the year compared with the first half. The improvement in the second half was driven by a positive trend in cat litter sales, which were 7% higher in the second half as we worked with our retail partners to drive higher volumes. We also continue to make solid progress on some of our key growth initiatives, with full year sales into edible oil and renewable fuel purification up 17% and sales of animal feed additives up 12%. Sales in Specialty Additives were $585 million, 4% below prior year. As I mentioned, one of the bigger macro challenges we faced in 2025 was a slowdown in residential construction, which impacted sales for this product line in both the third and fourth quarters. Overall volumes to paper and packaging customers were also lower than the prior year as our new satellites in Asia were offset by declines in North America and Europe, including 2 paper machine shutdowns that occurred over the past year in the U.S. Despite these market challenges, our sales to paper and packaging customers picked up in the second half of this year, increasing by 3% compared with the first half of the year as some of our newest satellites continue to ramp up and volumes in Europe and Latin America also ticked higher. As I mentioned, overall sales to paper and packaging customers returned to year-over-year growth in the fourth quarter. And with the capacity that has come out of the market in North America, operating rates at our customers are very healthy in the 90% range, which is positive for our volumes. Full year operating income for the segment was $134 million compared to $166 million last year, driven by unfavorable volume and mix and the associated unfavorable cost productivity as well as temporary cost increases related to our facility upgrades. Now let's turn to a review of our Engineered Solutions segment. Fourth quarter sales in the Engineered Solutions segment grew 2% from prior year to $245 million. Sales in High Temperature Technologies of $178 million, were up 1% from the prior year as higher sales to steel customers offset lower foundry sales in North America. As we expected, foundry customers in North America took extended seasonal outages toward the end of the fourth quarter. In the Environmental & Infrastructure product line, sales of $67 million were 7% higher than prior year. Sales growth was driven by infrastructure drilling, offshore services and environmental lining systems. This growth was partially offset by lower sales of waterproofing materials for the commercial construction market. Fourth quarter operating income was $40 million, representing another strong performance by the segment despite mixed market conditions. Turning to the full year. Segment sales were $975 million. Sales in High-Temperature Technologies were $705 million, representing a 1% decrease from prior year. We continue to see growth in our Asia foundry business, which helped to offset slower demand from foundries serving the agricultural equipment and heavy truck markets in North America. Sales to steel customers were relatively flat overall as growth in North America was offset by softness in Europe. Full year sales in the Environmental & Infrastructure product line were $270 million, up 2% from prior year, primarily driven by higher demand for infrastructure drilling products, environmental lining systems and offshore water treatment. The segment navigated mixed market conditions and tariff impacts to deliver record operating income of $163 million and record operating margin of 16.7% of sales. Now let me turn to a summary of our balance sheet and cash flow highlights. Fourth quarter cash from operations was $64 million, bringing the full year total to $194 million. We deployed $107 million of capital expenditure, which was a bit higher than the prior year, driven by the higher number of growth investments we've made. Overall free cash flow was $87 million for the year. After a slow start to the year, our free cash flow averaged 7% of sales from Q2 to Q4. And for 2026, we're expecting full year free cash flow in this more typical range of 6% to 7% of sales. We returned a total of $73 million to shareholders last year in keeping with our balanced approach to capital deployment. Our balance sheet remains solid, finishing the year with more than $700 million in liquidity and a net leverage ratio of 1.7x EBITDA. Now I'll summarize our outlook for the first quarter. Overall, we expect first quarter sales and operating income to be similar to the fourth quarter, which would represent approximately 5% growth over the prior year. In the Consumer & Specialties segment, we expect sales to be up mid-single digits versus prior year. In Household & Personal Care, we're building on the momentum we've generated in cat litter and other consumer-oriented products, and we expect this product line to be up mid- to high single digits year-over-year in the first quarter. We've also seen an uptick in Fabric Care orders after a slow fourth quarter. In Specialty Additives, we're expecting growth in Paper and Packaging to offset continued softness in residential construction. In Engineered Solutions, we're also expecting mid-single-digit growth in the first quarter. In High-Temperature Technologies, we see continued growth in Asia foundry and continued strong sales to steel customers in North America, which we expect to offset the softness we are seeing in North America foundry. Our North America foundry customers continue to be impacted by sluggish agricultural equipment and heavy truck volumes and a few permanent foundry closures have been announced for the first quarter. We expect most of the volume from these foundries to be absorbed by other foundries in the U.S. However, it will take some time for that volume to transition. In Environmental & Infrastructure, we're expecting continued growth in infrastructure drilling products as well as offshore water treatment. For the total company, we're facing $2 million to $3 million higher energy and mining costs in the first quarter versus the fourth quarter, which will have a temporary impact on our margins. We expect to offset these higher costs through pricing and improved productivity as we move through the quarter, and the margin impact should be limited to the first quarter. We expect overall sales and margins to improve as we move through the year, particularly as some exciting new growth opportunities begin to ramp up in the second quarter. With that, let me turn the call back over to Doug for some additional detail on these opportunities and some perspective on the year ahead. Doug? Douglas Dietrich: Thanks, Erik. Every first quarter, I'd like to give you a general perspective on our end market conditions for the year. And as Erik just mentioned, we're not currently seeing any significant changes in our end markets and expect them to largely remain stable at current levels through the first half. Several factors could change this outlook, such as lower interest rates, increased consumer confidence in home buying and remodeling and improvements in on- and off-highway vehicle builds. These factors could take hold this year, but the timing of the resulting inflections is hard to determine at this point. But independent of exactly how our markets play out, the growth investments we made last year were well timed, and we have captured significant sales growth for 2026 as a result. Let me take you through each product line and give you some examples. In Household & Personal Care, we're set up for what we expect to be a strong year. The result of the investments we made into the U.S. Our U.S. Canadian and Chinese cat litter facilities is that we've secured significant new business this year with major retailers, which will begin to ramp up at the beginning of the second quarter. We're also completing the expansion of our Bleaching Earth facility in Turkey to support the rapid growth of our edible oil and renewable fuel purification business. Regulatory changes driving increased use of sustainable aviation fuels worldwide are creating significant demand for our best-in-class bleaching earth products. We've also recently qualified our products at a large refinery in Asia, which opens this large market to us. Over the past 5 years, this business has grown at an average of 15% per year. And this year, we expect that growth rate to accelerate further. Lastly, we're expanding capacity for our animal health and fabric care products with new partnerships and products in development, and we expect to share more on these initiatives over the next 2 quarters. In Specialty Additives, we have 3 new paper and packaging satellite plants coming online this year in Asia, which will drive solid volume growth. We've recently shared details in a press release about our multiyear expansion in the region, which continues to provide a solid pipeline of opportunities for us and that will yield additional contracts and volume growth going forward. The main uncertainty this year in this product line is the residential construction market and the question of when it will begin to strengthen from its current condition. When it does, this will have a positive impact on our GCC and Specialty PCC volumes. Moving to the Engineered Solutions segment. Our High-Temperature Technologies product line is positioned for a solid year. Steel production in the U.S. remains stable, and we've seen some recent improvement in Europe. We're commissioning 6 additional MINSCAN units this year and continue to see strong pull for our latest high-performance refractory formulations. Foundry output in the U.S., however, remains relatively slow due to flat auto builds and weaker heavy truck and agricultural equipment demand. Asia presents a large addressable market for us, and we continue to see opportunities to expand our business there. The China foundry market proved to be resilient last year, and we expect to see continued strong volume growth there again this year. In the Environmental & Infrastructure product line, our commercial construction and large environmental lighting markets are beginning to trend in a positive direction. FLUORO-SORB continues its qualification track with hundreds of trials taking place at water utilities across the U.S. and in Europe. We have 10 new FLUORO-SORB water utility installations scheduled for this year, which will more than double our current footprint. We're also seeing continued strong demand for our infrastructure drilling products and expect this strength to continue throughout the year. In summary, the specific actions we took last year in support of our long-term strategy have put us in a position to deliver a strong 2026. With relatively stable markets, we see growth returning to the mid-single-digit range. Should the U.S. construction and foundry end markets improve this year, 2026 will turn out to be an even stronger year for MTI. Before I wrap up, I also want to let you know that we're planning another investor event this year, where we will highlight many of our newest technologies and update you on our progress against our 5-year targets. We also have some exciting new projects in our innovation pipeline that we hope to share with you. These projects are targeted at opportunities created by the regulatory and tariff-related policy changes around the world that are driving the increased importance of and demand for local mineral supply. We feel we are uniquely positioned with some of our technologies to turn these opportunities into significant new revenue streams for MTI. More to come on this, so stay tuned for details. Again, thank you for joining today, and thank you to everyone at MTI for your ongoing focus on safety. With that, let's open the call to questions. Operator: [Operator Instructions] Our first question today is from Mike Harrison with Seaport Research Partners. Michael Harrison: I wanted to start out with Consumer & Specialties segment. The operating margin performance there was the worst you've had in a few years. And I know you went through some of the fixed cost absorption issues there as well as maybe some of the inefficiencies associated with some of the work you're doing in pet care. But I was just curious, was the performance there worse than you expected? Or was it in line? And I guess maybe as we start to think about what margin could look like in that segment for 2026? Can you maybe give us some guidelines or puts and takes in terms of how we should think about that margin performance next year -- this year, I guess? Erik Aldag: Yes. Mike, this is Erik. Thanks for the question. So as far as -- and I'm assuming you're talking about the fourth quarter margins, so I'll start there. As far as that, I would say it was in line with what we were expecting apart from the softness. The softer-than-expected residential construction demand that we saw later in the quarter. And that had kind of a twofold impact on the margins in that segment. First, the residential construction products that we sell are relatively high contribution margin products. So there's an unfavorable mix impact that happens when that volume falls off. And then secondly, as I mentioned, the fixed cost absorption impact of a sharp drop off in volumes at these facilities. It's just hard to pull out the fixed and semi-variable costs from those facilities when you see a volume shift like that. So those were the main impacts in the fourth quarter. You mentioned the temporary impacts associated with the plant upgrades that we did. Most of that, I would say, was in the second and the third quarter, although we did -- we were starting to ramp up this facility that we just upgraded in the fourth quarter. So we didn't really see the full benefit of that upgrade yet in the fourth quarter. I would say going forward, the biggest thing that's going to drive margins up in that segment is volume. I showed you the MTI operating bridge and volume and mix is the biggest driver of the change in margin that we saw from '24 to '25. And a lot of that was in the Consumer & Specialties segment. I can say we've got -- we're feeling confident about the volume growth that we've got ahead for Consumer & Specialties, and that's going to drive the majority of the margin improvement in addition to not having those kind of onetime costs that we had last year. Michael Harrison: All right. Very helpful. And then I wanted to just dig in a little bit on the press release you put out recently talking about your paper PCC business. Some of the new satellites that have come on and are still to come on during 2026. I was hoping you could just give a little more color on how you're seeing the market? Presumably, North America still is maybe a little bit soft, but you would expect to see some growth in Asia. Maybe also talk about the pipeline of opportunities for future satellites as you see it right now. Douglas Dietrich: Yes. This is Doug. I'll start and then maybe I'll pass it to DJ to give you a little bit more color. We see that Asia presents and continues to present a good growth opportunity for us. It's a large market. Paper production relatively stable there. But what we're seeing is more -- we've always talked about what we call penetration. So PCC is the pigment being used in that market. That's -- we're probably about only 50% penetrated. We're in Europe and North America, it's pretty much 100% penetrated with the use of PCC in paper and packaging or paper in particular. And so we see a large opportunity to continue to drive our base PCC business in Asia. And that's going to occur through consolidation of smaller paper mills into larger mills and newer machines. And when you're doing that, you're going to continue. That's been going on now for a decade. So we see that continuing. But more so, it presents a great pipeline for us in other opportunities. And those opportunities like our new technologies like NewYield where we're repurposing some waste streams and movement into packaging, okay? So large and the packaging market is growing. It's growing in Asia. And so as we adapt our technologies and our products from kind of base printing and writing paper into packaging and into these new technologies, it presents an even bigger opportunity for us. So maybe I'll let DJ talk about that and then back to North America and what it looks like this year. D. J. Monagle: Glad to. So let's just expand on to what Doug was referring. So the announcements that we had, we talked about the 4 that came online in 2025. And then Doug in this presentation was highlighting 3 more that are coming on in '26. All Asia growth, a couple of those -- one of those, in particular, was an expansion in growth. So that's mostly China and India, and we see that continuing. And the pull that we're getting, so I'm going to shift a little bit to the pipeline. The pull that we're getting is we've got a little less than 2 dozen opportunities in the pipeline that I would call are very real. They are mostly in Asia, although there's a couple of other spots in what I'll consider the further developed regions. Big pull for NewYield that has taken -- has a lot of traction. And NewYield has evolved since we first chatted about it. It started off as a very singular product with a conversion of a waste stream. And now there's -- it's really more of a platform. There's quite a lot of adoptions we can do for the specific application, which is opening up further packaging applications for us. So before we were targeting printing and writing grades, and now we're finding opportunities to go in recycled packaging in Asia, in particular. And then augmenting that, we're also offering satellite ground calcium carbonate that has gotten a lot of pull from some packaging customers as well. So we see the pipeline remaining strong. I would say if I were hedging where the next 2 or 3 in addition to what Doug had highlighted, they are probably broader Southeast Asia opportunities, and that continues strong. On the base market, Erik highlighted really good operating rates. So we don't see much degradation. This is a rough year as some big volume came out. North America operating at 90% seems pretty sustainable for the future. Europe is slightly less than that, and the European market is dealing with penetration from Asia. But the customers that we are dealing with are pretty well situated within that market. So they're leaders in that area, in that region. And so I think that they'll be fine for the foreseeable future as well. So overall, bullish on continued expansion of the paper group with particular emphasis on growth in Asia, and that's primarily due to market penetration. Michael Harrison: All right. Last question I had is just kind of on capital deployment going forward. The balance sheet is still very strong. You guys have a good track record of free cash flow generation, and it sounds like maybe some further recovery in free cash flow in '26. Can you just talk about how you're thinking about spending cash during 2026 as you look at your M&A pipeline as well as I forget what you have left on the share repurchase authorization. But what should investors be expecting this year? Douglas Dietrich: Yes, Mike, I think we have -- we continue to call it kind of our balanced deployment of capital where we -- at these debt levels, we like to steer 50% of our free cash flow back to shareholders and keep some on the balance sheet for further opportunities. And that's after we support our organic growth. I think we have about $140 million left on our share repurchase program. So we intend to continue that at pace this year. And there's no time line on that. So we can -- we'll look for opportunities to make sure we maximize the use of that cash. But we do keep about 50% of that cash on the balance sheet for inorganic opportunities, and we think that there's a nice pipeline of things that we would be targeting and that we think that could help accelerate our growth strategy. They could be things that kind of are bolt-ons in different geographies to help move more into consumer products. And there could be some larger things out there that we feel we should own that could give the company some scale. So I think we've got the balance sheet in good spot. I think we continue to watch the market and make sure we're prepared for if something comes our way. I think we have the team in place that's able to do it, and we're just patient with it. So we'll see what happens. Hard to time some of these things, but we're going to continue to be active and look out there to see if there's some things that we should pick up. But short of that, we're going to continue with our balanced approach, and that's going to continue with that share repurchase and dividend structure, again, keeping with that kind of 50% of our free cash flow. Operator: The next question is from Daniel Moore with CJS Securities. Dan Moore: So just maybe clarification or drill down on a couple of specific products or end markets. Fabric Care, you called out customers managing inventories late in the year, not a shock. But is that largely behind you and talk about your visibility into Q1? Douglas Dietrich: Yes, we think so. I mean we've had -- it's been kind of a lumpy year from Fabric Care. Some of our larger customers has happened in the first quarter, they moved some orders from the first to the second. A little bit hard to forecast some of this. And then that happened late in the fourth quarter as well where they've kind of moved some things around from the fourth and we think the first. So as Erik mentioned, those orders have picked up. We think that, that volume is still there, but it does shift around from quarter-to-quarter from times. But more to the point, we think we have some good volumes ahead of us. I mentioned that we have some new technologies, some new things that we're working on. We hope to shed some light on that through the rest of this year that we think could be some new products that get developed and out there in the marketplace that can drive our Fabric Care business bigger. So I don't think there's really anything behind it other than some moving orders, at least in our current Fabric Care business, but we've got some things in our pipeline that we're hoping to get out this year that could grow that a little bit faster. Dan Moore: Got it. And then shifting to Pet Care. You gave the outlook. Just maybe take a step back. Obviously, early '25 was challenging in terms of market dynamics of discounting by branded players. How would you describe market conditions, both U.S. and Europe as we enter '26 and kind of underpinning that growth expectation? Douglas Dietrich: Yes. This year was a bit of a -- let's just start with the overall market. The markets were relatively flat this year for pet litter. I think they grew maybe 1% to 2% in total. And yes, we did see that discounting activity this year that we had to make some adjustments with our customers to deal with. We did that. We made those through the second quarter. And that's why I think Erik highlighted, we worked with them on promotions on making sure the value that private label brings on the shelf was seen and in kind of comparison to that discounted price from the branded customers. We made those adjustments, and we saw those volumes return. I think our -- as Erik mentioned, our second half kind of sales in pet care were -- pet litter were 7% higher than the first half. So we think those took hold. I do think that, that discounting is going to continue, but I think we've made those this year, that discounting is going to continue, but I think we've made those this year, and that's really North America type Phenomenon. But I think we've made those adjustments, and I think we're going to continue to see that base volume growth. I think on top of that, we've secured some significant business. We took some time. We took some cost, as you noted, this year to upgrade those facilities and start one up in China. Those are largely running right now and running as expected. And we did that to increase the capacity and the capability of those plants. So not only the throughput, variable cost structure improvements, but also the type of products they can make and the type of packaging configurations that they can deliver. And that has enabled us to secure some significant business. I think on our last call, we told you that was around $25 million, $30 million of business. And that's part of what Erik was talking about in terms of -- or what I was talking about in terms of return to high single-digit growth in that business. So that should start up in the second quarter. It looks good. We've gained some new business with retailers, and that should flow through this year, bringing that business back up into that high single-digit kind of growth rate. So we think it's a very strong year ahead for pet litter. We made the adjustments last year. That volume has returned to us, and now we've got some new business to start driving the growth rates back up. Dan Moore: Great. Very helpful. One or two more, I'll turn it over. Q1, 5% revenue growth, quite healthy. And I know you called out the higher mining and energy costs. So that's a chunk of it, but just wondering why we wouldn't expect to see maybe a little more operating leverage on that type of top line growth. Erik Aldag: Yes, Dan, this is Erik. Just -- so a couple of other things going on there. You mentioned the higher energy and mining costs. That's about $2 million to $3 million on a sequential basis. The mix impact that I mentioned in response to Mike's question, the softer residential construction that we're seeing in the first quarter versus last year, in particular, is having an impact on our margins. This is a relatively high contribution margin product and the market is just softer right now. Q4 and Q1 are usually soft for that market, but we're seeing it a little softer than last year so far at least. I'd say, the only other thing affecting margins in Q1 is lower equipment sales. We've got these equipment sales in high-temperature technologies. We had some in the fourth quarter, and we had some in the first quarter last year, and we don't have any in the first quarter this year. So that's affecting the margin as well. Dan Moore: That really helps. Last one for me. mid-single-digit growth this year, if I listened appropriately or heard correctly, which is a very healthy outlook. Obviously, 15% operating margin has been a goal for some time. You made great progress toward it. What would it take to get there from here in terms of organic top line growth? Is that achievable in '26? And what type of time frame should we be thinking about, if not? And I appreciate the color. Erik Aldag: Yes. So I think on the growth side, we do feel more confident about the growth this year. We've talked a lot about these growth investments that we've made that support about $100 million of new revenue. Right now, we're estimating about $50 million of that will come through in 2026, that's everything we've mentioned, the cat litter, the new cat litter business, new SKUs on the shelf, new distribution centers that we haven't served before. It's the bleaching earth expansion. It's the new satellites, it's new Min scans. That's about $50 million that we think is going to come through this year. And on top of that, we've got $20 million of pricing. So $70 million right there of things that we can tally up, and we feel very confident about. That's before we even start talking about things like the Asia foundry growth that we expect to continue, the refractory business, they've got new products. We expect those to continue to grow. Animal Health, FLUORO-SORB, the whole environmental and infrastructure product line has been on a pretty good trend recently. So look, markets could get weaker from here. But right now, we're not expecting markets to change very significantly. So that's why from where we sit today, we feel confident that we're going to have a strong year. If we get some help from the markets, particularly like construction, ag equipment, heavy truck, that's why we think we could have a really strong year this year. Douglas Dietrich: And Dan, I'll just add that, look, the base -- I think the company is built around a 15% margin. I know that Erik is giving you some of the temporary cost issues and some of the mix and volume declines that took about a percentage away. So last year, we were around that 14.9 around that 15% target. This year, 80 basis points came out just from the volumes. But I think with that growth, with at least the $70-plus or $100 million growth that we see coming through that single digits, it's going to take care of that absorption, that volume. And again, some of these are higher-margin products. And so I think that reverts this company. It might not happen in the first quarter, but on a run rate basis, I think we start getting back to that 15% this year as that revenue flows through and that volume flows through. That said, you've got half of the company right now at 16.7% margins, albeit a record, they had a good quarter, but that still doesn't even have the foundry in there. So I think there's room to grow on that side. And I think getting the consumer with this new higher-margin products starting to grow faster like bleaching, animal health, Fabric Care and the pet litter business, I think that reverts back up to 14%. Then I think you start seeing us getting over 15% margins, okay? So hard to time whether that market is going to help us this year, but I do think that this company, with what we have in the tank, with the investments we've made is going to start pushing that margin higher. Probably later this year, maybe into next, but I think it's above 15% right now is a structural kind of level for us. Dan Moore: And certainly progress toward it this year is what I'm hearing. Douglas Dietrich: That's right. Operator: The next question is from Pete Osterland with Truist Securities. Peter Osterland: First, just wanted to ask in Specialty Additives with sales being up year-over-year in the Paper and Packaging business during the fourth quarter. I was just wondering if you could break out that sales growth by region. And I was also wondering, is there a meaningful geographic mix impact on margins for sales into North America and Europe versus sales into Asia in that business? Erik Aldag: Yes. Thanks, Pete. So definitely, the growth is coming from Asia, and that's offsetting the softer volumes in North America. We mentioned a couple of shutdowns we have to overcome. But the growth in Asia did start to overcome that in the fourth quarter. And so that's the dynamic that you see. As far as margins go, on an operating income basis, yes. So we're bringing on new capital with these investments in Asia, and they've got a higher depreciation load than the assets in North America and Europe. And so on an operating income basis, there's a lower operating margin in Asia for the new satellites coming on than for some of the volume declines that we've seen in North America. On a cash flow return basis, we look at these investments on an IRR basis. We're getting the same level of returns that we expect around the world in Asia. And so as those assets depreciate, the operating margins will go up, but that's basically how the math works. Peter Osterland: Got it. And then just a clarification, I apologize if I missed it, but you talked about plans to implement pricing and productivity as offsets for some of the margin pressure you're seeing. Just given the breadth of end markets and businesses you have, where within your portfolio do you have relatively strong pricing power to implement increases? Douglas Dietrich: Yes. I think we have strong pricing power pretty much across the portfolio. in softer markets, that becomes a little bit more of a challenge. But I think as you saw back in kind of '23, '24 time frames, the company moved almost $250 million of price through across the board. So our ability to price is there. We work closely with our customers. We make sure that we generate the value from -- that our products deserve from our customers, and we're also conscious of the competitive environment that they're in sometimes. I think this year, there's some standard base price increases that go across the Specialty Additives business. I think in our high-temperature technologies, there's a lot of pricing power. We've managed to move largely last year through on tariffs, had to push that through. And so I think there's -- it's going to be kind of across the board. I think Erik mentioned about $20 million. I think it's coming -- I don't know if there's one product line more than the other, but I think it's pretty well spread across the business in terms of being able to keep up -- we also note that making sure that our pricing has to more than take care of our input costs to make sure we maintain our margins. So we're conscious of that as well, Pete. So no specific area, but we do have capability to push to move price as needed across the board. Peter Osterland: Very helpful. And then lastly, I just wanted to ask, you called out that you're expecting to have at least 10 installations of FLUORO-SORB later this year. I was just wondering what's the approximate revenue potential associated with those installations? And how long does that take to ramp? Douglas Dietrich: Yes. Maybe I'll start, and I'll let Brett talk a bit more about FLUORO-SORB, in general. These are probably smaller installations still. These are smaller utilities that are coming in place. They are I guess, we call tank renewals. So we're putting in the media into tank systems that will get renewed maybe a couple of times, 3 times per year. So those change-outs aren't super high revenue. But as we get them put in place, that kind of feeds more opportunities because they get more use and they get more storytelling around their capabilities. And so it's more of an indication of more of the acceleration of use of FLUORO-SORB. I think the revenue this year will probably grow a couple of million dollars from those installations. But I think more importantly is that the number of installations and trials that's going on right now, we're talking a couple of hundred, I believe, trials across the United States and into Europe. That really bodes well for as this accelerates towards some of the regulation changes. more quickly more installations and take-up of FLUORO-SORB over the coming years. So Brett, do you want to give any more color than that and what's going on specifically in the U.S.? Brett Argirakis: Sure, sure. Thanks, Pete. Yes, when we look at FLUORO-SORB right now, as Doug pointed out, we -- the progress continues to go pretty well for us. It's really despite the regulatory delays that we've seen. Full year growth of sales was around 20% year-over-year last year. We have 8 full-scale drinking water projects underway. And as Doug mentioned, we have a pipeline of 10 more wins that FLUORO-SORB has been selected for the absorptive media this year. So interest is not only in the U.S., Doug just mentioned, Europe is really picking up interest. What we're seeing now is in Germany, Sweden and the U.K. are actively piloting the FLUORO-SORB, and we're working with the German EPA to gain approval of the FLUORO-SORB for drinking water applications. France just recently added a full-scale drinking water pilot in Belgium and Sweden. They continue to pilot in situ PFAS remediation projects with our FLUORO-SORB. So we remain really confident in our product and its performance. And really, we fully expect it to continue to commercialize the FLUORO-SORB programs to remove the PFAS. So we're still really excited about it, and we anticipate a continual growth in this product line. Operator: The next question is from David Silver with Freedom Capital. David Silver: I'm going to follow up on a couple of areas first. But I did want to touch -- go back and just touch on your comments about pet litter. So I think for 2025 as a whole, maybe revenues were up, I don't know, low single digits, I'm guessing, slanted towards the back half of the year, as you pointed out. But in there, I guess there's a volume component and a price component. And as I recall, earlier in 2025, you did make some adjustments to support on price to support your customers there. So I was just wondering, firstly, could you just break down the pet litter growth in terms of delta on volume versus price? And then secondly, if you could make a comment about the pricing outlook for '26. In other words, is that customer support kind of still in place? Or are there prospects for recouping some of those reductions? Erik Aldag: Sure. Yes. The pricing was actually relatively minimal, the pricing impact. We did, in some instances, give on some pricing, but that would be in exchange for volumes. And so from a margin perspective, it's actually accretive to margins because getting more volume flowing through those plants can be very beneficial for us. So I would say some targeted pricing adjustments in some areas, but certainly not across the board. That's -- I guess the other part of the question was on volumes. Mostly volume. Douglas Dietrich: Yes. The challenge of the revenue this year was mostly volume, and it was due to kind of competitive -- the collapse of the delta between brand as they discounted in private label. And so we've made those adjustments. Like Erik said, some of that was price, but the majority of that we regained through promotions and packaging and working with our customers. Again, they are the retailers and making their product that we supply them more valuable on the shelf. And so mostly volume, David, a little bit of price. As we go forward, though, that -- what I referred to about $25 million, $30 million is pretty much all volume. That's coming through at average prices, I think, with these major retailers, but it's coming through all volume and different regions. And as Erik mentioned, hitting some new distribution centers that we hadn't had before. So we've secured that business. And yes, the customer has to buy it still, but we're pretty confident that, that volume is coming through. And that should solve some of the absorption challenges, the productivity challenges and start to fill up these plants that we just built. So we're excited about that. David Silver: Okay. Great. Second topic would be on the refractory side. I did take note that you had the 6 new MINSCAN to be commissioned. Just to focus on that, should I assume that, that 6 to be commissioned in 2026. And then secondly, there was a certain size on average of the previous batch of, I think, 5 MINSCAN commissioned, maybe $100 million of total revenue for. Are these -- is this batch of 6, is that similarly sized? Or how should we think about that? Douglas Dietrich: Well, let me take you through. I think the $100 million was kind of the addressable universe of what we think we -- there's -- I don't know, Brett, there's 130 different electric arc furnaces in North America and Europe that we're targeting. So there's a large addressable market for this. It's going to take some time, obviously, for customers to want to adopt this technology. It's largely been here in the United States and driven by safety concerns, being able to put the device in the plant on the furnace being able to remove anybody from near that furnace for safety concerns, but then being able to scan, measure and very efficiently deploy our refractory material through the machine. So we see a large market for it. We have -- each of these come with about a 5-year contract. I think we've secured over the 5-year period for these, it would be about $100 million. But -- so you're talking about 20 -- $17 million, $20 million a year from what's been installed. So it's a good business model, long-term contracts, there's a large addressable market. It's using our higher-performing refractory products, and I'm probably taking stuff that Brett should be talking about, so I'm going to pass it to him. Brett Argirakis: Thanks, Doug. David, I think Doug covered a lot of it. But as Doug mentioned, look, the program really was designed for safety and improved operations. I mean it's really customized application technology that has really grasped the industry. And it's for the electric furnace steelmakers. Over the past few years, we've signed 18 agreements and the value is probably, as Doug said, actually, it's $150 million over the life of the agreement. And the positive thing about this program is we're keeping the refractory business that's a daily program for 5 years at a minimum. So we do see a lot of runway in this technology. When you look at just Europe and the United States, which are our 2 largest markets. We see at least, as Doug mentioned, probably 130 targeted projects. And we have a pipeline in hand that continues. So we feel really good about it. You asked the question about installation. Yes, there are 6 additional units to be commissioned this year. Those units are going to go throughout the year. We have probably half of them going in, in the first quarter or first half of the year and then sometimes they move out a little bit. But yes, 6 will be commissioned. And one of those is in Europe. So 5 of those in the U.S., 1 in Europe. So again, our pipeline remains really strong. We feel really good about it. And we're bringing in products that adapt to it. I had mentioned before about banks and bottoms, these materials that don't -- aren't a gunning product. They actually go to the bottom where it's beneath the molten steel. These products were launched last year, early first half. By the second half, our momentum really -- the trajectory just skyrocketed it. So we doubled our growth business in the refractory group, and we expect to do that again this year. And it's because of these new products, not only in the furnaces, but also in the steel ladles, which carry the molten steel to the continuous caster. So we're really excited about this business, and it's doing very well. I hope that answers your question. David Silver: Yes. No, I appreciate all the color. And while I have you, Brett, I did want to maybe ask a follow-up question on FLUORO-SORB. Let's see. Earlier in 2025, I guess the EPA went and extended the time lines for drinking water authorities to make -- to pick a remediation plan and then another 2 years in effect to actually install it. And I'm just wondering how you are thinking about maybe the adoption curve in the wake of those extended time lines. So in other words, should we just push -- I assume there would be a certain rate of adoption that would start to spike as the deadlines approached. Is that still the right way to think about it, push out the growth maybe a couple of years? Or is this the case where you think there might be more early adopters since the number of potential customers have already been trialing it, thinking that there was a shorter time line. So in other words, should we just push out the growth curve for FLUORO-SORB 2 years? Or is there a reason to think that adoption might occur a little more quickly despite the lengthier time lines that the EPA established? Brett Argirakis: Yes. Great question, David. Look, the current U.S. EPA drinking water limits are set for 2029, and there has been some discussions about a reset to 2031. The timing could determine an inflection point for the takeoff of this product line. But to be honest with you, we've seen a lot of drinking water utilities -- although they've delayed major projects, the amount of trial activity and opportunities and inquiries has significantly increased. So I think what's happening is we're starting to see extra trial activity because of the extra time. So it could be benefiting us, although we'd like to see the sales take off immediately, it is allowing us to prove this product really well. So that's why I think we're starting to see more and more activity. But keep in mind, I mentioned earlier about the European activity, and that's starting to take off and there are different regulations there. So we're working with the German EPA. We're working with all these other countries just to continue to drive this product. So we're not slowing down regardless of the regulations. Maybe a trajectory point will be determined by when it is drawn in stone, but we're going to continue to blow forward and drive the sales. Douglas Dietrich: And I think as Brett mentioned, David, that the extra -- there could be an extra year delay, but that extra time is being used to really solidify FLUORO-SORB in these facilities. And so it's been a good thing from a trial activity. We think that, that's going to make it a really solid solution here in the United States as that inflects. And in the meantime, we're also working -- I'm just repeating, Brett, other countries. So we do think that the revenue trajectory with the breadth of the regions that we're addressing might actually be the same as what we thought 2 years ago. So even with the delay. David Silver: Okay. Great. And then last one for me would be on free cash flow. So when I look at the fourth quarter result there and full year 2025, I mean, I think free cash flow came in a little bit below what I was anticipating maybe early in '25 and middle of '25. I'm just -- we don't get a look at your cash flow statement just yet, but I'm just wondering if you could maybe highlight where you think compared to where you were a year ago, where you think the differences in your free cash flow generation were maybe working capital or CapEx above earlier projections. And should we think that there might be a little bit of drag extending into 2026 on that metric? Or will things rebound closer to your long-term targets? Erik Aldag: Yes. Thanks, Dave. So I think the biggest driver this year was just the income. If you look relative to expectations we had earlier in the year, the income was lower, and that had an impact on our cash flow. Working capital was, I would say, a little bit elevated at the end of the year. A lot of that was FX driven. And so with the weakness in the U.S. dollar that we saw, especially right at the end of the year, you saw an elevated impact on our working capital balances, but we'll realize the benefit of that as we collect that cash that was on our balance sheet at the end of the year in the receivables and as we sell that inventory that was on our balance sheet at the end of the year. So going forward, as I mentioned in the presentation, expecting free cash flow in that 6% to 7% of sales range for the full year. I guess the only other thing I'd mention for the full year last year is we got off to a pretty slow start. We're expecting this Q1 to be better than last Q1 from a free cash flow perspective. But as I mentioned, Q2, Q3 and Q4 last year were all at that 7% of sales range. So company -- nothing has changed in terms of the company's ability to generate free cash flow. Operator: The next question is a follow-up from Daniel Moore with CJS Securities. Dan Moore: I appreciate all the color and almost got away without asking -- without the question coming up. But any update on talc litigation? And we still feel like the reserves we've taken thus far are sufficient at this stage? Greatly appreciated. Douglas Dietrich: Yes, still sufficient, Dan. And look, I think we're making constructive progress. As you know, we're working toward establishing a 524G trust. And we're going to continue to work really hard at that. We're trying to work as expeditiously as possible, but -- and we're committed to the process. But I will say that we want to make sure that what we create is a fair outcome for everybody and also that it provides finality for the company. And so we're going to continue working until we feel that those 2 objectives have been met. And like I said, we're committed to the process, and we're working at it as fast as possible. But we're making constructive process. That's what I can give you. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Doug Dietrich for any closing remarks. Douglas Dietrich: I just want to say thank you for everyone joining today. I also want to again reiterate to those at MTI. I really appreciate your work in this past year, more to do, and thank you very much on the safety front. Again, more work to do, but thank you very much for the efforts, and we'll talk to you in another 3 months. Thanks. Bye. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Welcome to today's Covenant Logistics Group Q4 2025 Earnings Release and Investor Conference Call. Our host for today's call is Tripp Grant. [Operator Instructions] I will now turn the call over to your host. Mr. Grant, you may begin. James Grant: Yes. Thank you, Ross. Good morning, everyone, and welcome to the Covenant Logistics Group Fourth Quarter 2025 Conference Call. As a reminder, this call will contain forward-looking statements under the Private Securities Litigation Reform Act, which are subject to risks and uncertainties that could cause actual results to differ materially. Please review our SEC filings and most recent risk factors. We undertake no obligation to publicly update or revise any forward-looking statements. Our prepared comments and additional financial information are available on our website at www.covenantlogistics.com/investors. Joining me today are CEO, David Parker; President, Paul Bunn; and COO, Dustin Koehl. We're going to modify our opening comments from the usual format and address 3 key areas before covering the usual statistical and segment information. One, our view on the freight market; two, the equipment impairment charge and our capital plan; and three, a small acquisition we made in the fourth quarter. The freight market. We believe the freight market continues to evolve towards equilibrium between shippers and carriers. In fact, we might be at equilibrium now. During the fourth quarter, spot rates rose meaningfully. Revenue trends during the first 3 weeks of January have meaningfully improved compared to the prior year in all business units. We are also experiencing a sharp increase in bid activity with shippers who are interested in securing capacity contractually. Currently, we have also secured a few low to mid-single-digit rate increases that take effect during the first quarter within our expedited fleet and anticipate additional increases across both Expedited and Dedicated to take effect early in the second quarter. Based on regulatory changes, cost inflation, and the amount of insurance and claims risk inherent in the industry, we would not be surprised for industry-wide driver and truck capacity to continue to decline, perhaps materially. At the same time, most trucking cycles are led by demand. In our view, inventory restocking, tax stimulus and corporate earnings are biased in favor of improved demand. Equipment charge and capital plan. Operating a safe, fuel-efficient late-model fleet requires constant cycling of equipment to keep operating costs down and driver satisfaction up. With intentional fleet reductions and declining used equipment values in 2025, we deferred some trades, stacked up deliveries and have too much underutilized equipment. To improve our operations and balance sheet, we have moved a group of assets to held-for-sale status and lowered our expectation on disposition prices. Since our current size asset-based fleet is not generating the desired return on capital, we will not replace all the units disposed. We expect a modestly smaller fleet at the end of 2026 and only $40 million to $50 million of net CapEx for the year. Within our asset-based fleets, we expect the agricultural-related business within our Dedicated segment to grow and the other fleet serving more commoditized freight to shrink, will remain stable through our weed and feed approach. Overall, our goal is to reduce balance sheet leverage and improve return on capital. The acquisition. During the fourth quarter, we acquired the assets of a small truckload brokerage company. The business, which we will operate under the name, Star Logistics Solutions, has 2 niche customer bases: state and federal government emergency management departments, which represents an episodic and highly profitable disaster response capability that scales quickly to address hurricanes and other natural disasters; and two, high service consumer packaged goods companies, which affords leverage to general commodity freight market cycles that our asset-based truckload operations lack. With synergies, we expect Star to be accretive to earnings during the first half of 2026. With that background, I will move on to the quarter's statistical review. Year-over-year highlights for the quarter include: consolidated freight revenue increased by 7.8% or approximately $19.5 million to $270.6 million. Consolidated adjusted operating income shrank by 39.4% to $10.9 million, primarily as a result of margin compression in our Expedited Managed Freight and Warehousing segments, partially offset with improvement to Dedicated operating income within our Dedicated segment. Our net indebtedness as of December 31 increased by $76.9 million to $296.6 million compared to December 31, 2024, yielding an adjusted leverage ratio of approximately 2.3x and debt-to-capital ratio of 42.3% as a result of executing our share repurchase program and acquisition-related payments. The average age of our tractors at December 31 increased to 24 months compared to 20 months a year ago as a result of year-over-year reductions to our high-mileage expedited fleet and growth in our less capital-intensive dedicated fleet. On an adjusted basis, return on average invested capital was 5.6% versus 8.1% in the prior year. Now providing a little more color on the performance of the individual business segments. The Expedited segment reported an adjusted operating ratio of 97.2% for the quarter, a performance that did not meet our expectations even in light of a softer freight environment. Results were partially impacted by the U.S. government shutdown, which persisted for nearly half the quarter. Despite these external challenges, the segment did not perform to our operational standards. Accordingly, we will continue our disciplined approach to fleet optimization by reducing fleet size and focusing on higher-yield freight. Looking ahead, we anticipate fleet capacity will adjust modestly in response to market conditions. As the market improves, our strategic priorities remain enhancing margins through targeted rate increases, exiting less profitable business and onboarding more profitable opportunities. Dedicated's 92.2% adjusted operating ratio was the best for any quarter during the year. We were pleased by how this segment improved its results each quarter throughout the year and are excited about the momentum we are taking with us into 2026. Dedicated grew the fleet by 90 average tractors or approximately 6.3% compared to the prior year as we have continued to win new business and specialize in high-service niches within that segment. Going forward, we plan to focus our efforts on continuing to grow these high service niches and reduce certain of our fleet that is exposed to more commoditized end markets where returns are not justified. Managed Freight experienced a significant improvement in freight revenue in the quarter as a result of the Star Logistics Solutions acquisition that occurred in October, but margins were compressed as a result of the growing cost to secure quality brokerage capacity. Over the longer term, our strategy is to grow and diversify this segment. Given the asset-light nature of this business, we note that an operating margin in the mid-single digits generates an acceptable return in capital given the asset-light nature of this segment. During the quarter, our Warehousing segment successfully launched operations with a key new customer, resulting in a 4.6% increase in freight revenue or $1.1 million compared to the same period last year. However, adjusted operating income declined by $1.6 million, primarily due to increased start-up costs and operational inefficiencies associated with onboarding the new customer as well as higher labor expenses, including overtime at other warehouse locations to manage peak volume demand. Looking ahead, we remain committed to driving organic growth within this segment and are focused on enhancing our operating income margin with a target of reaching high single digits. Our minority investment in TEL contributed pre-tax net income of $3.1 million for the quarter compared to $3 million in the prior year period. The impact of compressed leasing margins, soft used equipment market and incremental bad debt expense in the quarter placed continued pressure on TEL's pre-tax net income. Although TEL's overall business and balance sheet remains strong, exiting capacity from the general freight environment is expected to continue to impact them over the short term. Regarding our outlook for the future, we remain optimistic about improving freight fundamentals, our ability to be more efficient with our equipment and capture operating leverage and improve financial results in 2026. The improvements are likely to come later in the year with the first quarter being impacted by seasonality, extreme weather, a still developing freight market situation and a potential margin squeeze in managed freight. The last few years have been characterized by acquisitions, dispositions and share buybacks as we have revamped the company. We have a stronger, more stable business and have recently added a piece that restores a measure of freight cycle upside. 2026 is all about execution, and we are hard at work to get that done. Thank you for your time, and we will now open the call for any questions. Operator: [Operator Instructions] And our first question comes from Jason Seidl from TD Cowen. Jason Seidl: I guess my first question is, you mentioned in your Expedited segment, you're getting low to mid-single-digit price increases that are pushing through. Is that the average now? Or is that just you're starting to see a few of those roll through? And I guess, what are your expectations as we move through the bid cycle? David Parker: Jason, it's David. Yes, it's both. The answer is both, and that is, is that it is -- the average is kind of around that 3.5% number for the first 3 weeks of January. And so it is something that's continuing to build some momentum. And -- so far, I will tell you that I'm not disappointed in how the conversations are going. I'm not ready to say that the number is going to be 3.5% for all over, but the customers are very open. I mean I think the customers realize that the industry has done horrible on rates for the last 4 years and maybe there's some pity out there from our customers. So I'm pretty optimistic about what the opportunities are on rates. And I can only tell you that as it starts -- and depending upon what the economy does, will depend upon what -- how the numbers end up being because if we get 3.5% now -- and we're being very upfront with our customers. We're being very upfront, very good conversations. But hopefully, we can go back in June, and all those kind of things. And so that is where we're at for the first 3 weeks. And we still got ways to go to be able to say this is a trend, but I like the first 3 weeks of what we've done. James Grant: And I would add to that. I mean, I would add a little bit to that on the rates from existing customers is one thing, but we're also starting to win business at higher rates. And one of our themes for this quarter has been capital allocations. And I think we're going to have some opportunities to redistribute capital to some of those newer, higher-performing businesses with customers that perhaps we can't get the appropriate rate with. So it's not just pure rate on existing customers. I think that one of the bright sides of what we're seeing, and we said in the release or the opening comments was that we are starting to win business at a pretty decent price. You go back 12 months ago to win business, you were having to price it at a breakeven or a slight loss just to win anything. M. Bunn: Yes, I agree. A year ago, 24 months ago, new business was coming in at even less. Now new business -- all new business can replace business that's less profitable. Jason Seidl: Now it feels like there's a lot more bids now than there was, let's say, a year ago in the marketplace. Are people just trying to pull forward the bid because they're worried about maybe how the supply-demand market is going to look for truckload, call it, 6 months from now? David Parker: Yes, It's both of those, Jason, that our bids in the month of January were up 33% -- over fourth quarter, up 33%. And that is something that is twofold. One, they're trying to get ahead of it, and that's okay. I don't mind I'd be doing the same thing. They're trying to get ahead of it as well as a lot of the bids that we're getting is brand-new customers. And so they are -- they don't like what they're seeing or one, they're -- I believe what I am sensing, Jason, 3 weeks into it, is that they're concerned about capacity. And -- so those are the 2 things that I look as it relates to... M. Bunn: Here's what I'd say they're concerned about capacity. And I would tell you, cargo theft has ticked up a little bit in the last 4, 5 months. It was really bad in 2023, early 2024. A lot of people did a lot of things. And I would say it was beaten down pretty good for 2 years. And what I'm seeing people say, especially, I need a high-value program, I need assets. More in the past 6 to 8 weeks than in the last 6 to 8 months or 16 months. Jason Seidl: That's great color. I got 2 more quick ones, and I'll turn it over to the next person here. On the Warehousing side, it seems like your revenue is up, obviously, profit is not, but there were some start-up costs. Should we expect that sort of... M. Bunn: It will get better. Jason Seidl: It will get better. And my question in terms of the Warehouse space bookings, it looks like Prologis had some positive commentary on that. I'm just wondering what you're seeing out there in terms of the bookings? And then I got a balance sheet question after that. M. Bunn: Yes. Here's what I'd say on the Warehousing side, Jason. Everybody remembers it '21, '22, tightest we've ever seen, a lot of overbuilding in the Warehouse space and then it got pretty -- it'd been pretty loose '23, '24, first part of '25, and I'll agree with you, it's -- things are tighter now than they've been in the last 24 months from a Warehousing standpoint, but nowhere near as tight as they were in '21 and '22. And to your first question, yes, we took on 2 big accounts in '25. And one of them was in November. It was the start-up. And so that put a pretty good drag on the fourth quarter. Here's what I'd say, Q1 will be better than Q4 and Q2 of this year will be better than Q1. So it will incrementally get better every quarter. Jason Seidl: That makes sense. And then, Tripp, obviously, you guys just made an acquisition of a company that looks like it diversifies the business mix a bit in terms of getting more governmental relief contracts and everything else. But how should we think about you guys going to market for the remainder of '25 given the balance sheet that you have now? And what's your level of comfort in taking that leverage ratio up? James Grant: Yes. I think you meant for '26, but... Jason Seidl: Yes, sorry. James Grant: Yes, that's all right. I make that mistake often. So what I would say is our leverage today after this acquisition is a little bit above where we would kind of want it longer term. We haven't been public about a point or a range or anything, but we want to be kind of moderately leveraged. And I think when you think about some of the excess equipment that we've got that hasn't sold that we expect to sell in the first quarter, the new acquisition that we got in October, I think that, that pushes us to a point where I think we'll start to see it improve. The leverage ratio improved starting in the first quarter. I think it will improve sequentially with our capital plan. And I think about it like this. I mean, obviously, in our script and in our press release, we're pretty optimistic about 2026. And future acquisitions require -- well, any acquisition requires a lot of work. And I think our priority for 2026 is going to be to integrate what we got today with the Star acquisition and prepare ourselves to take advantage for any opportunities that we get, which we're already seeing. I think there will be more to come with this shift in the market. I think there will be a lot of disruption with cost of capital deficiencies with other peers. And I think that we're going to be prime and ready to take advantage of new opportunities, bring on new business, and we've got to be prepared to move and allocate our capital as efficiently as we can. Doing an acquisition in 2026 in the midst of all this could be beneficial long term, but I also think it creates a distraction. So our primary focuses are reducing our debt, providing flexibility and taking advantage of this market swing as it develops. Jason Seidl: Appreciate all that color, Tripp, and you guys try to stay warm out there. Operator: And our next question comes from Jeff Kauffman from Vertical Research Partners. Jeffrey Kauffman: So a lot going on this quarter. Can you differentiate -- and I appreciate your early comments on the equipment change, moving equipment to for-sale status and then kind of taking an adjustment to what your expectation is for sale price. Is this going to lead to an unusually large loss on sale in the first quarter or unusually large gain on sale as you get rid of some of this equipment? James Grant: No. Jeff, this is Tripp. I don't think it's going to be a large loss or a large gain. What we call that -- what we did with that equipment is basically market to market, which is an accounting requirement as we pulled that equipment early and as it specialized probably at a time when capacity is coming out of the market and the market is being flooded with excess used equipment. It's just difficult. There's not much of an appetite for used equipment. And so we marked it down to a number that we considered was fair value based on our channels of how we kind of dispose of our equipment. And I think that going forward in Q1, we don't depreciate our equipment down to taking losses historically or taking gains historically. We try to do it to where that noise is pulled out of it. And so I would expect kind of status quo. From a go-forward depreciation standpoint, I would also kind of factor in flattish depreciation sequentially on an adjusted basis from Q4 to Q5. It's been flat for pretty much all year long. And if you look at our gains and losses on sale of equipment throughout the year, I think we're at almost a breakeven. We may have lost about $300,000. So we're not -- we're going to -- there are some things short term where we may have to accelerate depreciation on some equipment coming out of service in 2026. We're watching the market, but it's a really hard thing to do because the market moves pretty quickly. But overall, we're going to have fewer equipment sitting on the fence depreciating, too. So I think what you're going to have is a wash. But on the cents per mile basis, you may see a little bit of an increase. But on an absolute dollar basis, I think sequentially, you'll see flat depreciation and no any -- no real big variance to gain/loss in the quarter -- next quarter. Jeffrey Kauffman: Okay. Question for Paul and David. Thank you, Tripp. So can you help us understand, I guess, 2 things: number one, where should we be thinking about fleet count for Expedited and Dedicated post the 4Q adjustments? And then as we integrate Star into the new business, not all of that is going to be managed freight. There's going to be an element of that, that affects Expedited. Will that require an equipment increase as a result of that? Kind of how should we think about the Star revenues basing across your divisions? M. Bunn: Yes. I would say on the Star revenue across the divisions, one, it won't require any increase. We'll be able to -- any of that business that flows over to the team side, we'll be able to handle with the teams we have. And then I would say revenue in our brokerage space, you'll remember, we lost a customer that we disclosed in the third quarter. So I think our revenue in the kind of the managed freight space will be flat to up every quarter going forward with the acquisition. As it relates to fleet count, I think we'll see. But I think your Expedited account will kind of trend down slightly, maybe 25 trucks a quarter-ish kind of numbers as we try to optimize. I mean there's some really good freight in there, and then there's some freight that just doesn't make sense for the capital that it takes to run the teams. Strategically, we're trying to push that freight over to managed freight. So if it economically doesn't make sense to run on the assets, we're trying to get the contract squared to move that freight over and run it on managed freight. On the dedicated side of the business, I think you'll continue to see us try to weed and feed the non-Ag business, continue to have some work to do there. I think you'll continue to see us grow the Ag business. And so that truck count will probably, I would say, stay flattish, but I think will continue to improve the margin profile in that space. Did that help you? Jeffrey Kauffman: Yes, very much so. And then one other question. So looking at the metrics, it looked like the rev per mile ex fuel dropped by a fair amount in Expedited. And I'm assuming some of that might be related to the government shutdown and the lack of... David Parker: So, it's all related, yes. Jeffrey Kauffman: Okay. So we treat the fourth quarter more as an anomaly and kind of go back to the third quarter... M. Bunn: Yes. There's probably a couple of OR points, Jeff -- a couple of OR points and you can back -- it probably reconciles back to the exact cents per mile of rates you're looking for -- related to the government business. Jeffrey Kauffman: Okay. And then switching gears to Managed Freight. I think we understand what happened with spot rates and gross margins in that business. You mentioned new customer contracts coming in on your contract business. How long do you think it will take to get the Expedited freight margins back to where you want them to be? How long will it take to kind of adjust this pricing to customers for the new reality of the market on the Managed Freight side? David Parker: So what you just said there, the statements you just made, Jeff, is the answer, and that is, how long will it take to get the operating margins back to what is acceptable to us. And it's going to be through rate increases. I mean we can -- we're always looking to try to cut costs, and we will continue to try to cut costs. But at the end of the day, us in the industry, we've got to have whatever number you want to use, 5, 6, 7, 8, 10, 12, we're going to have percentages of increase to improve our margins. So again, you heard at the beginning, I'm happy about where we're at in the first 3 weeks of January. And I hope that, that continues as we continue to get into our larger accounts and as we're bringing on brand-new business that's probably 7% to 8% higher in rates than our existing. So that's kind of our formula. So I'd like to see that the 3.5% continues to maintain right now and then start climbing in March, start climbing in April because if you remember, second quarter is a big quarter for us on rate increases in some of the larger customers. M. Bunn: Jeff, I'll give you an anecdotal point just with these storms. I was on the phone 3 times last night and twice already this morning. And we're covering some of that with our teams. We're covering some of it with -- I'd say, the bulk of it with Managed Freight. And we're getting some really, really good rates on that, but that capacity out there is crazy tight and demanding a lot of money. I mean it is way tighter than it's been in any of the first quarters of the past few years. And I mean, I would say the second storm coming in, we're getting more -- we're having to ask our customers for more than we did last week this time. And guess what, the carriers are asking us for more. And so it's tight out there right now. That's -- and we all know that spot and storm activity. But I think that's what's going to roll on over. And the customers are starting to see, to move some of this stuff, we're about to pay a little more. Jeffrey Kauffman: All right. So I guess the takeaway thought is a lot is going on right now, but this is more of a kind of clear the deck for future opportunities quarter. Operator: And our next question comes from Reed Seay from Stephens. Reed Seay: I had a quick clarify from a previous question on the Managed Freight revenue, you talked about being flat to up through 2026. Is that on a sequential or on a year-over-year basis? James Grant: I think on a sequential basis, I think if you look at Q4 Managed Freight, the $80 million in freight revenue included the basically 2 months of the new -- early -- 2.5 months of the new acquisition plus some peak. And then I think you'll see it fall back a little bit in Q1, but I think you'll start to see that grow to where you're going to be. The biggest question is going to be how we look, I would say, in that third and fourth quarter, if we can grow it like we think we can. But I think you're going to be somewhere below where we landed in Q4 -- for Q1 of 2026. And then you're going to start to see incremental improvement in top line revenue after that, just say, average $80 million a quarter plus depending on whatever we do in the current -- any incremental business we do in the third and fourth quarters. Reed Seay: Got it. And then on the Dedicated and Expedited side, you mentioned in Expedited in 4Q, you had some headwind from government that you called out in 3Q as expected. How should we think about maybe your margin sequentially from 4Q to 1Q? And then I guess, what your goal would be for 2026 is maybe you have some stabilization of demand within that Expedited and as you continue to improve your mix within that Dedicated segment? James Grant: Yes. Yes. So I do expect sequential improvement from Expedited in the fourth quarter. And I would caveat that by saying that -- yes, I'm sorry, from the fourth quarter of '25 to the first quarter of '26. And I would caveat that with saying that there is a looming potential for an additional U.S. government shutdown, which could negatively impact us. There is a looming potential for additional severe weather that could negatively impact us. But all things being equal, I think with a truck -- yes, with our government business firing on all cylinders for all 3 months of the first quarter of 2026, I think we have a really good shot combined with some rate increases from a select group of customers, we have a really good shot at improving our operating ratio in that segment during the first quarter compared to the fourth of 2025. And it'd be hard to say maybe 150 to 200 basis points is kind of where I'm looking at it, but it's early in the quarter, and I haven't even seen anything to suggest that, that is realistic in terms of how January's numbers are just seeing top line revenue. But in conditions like these, costs can be up even though revenue is up. So still a lot to learn, but I'm hopeful that we can improve it pretty meaningfully. In a sequential -- in a soft quarter. I mean, quite honestly, Q1 is our softest quarter. You've got drivers that take a while to come off of the new year, and it just -- even without weather, it takes a little while to get started. But generally, if you can get some good weather in February, you can start to make headwind and March is typically a really good operational month. And so we're just hopeful for that. David Parker: And then what was your question on Dedicated? Reed Seay: It was similar in terms of what the margin's progression you would expect throughout 2026. And I think Tripp answered it saying you'd expected some sequential improvement through the year? I guess last one real quick. I appreciate you entertaining some near-term questions. But Dedicated and Expedited, you're making a lot of moves to improve the business here and your revenue quality. What long term would you target for your margin profile of both of these businesses if these initiatives continue and they play out as you expect? David Parker: I'd tell you, I won't be happy until Expedited is in the 80s. And I think that Dedicated is 88% to 90% is kind of where I think Dedicated is going to go. And I think Expedited is going to be in the 80s. Now when we get there, I don't know, Reed, but that's our goal, and that's where I expect it to be at. Operator: And our next question comes from Scott Group from Wolfe Research. Scott Group: I want to just take a step back. David, 3 months ago on this call, you got really excited about sort of what was happening in the market with supply and regulations and all that sort of stuff. I guess 3 months later, how do you feel -- are you feeling more convicted in this, less or any more data points in terms of how many of the drivers you think have already exited? Just... David Parker: Yes. Yes. Yes, I'm absolutely much more excited right now than I was 3 months ago, and I was pretty excited back then. But what I saw back then just continued to build. And I just think -- I just really believe guys that we are on the beginning stages of the trucking industry getting back to where it needs to be at. And I see a lot of green shoots. I mean, is it January? Yes. Do I have some trucks I want to run downstairs and get loaded? Yes. But I want to tell you the green shoots are plentiful. And it's all around from a standpoint of the bid being up, getting new business at higher rates. Number one, getting business. Number two, getting that business at higher rates. We've won some great business this week that I'm excited about just the last 48 hours, but that's a side note. But the bids being up and as I look at capacity is absolutely coming out of the market. I see it through our Managed Freight and all of us truckers because our margins are not where we want them, but that's expected, as we all know, from a standpoint that the Managed Freight broker trucks are going to demand more before we get it from the customers, but we will get it from the customers if that continues, but we're 3 months into that. So right now, as we speak, we will start running with that about increasing the pricing on that. But as I look -- and there's an interesting stat. I don't even know if anybody has looked at this. But we know that DOT, which I think Duffy is the best DOT person we ever had. I had the fortune to meet with him in December, and I told him that in my 53 years of doing this, he's the best DOT person I've ever seen. And as I look at these illegal CDL schools that we all read about and know about and are true. In 2019, there were 19,000 of them. They went up during the 4 years of the Biden administration, they went from 19,000 to 39,000 schools. I mean, 6,000 to 39,000 schools, no come up, come up. 19,000 to 39,000 and now DOT has taken out 6,000 of them. We're at 33,000. I look at some of the things that they are doing from -- and you all know this, the English proficiency, we are sensing that not only in our Managed Freight, but we're sensing that in our customers. And I believe that's one of the reasons why our customers that we're winning more freight at higher rates. It's one of the reasons our rates are up 3.5%. And for another reason I believe that we will continue to get our rates up is because of capacity, because of a side note, as we all know. Do I think that GDP is going to be stronger in the next 3 quarters, 4 quarters than it was the previous 4 quarters. And the answer is yes. I mean I look at 2026, and I look at second quarter, 3.4% GDP and third quarter is 4.3% GDP. Fourth quarter, what's the number? 4% to 5% is going to be with the government being shut down 1 month. Let's just say 4% when it comes out. I think there's going to be some 5% GDP growth in 2026. And I just go back in the last couple of years before that, and we were at 1.9%. We were at 2.3%. We're doubling GDP. At the same time, we all know capacity is coming out. Is it 1% or 4%? I don't know. I do know 2% moves the market -- 2% up, 2% down in capacity moves the market. And so trucks are coming out. And so as I look at not as many drivers are leaving, trucks are coming out. It's going to be harder to get into the industry. GDP is going to grow -- anyway, a lot of green shoots, Scott. Did I answer your question? Scott Group: I think so. Okay. I guess my other question is, you guys have -- Expedited has made a big mix shift over the last bunch of years to LTL. What are you seeing from that sort of end market? Does the shift to LTL sort of limit some of the upside -- the leverage on the upside? Just how does the LTL mix shift? What are you seeing in LTL right now? And then how does that mix shift impact how we should think about your upside operating leverage? M. Bunn: So here's what I would say, we did shift a lot to LTL, Scott, especially in '21, '22, '23, and even '24. I would say that number reduced by a pretty good bit last year as the volumes and tonnages and LTLs went down as you've seen and reported on a lot of those. And so I would say maybe something we weren't as vocal about, but the LTL market, we kind of rightsized our LTL exposure last year just with what happened in the LTL market. So it's a lot less today than it was in 2023. That said, our LTL customers are -- they're pretty steady right now, but they're not doing as good as they want to do. David, any? David Parker: No, I agree with that. But we also, though, in lieu of that is that we've gone to the market with a lot of our airfreight customers. And so I'm seeing a lot of that, that is building. I just think, Scott, at the end of the day, whether it's our LTL portfolio or whether it's our airfreight portfolio, freight forwarder portfolio that we do a lot of business with because of our technology and high security program that we've got, it's all about pricing. And when pricing is available to us to be able to pass on, you'll see returns coming back down or ORs coming back down, margins or whatever. Operator: And our next question comes from Dan Moore from Baird. Dan Moore: A couple of quick questions or at least one question. So I think a lot of questions are being asked around this idea of how much inherent flexibility you have in the model to respond to what could be a better market. A lot of the things you kind of addressed on the call a few moments ago with Scott's question just in terms of fundamentals that are starting to show themselves to be better. The big question is what if demand recovers in '26 because of tax rebates, because of a variety of other potential catalysts, how do you pivot as an organization and as an enterprise to take full advantage of that? So my question relates to the following. If demand gets better in April, May or June, how much -- what's your go-to-market strategy in a market environment where there's an natural uplift in demand? What changes in that market relative to what we've seen here over the last 3 or 4 months, which is a fairly unique supply narrative? David Parker: Yes, Dan, I think the first couple of quarters or whenever that happens, whether we're in the process, or maybe we're at a home plate, and we're getting ready to hit the ball to run the first base, and we still got to go second, third or fourth -- second, third and home. I think that when that happens, I think what you will see for the industry, I know you'll see it from us, but I think in the industry is that it's time to reclaim some of the profits that we've given away for the last 4 years. And it's not like I'm interested in running out here and buying 200 trucks to say, let's do what we've all done, and that is throwing a lot of capacity at it. I want to get my rates up to acceptable numbers, get my Expedited down into the 80s, get my Dedicated into the high 80s or 90 kind of number and let my Managed Freight be able to take over whatever the leftover is there to be able to continue to grow it. So I would tell you that for the first 2 quarters, when that day does happen, I think you're going to see getting healthy once again as the industry. And so that would be my goal and the flexibility that we'll have when the market turns. Dan Moore: Maybe same song, different verse. What percentage of the book, the total enterprise book renews in the first quarter? What percent in the second? What percent in the third? And in a market environment that gets better, would that look different? Would you be taking a second drink? David Parker: Yes. Well, there's 2 things. I will tell you -- number one, second quarter is a heavy quarter for us as I think about our poultry and as I think about our Expedited, in particular, those 2 segments of our business as it has been always. And there's no doubt that we've got customers that have treated us correctly even at lower rates, and we had to be competitive in the rates over the last 4 years. But if they contracted out for 20 loads a week, they've done a good job of giving us the 20 loads a week. And we will abide by that. If we just did a bid this month and we agreed upon rates, it will be next January before we're going to go back to those customers. I would tell you that 40% of the customers are that, 60% of the customers will be taking 2 or 3 rate increases and ones that thought they were going to give us 20 loads a week, and they gave you 7 and they took advantage of the market and we weren't getting our volumes, we will be there 14x, loving them and thanking them and God blessing them, but we got to have more money. And so that's probably 60% of our business, if that gives you any idea. Operator: And gentlemen, at this time, there are no further questions. James Grant: All right. Well, we'd like to thank everyone for joining us today, and we look forward to talking again next quarter. Thank you. Operator: This concludes today's conference call. Thank you for attending.
Marta Noguer: Good morning, and welcome to CaixaBank results presentation for the fourth quarter and the full year 2025. We are joined today by our CEO, Gonzalo Gortazar; and by Matthias Bulach, our Chief Accounting Management Control and Capital Officer, who also sits at the Management Committee. Our CFO, Javier Pano, is temporarily away on sick leave, but he's recovering well and expected to return shortly. In terms of logistics, same as usual, we plan to spend about 30 minutes with the presentation and about 45 minutes to 1 hour with the Q&A. The Q&A is live, and you should have received instructions by e-mail on how to participate. Needless to say, my team and I will be at your full disposal after the call. And without further ado, Gonzalo, the floor is yours. Gonzalo Gortázar Rotaeche: Thank you, Marta, and good morning, everybody. Thanks for taking the time. And I will start with the highlights as it should be the case. A very good year for us. I think when I look back, it's probably the best year over the last 12, 13 years since the great financial crisis. And it is because we're really seeing a very balanced growth in the activity. Obviously, NII has recovered from June. And this quarter, you see again a 1.5% growth. But when I see a balanced growth is really that we are seeing volumes pretty much at 7%, both in the customer funds and on the lending side well above what we were expecting for this year, which was even at the time, you may remember when we presented the plan, it was seen as on the sort of too optimistic side. And in the end, fortunately, the economy has proved that actually that was possible, and we have our -- we have beat our targets with some ease and not just because the economy is growing also because we're gaining market share. Revenues from services are up, as we say, in line with the improved guidance. We started with low to mid single-digits growth for the year. And in the end, we have that 5.4% with a strong fourth quarter. Asset quality has been a trend for some time now, but the fourth quarter has shown an acceleration in terms of the reduction of nonperforming assets and the cost of risk has ended up at this 22 basis points. So when you look at it, it's been sort of very round in terms of capital creation, also a fairly positive year. It is allowing us to set the dividend per share, which is growing 15% and really establishing the payout at the upper limit of our 50% to 60% range. Very complete. And it also feels the year that is not just a one-off, but is part of a trend and a year which we want to capitalize on to 2026, which has started I'd say, in very -- with very good conditions and basically a continuation of what we have been seeing. Return on tangible equity at 17.5%. With all what I've said, we obviously have reconsidered our targets for now next year for 2027. I'm sure by this time now, you're all familiar with the new targets, but I think it's important to reiterate which they are. Return on tangible equity at 20%, give or take. That compares to the above 16% that we set a year ago. So it's obviously a remarkable 1 year, allowing us to increase 4 percentage points. Our guidance for return on tangible equity. And for the average of the period, now we expect it to be above 18%. So obviously, that's probably the headline, but the other important targets for us, cost income from low 40s to high 30s. NII now seeing EUR 12.5 billion as the reference figure for 2027, which means a 4% annual growth versus a flat that we had said in November last year, revenue from services and cost in both cases, we're maintaining our guidance, mid-single-digit growth for services. and 4% area for costs. Volume growth, we said 4% in the case of lending and above 4% in the case of customer funds. We're now rounding all that up to around 6% compared to that -- above 4%. And again, I think we have a pretty good traction here to be not necessarily just at or around 6%, but possibly slightly above that level. Nonperforming loans below 1.75% compared to below 2% and most importantly, cost of risk, which we feel confident now we can stay below the 25 basis points number compared to 30 basis points that we said a year ago. So this is our revised ambition for 2027 or for the 3-year period. In terms of capital, no real change, same payout, 50% to 60%, same capital target of 11.5% to 12.5% and the threshold for additional distribution, which for 2025 is 12.25%. And obviously, we are clearly above that level. And for 2026 and '27, it will stay at 12.5%. So this is a revised ambition. I'd say the strategy is very similar. It's just that we can do more, and we're obviously going to try to make it happen. Macro, we should be seeing they may be public already because I think it was expected at around 9:00, the GDP figure for Spain. We are expecting 2.9% for this year, 2.1% for 2026. I have to say this is a relatively old projection. And based on the most recent data, I think it's likely that this figure will be revised upwards, but that's subject to the information that we get on the fourth year economy for Spain. Portugal is doing fairly well, again, with pretty strong dynamics also in the Portuguese case. So we feel there's clearly some upside. In any case, since the pandemic, you see both Portugal and Spain as a very much leading growth in the Eurozone. And the factors behind that are still there. Population growth, employment growth. We had 600,000 new jobs created last year, 2.8% growth in employment, pretty impressive. Finally, the unemployment rate becoming a single-digit one, hopefully, will continue to go that way. At least that's what we are seeing an economy that is now powering ahead on the back of private consumption and investment. So the domestic strength is pretty relevant. And hence, it also gives us some protection of international environment, which despite all the risk is still doesn't look that bad either. High saving rates, growth in disposable income and a very low private sector leverage, which is still, as you see, 31 percentage points below the Eurozone. All of that gives us sort of room to grow, also comfort if or [indiscernible] if at some point, news are not as good. And the rate environment is obviously more positive than we had a year or not at year-end because our strategic plan was based on September figures as you see there. But obviously, the current yield curve is more attractive, is higher and steeper. And from that point of view, it's obviously a tailwind for our NII. So I start saying growth and had a very strong year for us compared to the previous decade, I would say. And this is why when you look at clients growing 390,000 in the year, look at market shares. And there, you have client penetration up to 40.4%, customer lending and customer deposits in both cases, 14, 12 basis points growth in market share. These are not huge growth, but with our size and also with our prudent approach, this is exactly the kind of market share gains that we're looking for savings insurance. And then on the life risk, you can see 158 basis points market share gains on the non-life. We've also had very significant market share gains across the board, really in health, in motor and in household. Now payroll deposits, very important, also up 27 basis points. So it's not only what you can see on the right-hand side, which is volumes doing very well, close to the sort of 7% area versus the 4% in general case by case, but I won't go through it because it's pretty visual for you. But it's not just volumes, it's also relative performance and market share that indicates that the organization is in really full shape with all engines working. Imagin continues to be a key part of our growth strategy, particularly in terms of number of clients, clients that bank with Imagine. They're not clients that just do 1 or 2 specific transaction categories, but have imagin as their bank. And you can see that because when you look at the business volume, it's actually fairly balanced and ample. Transformation, I talk about growth, but transformation was the other pillar of our 3-year plan. And obviously, a bit more difficult to measure. Growth is easier from that point of view. But just a few highlights, the new app, which we have deployed during the year actually gradually through small improvements rather than sort of a big one-off. And it's worked out very well because it hasn't created turmoil. The app is rated now #1 in Spain, and that includes sort of established banks and new entrants makes us obviously very happy with that, but we need to continue and we are continue working daily to make sure we keep improving it. And some of the onboarding and digital sales numbers that you see there are clearly results of that strategy. AI, we are making major efforts in adopting AI throughout the organization. Every employee has access to AI tools, namely Copilot. But we have obviously developed use cases throughout the organization in all areas. I would just highlight that we have, I think, an important progress this year when we get all commercial managers through the Salesforce platform to access AI, and that is going to lead one example to 75% reduction in the prep time for client interviews, which is obviously very significant productivity improvement. The quality, the depth of the interviews will also be improved as we obviously have more information. I didn't want to go through a very long list of things we're doing because obviously, this is affecting back office. It's affecting IT, client claims, client support, all areas in the organization. But some of these, I think, are going to bring results sooner. IT professionals, we remember in this transformation, we wanted to internalize and in-source many capabilities and that's what we have been doing, expanding our digital capabilities during last year. It's remarkable to have been able to hire 650 new IT professionals when there's obviously strong competition for talent, they like to come and work with us. And new solutions, you've seen the development of Facilitea Coches and on the car side of Facilitea Casa during this year. Both are, I think, very significant successes for us, working very well. And some of the results you see there in financing for vehicles has increased 30% this year. And we have developed this new portal with 1.6 million visits already. The cash back that we launched just in November already has 1.3 million clients. So certainly a pretty -- pretty significant sort of development of new solutions. So this is obviously something to continue for us. Lending growth, 7% on the performing side. And you can see residential mortgages, 6.5%; consumer lending, 12.4%; business loans, 7.6%, very strong growth across the board, very balanced. That 7.6% is both in Spain and internationally, but Spain is up 5.5%, again, basically gaining market share and defending profitability across the sector. And on the customer fund side, again, almost 7% growth, 6.8%. You can see that finally, market effect has been positive, almost EUR 10 billion, EUR 9.7 billion, but net inflows and growth of on-balance sheet deposits have been very significant as well. So again, outperforming, growing market share, and I'll get into some more detail, but obviously, this is a key strength and a key attraction of our business going forward. Wealth Management, we have grown net inflows almost 40%, a lot of it mutual pension funds, but also a strong performance in savings insurance with market share gains that as I said before, and basically a business that keeps doing very well. The figure for AUM at the end of December is already 7% higher than the average AUM during the year. So it gives you an indication that we're clearly seeing good potential and the market in January have been positive for -- certainly for our AUMs. Protection insurance has been stellar 13% growth. And you can see that both life risk with very strong mortgage market, but also with very strong MyBox Jubilación and our sort of stand-alone life risk products doing very well, but non-life has picked up to 11.7% as well. And here, you see on the right-hand side, precisely the gains in market share that I mentioned before in non-life and in life risk, even more significant. But it's pretty good outcome for the year. The speed at which we continue to grow this business is remarkable. And obviously, as you know, it adds quite a lot to our bottom line. And with that, comment on shareholder value creation and shareholder remuneration. Earnings per share up 5%, dividend per share up 15%, round number, EUR 0.50 per share. Look at growth in book value per share and dividends in the year, basically 16%. And obviously, on the share buyback front, we are not even half through the seventh share buyback with EUR 0.5 billion. And obviously, as our capital is at 12.56%, our threshold for 2025 is at 12.25%. We have excess capital, again to continue with this share buyback program, which, as you know, we'll announce when it is formally approved by the ECB and the Board. In the meantime, we still are -- have time before we conclude our seventh share buyback. Distribution plan for next year stays the same. The only difference is while the threshold for this year was 12.25% in capital, as you know, because of the countercyclical buffer, it will move to 12.5% in 2026 and beyond. So that's my part. And with that, Matthias, the floor is yours. Matthias Bulach: Thank you very much, Gonzalo. Good morning to everybody. Today it is up to me and to guide you through a little bit more detail on the income statement and on the main caption of the balance sheet. Starting with the income statement for fiscal year 2025. As Gonzalo said, EUR 5.9 billion of net income, up 1.8% in the year and actually checking on all the boxes of what was our guidance that we gave out and updated throughout the year 2025. NII down 3.9%, in line with the minus 4% guidance. Revenue from services in line with the mid-single-digit guidance, up 5.4%. Expenses up exactly 5.0%, in line with the guidance and cost of risk, we guided for below 25 basis points, and we are closing with 22 basis points, so clearly below that guidance with return on tangible equity standing at 17.5%, so on the higher end of the around 17% guidance that we updated. Looking into Portugal. Portugal net income reported of EUR 473 million on the back of very strong commercial dynamics, business volume up 7.5% and actually with a stronger dynamic than the group as a whole, gaining market shares across the products, but specifically on the liability side on deposits and on savings insurance, another year with strong market share gains, helping bringing down efficiency all the way to 42% on very solid levels. Profitability up to 19.2%, also above overall group levels and already a significant characteristic of BPI with a very strong asset quality, 1.5%, almost half of the sector average and with very strong coverage ratios. And that is also taken into consideration by the rating agencies, which are upgrading throughout the year or putting us an outlook positive in BPI. Moving to the typical quarterly income statement analysis, and we will be getting into the details of some of the income lines, obviously, NII up 1.5% in the quarter, another quarter of strong NII recovery. Results from services, revenues from services with a very strong quarter, up 6.3% Q-on-Q and 4.7% year-on-year, both on the back of a strong wealth management contribution, but this quarter, specifically on protection insurance, which is up 7.5% on the quarter. The expenses line down on the quarter, 0.2% to meet that 5% guidance on the fiscal year 2025. And net income pro forma the accrual of the banking levy of 2024 of a linear accrual up 5.5%. Maybe a couple of comments here on the tax line. The tax levy on the banking industry, we registered EUR 611 million throughout the entire year, which is a little bit higher than the EUR 600 million that initially we guided for basically on the back of stronger performance both in NII and in fees, and that is the basis for the calculation of the levy. And on DTAs, we wrote up EUR 171 million in the fourth quarter for a total of EUR 420 million of DTA write-up throughout the year, basically given the better visibility and the full visibility that we had in the last quarter, both on pretax income for the year as well as on future profitability, which is the basis of those write-ups. So a certain acceleration of the pace to an overall year of EUR 420 million. Going line by line, looking into NII, as I said, a strong quarter again, consolidating our recovery, leaving clearly behind the trough of NII in the second quarter of '25, up 1.5%, still obviously impacted by client yields and loan yields, which are still reducing, but on a less intensity, I would say, than the last quarters. So a fading impact from client yields compensated -- more than compensated both by a strong evolution of business volumes, both in the asset and the liability side, as Gonzalo was pointing out, and an increase of the contribution of the ALCO to EUR 45 million. We increased hedges on the quarter by almost EUR 10 billion to stand at EUR 68.4 billion, and the ALCO book was stable Q-on-Q to stand at EUR 76 billion by the end of the quarter. Customer spread down by just 4 basis points to 302 basis points if we adjust for hedges. And this is on the back of a positive evolution of our client fund costs, which go down 2 basis points from 49 to 47 basis points, again, ex hedges. And the reduction of the loan yield, as I said, is fading, 6 basis points down in the quarter to 349, and that compares to 20 basis points down last quarter. So clearly, fading impact from negative loan rate resets. Looking at the crown jewel of our balance sheet and hence, the supporting factor of that NII evolution of our noninterest-bearing deposits, up EUR 17 billion in the year, EUR 2.2 billion in the quarter with respect to -- or in contrast to interest-bearing deposits that are just up EUR 5.6 billion over the year, EUR 2.2 billion over the last quarter. The total average share of interest-bearing deposits is stabilizing at around 27%, and that is at lower levels than we initially expected in the strategic plan when we were guiding for around 30% of that share, which is now clearly stabilizing below those levels. I would like to point out also the reduction of 10 basis points of our deposit costs in that in a quarter, and I think this is remarkable, where the overnight rate actually was stable on average levels in the quarter and still the deposit cost is coming down. That means that the 50% of indexed rates was pretty stable, but the other part, which is term deposits, we still have been able to reprice them down by almost 20 basis points, leading to this 10 basis points of reduction of overall cost. So there's still some room of positive repricing downwards of our term deposit base. Moving to revenue from services. As I said, a very strong quarter and a very strong evolution year-on-year, focusing on the year-on-year, 5.4% up on the back of Wealth Management with 11% growth. Protection insurance, 4.8% up. And if we adjust for an extraordinary impact from BPI last year in 2024, that would be actually up 6.3%. And banking fees still subdued at 0.6%, but supported by CIB fees that are up actually 33% year-on-year on the full year number. So if we take only these driving forces in our growth engines, wealth management, protection and CIB revenues, actually, that composition would be up almost by 11% year-on-year. So putting a clear sign on the strength of our growth engines here. Costs, not much more to add to what was said already. Q-on-Q, stable, down by 0.2%. Cost to income remains at very low levels and is now below 40% at 39.4%, clearly below peer average in European peers and also with a much stronger evolution over the last 5 years, outperforming the evolution of European peers by 10 percentage points, as you see on the down -- on the bottom right side of the page. Moving to the balance sheet. Asset quality, very, very strong again in this quarter, down 20 basis points, our NPL ratio to 2.07%. And this is bringing forward actually by 2 years, what was our target set in the strategic plan where we wanted to be at around 2% by the end of 2027. So we're bringing forward the completion of that target by approximately 2 years, nice reduction across all the segments, as you see on the bottom left part. So there's no single segment. There's no single part of the portfolio actually that is not experiencing that positive evolution. Coverage up by 8 percentage points in the year to 77% and remarkable that we are still holding EUR 311 million of unassigned collective provisions. That is down EUR 30 million in the quarter and also in the year as in the end of the year, we've been assigning part of that provisions to specific provisions, but the bulk of it still available and still available to protect into the future and into 2026, our cost of risk. Cost of risk down to 22 basis points in this last quarter, down from 24 basis points in Q3, and that is basically on the back of slightly lower seasonality this quarter of provisions than we experienced last year. And hence, cost of risk standing at those 22 basis points, clearly below the 25 basis points that we guided for. Liquidity, I think already very structurally messaged here. Very strong LCR above 200%, NSFR just below 150%. Loan-to-deposit stable at 87% as both loans and deposits are growing approximately at the same speed and hence, loan to deposits still very comfortable, EUR 226 billion of liquidity sources with very positive comparison to peers and to peer levels as well as a very strong and stable deposit base based on transactional retail deposits and with a very high percentage of them being insured by the deposit guarantee fund. And moving typically to the annual review that we share on the MREL position, MREL standing at 28.18%, and that is 327 basis points or EUR 8 billion of M-MDA buffer over requirement mainly covered by subordinated MREL instruments, actually subordinated MREL stands above the total MREL requirement. After a year of very intense activity in the markets, EUR 9 billion of issuances across all the asset classes and 2/3 in euro, but 1/3 also in currencies that are not euro, specifically in dollars. We started 2026 already very successfully with a senior nonpreferred issue combined with the tender offer, EUR 1.25 billion of issue and EUR 0.5 billion from the tender offer, and that is supported by the positive and strong view of our rating agencies, which similar to what I explained in Portugal, actually upgraded us throughout the year or put us an outlook positive as the case of Fitch. And coming to capital. Gonzalo already went into some detail, 12.56%, 13 basis points up in CET1 and clearly above this 12.25% threshold that is in place for the end of year 2025. Capital accretion positive of 63 basis points. Organic RWA increase just 5 basis points, and this is supported by 3 SRT transactions, significant risk transfer transactions that we executed actually in this fourth quarter, impacting positively by just below 15 basis points on that caption. So positive evolution supported by market activity. Dividend accrual and AT1 coupons, obviously, then distracting 38 basis points and Markets and others coming down 8 basis points. And here, as every fourth quarter, we are updating our operational risk RWA models. That is a yearly update, and that impacts also just below 15 basis points on that part. That means that the remainder moving parts of this market and other bucket are slightly positive. On shareholder value creation distribution plan, nothing to add to what Gonzalo has been pointing out. And fiscal year '26 guidance, you've seen that all this morning already. Gonzalo mentioned 2027 view. And just to say that the 2026 view is fully consistent, obviously, in this journey towards 2027 targets. NII expected to be above EUR 11 billion. And that is bringing forward by 1 year the initial target that we had for the fiscal year 2027 clearly on the way then to move up to that around EUR 12.5 billion target for 2027. Revenue from services up 5% within that mid-single-digit range that we also are envisioning for the entire 3 years horizon. Operating costs up by approximately 4.5% after a 5% increase in 2025, 4.5% in 2026 and clearly on track, and we reiterate our commitment and our guidance of 4% CAGR for the entire 3 years of the strategic plan horizon. Cost of risk below 25 basis points on the back of that very strong asset quality and return on tangible equity at around 18% to fulfill that around 18% average return on tangible equity over the 3-year horizon and the approximately 20% in 2027. On capital targets and distribution, nothing more to add. This is all well known to you. And with that, I think we are ready for questions. Marta Noguer: Yes. Thank you, Matthias. Thank you, Gonzalo. Operator, we are ready for Q&A. So you can come in the next question please. Operator: Next question is from Antonio Reale, Bank of America. Antonio Reale: Antonio from Bank of America. A couple of questions from me, please. One on NII and one on use of capital. So starting with NII, you're guiding to be around EUR 12.5 billion in 2027, and you've added in the quarter, almost EUR 10 billion from structural hedges alone. Volumes are growing 6%, 7% a year. So just my question is, what are the key assumptions you've made that drives your NII outlook here, particularly if you could talk about rates and volumes assumptions, please? My second question is on use of capital. You are at 12.56%, just above the new go-to level, and you've been paying 100% of your excess capital out in the form of share buybacks. With the balance sheet that's growing and the returns that you're now making, you're guiding for 20% RoTE in '27. How should we think about sort of best use of capital for Caixa? What's your appetite for additional buybacks here? Gonzalo Gortázar Rotaeche: Thank you, Antonio. Let me start with the second question, and I let Matthias address the NII in some detail. There's nothing new about use of capital. You're seeing higher growth, which means obviously more capital that we can employ in the business. And as the business is targeting a 20% return on tangible equity, that's great news. Really, that's what we would like to see become -- we discussed this a year ago or become a compounder in terms of high RoTE and good growth. That's, I think, what will lead us to the best outcome for shareholders. And the reality is that as the growth is coming together with higher profitability, we still see the future as in a scenario in which we can have a high dividend per share as this year in that 50% to 60% payout, grow the business and grow faster than we were expecting at 6% rather than at 4%. But still in our numbers, we continue to generate capital. And obviously, one proof is that we already have excess capital at the end of 2025. So you know there's sort of cash in the bank for further share buybacks already. And going forward, we continue to see that despite higher growth, we will be generating excess capital between our targeted levels. Now we'll continue to monitor developments. We are using slightly more intensively SRTs as well. Matthias mentioned that we had some positive impact in the fourth quarter that will continue to be there. So no change in capital. This is higher growth, higher profitability, but also higher capital available for shareholders. So it looks too good, but it is really how we're seeing the business. It's very strong conditions. Matthias, NII, all yours. Matthias Bulach: Sure. Thank you very much, Antonio. What are the main drivers behind what we see for NII evolution both into 2026 and specifically beyond? I think on the one hand, obviously, it's volumes. We guided now for an update of around 6% CAGR, both on loans as well as on liabilities, up from that 4% guidance that we gave you back in the strategic plans Investor Day. Now that obviously volume growth that we've seen already this year at around 7%. The guidance is for a CAGR of 6%, that means we are positioning volume growth both in 2026 and 2027, probably around 5% to 6%. So that is, I think, the main driving force behind our expectation for NII evolution over the next couple of years or even beyond. Secondly, obviously, rates evolution. Rates has been a drag on our NII over the last quarters, obviously. We expect that drag actually to fade out over the next 2 quarters. The loan yield resets should move into positive territory from the third quarter onwards of 2026 and hence, still a certain drag over the next 2 quarters, compensating partially that volume effects that I was talking about. But then from the second half of 2026 onwards and specifically into 2027, and I would say, beyond into 2028, we see a clear positive evolution on the back of rates. On the back of rates because as you know, there's a significant part of our portfolio, which is actually on variable rates. And we do believe that we will be able and capable of controlling client fund costs, controlling and limiting growth of deposit costs, as we said currently at 47 basis points. We believe actually those levels of year-end to be quite structural. We should be able -- even though there might be some pressure from the index part of our deposits, we should be able to control that evolution of deposit costs over the next quarter. I would say if 47 basis points is our year-end number, we should be in the mid-40s probably during 2026 as the certain pressure that we might have from the index part, we should be able to control and to limit that both from still some repricing from the term deposit part as well as increasing the share of growing stronger in the noninterest-bearing deposit part than in the interest-bearing deposit part, and that should help us to control and to keep deposit costs down over the next quarters and also actually to very nicely control that once rates are picking up. So volume effects, which are already occurring and which we expect to keep on in that benign macroeconomic environment, rates should be picking up and helping us on that front. A small detail on what we see in the more quarterly evolution over the next few quarters. We do expect NII 2026 actually on a quarterly level to grow year-on-year in each and any of the quarters. But there might be a certain reduction -- a limited reduction in the Q1 NII respect to Q4, basically for some seasonal effects that typically happen in the first quarter. The first quarter tends to be somewhat weaker in terms of average fund balances as January tends to be clearly weaker month than December. We do have 2 days less in the first quarter than we do have in the fourth quarter. And also there's more negative loan repricing actually in January. There's a certain seasonality here. So what we would expect is Q1 to fall slightly against Q4, but then picking up growth right after and specifically accelerating growth into second half of 2026 and obviously into 2027. On the back of all those, let's say, more business and external rates factors, we do have also significant idiosyncratic factors, let's say, that are based on our -- the structure of our hedges. Recall in the Page 30 of the webcast presentation, you have got all the details, but recall that between the fourth quarter end of '26 and the first quarter of '27, actually, we do have around EUR 15 billion of legacy deposit hedges that are maturing. They're maturing actually at negative rates. So we would assume a rollover of that hedges at current market forward rates that would give us an uptick of about 2.5% on those EUR 15 billion of legacy deposit hedges, and that is annualized around EUR 400 million of NII boost that will be coming from this natural rollover of those hedges. So there's no external factor that is pretty much already in our balance sheet, and it's a natural and automatic thing to happen. So there's a clear boost for 2027 NII from that front. And on the other hand, we also disclosed the maturity profile of our ALCO book. Actually, in last year 2025, EUR 6.5 billion already matured at 0% rates. And you have seen that our ALCO portfolio actually grew by EUR 12 billion in 2025. So that is renewed and that generates obviously some support for the 2026 NII as this is maturities from 2025. And once they are renewed, obviously, they help in the year-on-year evolution into 2026. And that goes on in 2026, there is EUR 9 billion maturing at a 0.4% yield, and there might be a reinvestment capacity of increasing that yield by 2.2 percentage points, generating EUR 200 million of annualized NII through that 2026 maturities. And that goes on in 2027, there's EUR 8 billion maturing at 1.6% that would reinvest it would lead to EUR 100 million of annualized NII. And in 2028, also, there's EUR 14 billion actually maturing at 1.1% that also would give EUR 300 million of annualized NII support. So from all those factors, both external factors, let's say, business evolution and market rates, we feel very upbeat specifically in 2027 as we are guiding for this EUR 12.5 billion as well as beyond looking into 2028. And then there's those internal factors from the maturity of hedges as well as from the ALCO book. So we actually feel very strong in 2027, and we do feel similar also into 2028 based on all these factors that I was just explaining. Operator: Next question is from Ignacio Ulargui, BNP Paribas. Ignacio Ulargui: I have 2 questions. I mean one is on deposit growth. I'm coming a bit back on what you were commenting, Matthias. Looking a bit more on the volume. So you said 6% customer funds growing in the plan. If you could break that down between deposits? And how do you think kind of interest-bearing and noninterest-bearing could grow into 2026 and '27, that would be very helpful. And a second one on credit quality. I mean, asset quality has performed very strongly. I think it's the lowest 4Q gross inflows into NPLs in a decade. Your target of NPL is 1.75 which, I mean, if we extrapolate a bit the trends that you have seen in 2025, probably it still is very conservative. So I just wanted to get a bit of your views about cost of risk, asset quality dynamics so that to get a bit of comfort on the improvement of the 5 bps of cost of risk and how much generic overlays you have still? Gonzalo Gortázar Rotaeche: Thank you, Ignacio. I'll take the second question as well. I'll start with asset quality is -- starts from the economy. The economy, I was saying that the GDP numbers were about to be published. And in fact, they have been a very strong fourth quarter for Spain, 0.8% growth quarter-on-quarter on GDP. To give you an idea, we were more in the 0.5% expectation. We knew based on the numbers of the last few weeks that this was going to be higher. But clearly, a very good number. There's been some revision of previous quarters. So the overall growth has been 2.8%. But most important is just looking at 2026, the outperformance of the fourth quarter already gives us automatically just if we don't change any other assumption, just the rebase of the fourth quarter would mean that growth would be 2.3%. And looking at the numbers, private consumption is up 1% quarter-on-quarter. Gross fixed capital formation, so investments basically is up 2.2% in the quarter. Exports are up 0.8% is -- these are very, very strong numbers. And as long as the numbers continue to be there, there's absolutely no reason to think that asset quality is -- we're going to have any negative surprise. We -- Matthias mentioned, we have still this stock of non-assigned provisions above EUR 300 million. Economy is doing well. Our clients are less leveraged than ever. And we do not see any problem in any part of sort of big broad categories, be it mortgage or consumer segment. The statistics for January in terms of asset quality make it the best January I remember. January is typically a bad month, the famous Cuesta de Enero, as we say in Spanish, that's reflected. And this year, we're seeing a much lower impact than others. So we internally have all the confidence that, yes, that should make sense for us to be below 25 basis points. And we tend to be conservative, particularly in cost of risk because there's an element of unpredictability on it, and you cannot rule out completely. Obviously, the international environment and whether we have a sort of a major crash in markets or some other big impact elsewhere that eventually feeds into the economy and hence, changes things is always a possibility. It seems unlikely and in any case, something where we have pretty good cash. 175% may actually be conservative, I agree. I think if the trend continues, we will go beyond that number fairly soon. But you know we're a conservative organization when giving guidance. We look at guidance, and there's a very high percentage of cases where we have better guidance versus occasions that have happened where we didn't meet our guidance because something happened. So I would be pretty confident on these numbers on cost of risk for the next years as long as the economy stays where it is, which we have no indication that is changing from that position. We're seeing on the opposite sort of stronger numbers. Matthias Bulach: Thank you very much, Ignacio. On deposit growth, I think we have been guiding for overall customer funds to be growing at around 6% now during the 3-year horizon versus the initial target that we have of around 4%, of which we said 3% of that would be customer deposits. So I think it's -- 2025 might be a quite good starting point when thinking about composition. So obviously, we do still see significant upside on wealth management after 9.7% year-on-year growth in 2025. And we do see CapEx to grow in deposits over this 5.3% growth in 2025 also. We move that target to now 6% overall. That means, as I said before, we might be somewhere around 5% to 6% on the overall customer front. And the structure that we've seen in 2025, we expect that more or less to be also into 2026 and beyond. So having said that, we do think -- we do see deposit growth now very clearly in the mid-single-digit zone for the strategic plan horizon. That is outperforming our target of above 3%. And why? Because we do believe, and as Gonzalo was just pointing out on the macroeconomic evolution, we do still see a very strong disposable income growth and savings rates actually remaining at high levels. It is coming down slightly, but we still do see at very high levels with respect to historical average. Loan growth is strong and that multiplies also into deposit growth in the sector and hence, gives us opportunities to keep on growing significantly here. And as I said, we have a focus on growing nicely the client base, 390,000 clients this year, and that obviously also gives capacity to grow in deposits from new clients, and that means in transactional deposits and not shifting around the savings of our existing clients, but actually growing into new client base and growing into transactional deposits. So thinking then about what is the part of noninterest-bearing versus interest-bearing I would say, the current rate environment, which is stabilizing after the up and down over the last 3 years, stabilizing and with certain tendency to -- and the forward rates to increase, but clearly on a very gradual pace, we would expect that actually noninterest-bearing deposits being rather stable, and I would say rather stable even in absolute terms, not necessarily in relative terms, obviously, potentially growing slightly, but we would expect that the noninterest -- the interest-bearing part actually clearly growing slower than the noninterest-bearing part. And hence, we don't expect any shift from one to the other. As I said, growth should also come from new clients, new transactional relationships with our clients. And hence, we see strength in the growth of that crown jewel of ours, which are the noninterest-bearing part. Marta Noguer: Thank you, Ignacio. Operator, next question please. Operator: Next question is from Maks Mishyn, JB Capital. Maksym Mishyn: Two questions from me, please. The first one is on loan book growth. Your peers mentioned that mortgage market is less attractive due to competition at the moment, and you seem to be growing above the market. Could you share your thoughts on why it is attractive for you and not your peers? And then if you could also break down the upgraded loan growth target by segment, that would be very helpful. And the second question is on capital. Just wanted to hear your thoughts on the recent proposal by the ECB to simplify capital regulation. Operator: Maks, we are not hearing you properly. Can you -- maybe take the cellphone a little bit away and repeat the question because we lost you. Maksym Mishyn: Is it better? Operator: Yes.Yes, this is better. Maksym Mishyn: Sorry. So the first one is on loan growth. Your peer mentioned that the mortgage market is less attractive due to competition, and you seem to be growing above market. Could you share your thoughts on why it is attractive for you and other peers? And also, if you could upgrade the loan growth target for the next year, that would be super helpful. And the second, I just want to hear your thoughts on the recent proposal by the ECB to simplify regulation for banks in the Eurozone. Gonzalo Gortázar Rotaeche: Thank you, Maks. I will start. And Matthias, you want to complement anything you tell me. On the mortgage market, I would say there's a very strong competition. There's always been 10 years ago, 5, 15, 20, it has typically been more on the floating rate mortgages. The market has moved almost completely, but not completely, but to a large extent, on to fixed rate mortgages. And that means that different players find it more or less attractive. I think depending on the structure of the balance sheet, there are core liabilities, the liquidity position. I'm just saying this is an important factor to keep in mind. But whether it was floating or now on fixed rate, we have obviously very competitive margins. And what we are doing, our share of new production is pretty much in line with our stock, around 25%, slightly it's 26% in the figures up to November in terms of share of new production versus a 25% stock. So that's why we're gaining 12 or 10 basis points in market share. But it's basically, we're maintaining our position. I think that's reasonable for us. And what you see is some players have been much more aggressive than others. And I think it has something to do with the structural balance sheet. And then the other big factor, which obviously is also differentiating is to what extent you cross-sell because we know mortgages are now below funding costs after the various sort of subsidies that are given by banks and on average, the market rates that are being given to the ECB latest numbers I've seen in November is 2.4% for fixed rate mortgages, obviously, below the swap rate, but that's after the modifications for all kind of business that clients bring in. And on that front, we obviously have an insurance business that is absolutely different from what others have. I was just looking at the premiums on the non-life for our affiliate Adeslas is around EUR 6 billion. You look at the numbers of our 2 main competitors, the premiums for non-life are around EUR 600 million. So it's not just a bit more than our fair share. It's 10x more. And that gives an indication that with -- once a client is in the Universe Caixa, clients more profitable. And hence, when you incorporate that, you probably see that both because of our funding position and our ability, given our sort of 36% market share in payrolls, our ability to hold long-term fixed rate assets, number one, and our ability to cross-sell, the market has moved to an area where we have a competitive advantage versus others. But still, I think we're being very disciplined because, again, stock of back book and the market share in new lending is very much aligned. So that's the background. And in terms of simplification, we're watching and obviously would love to see moves from that point of view on simplification for banks. And I think something is going to happen. I'm a trading maybe less than we would have hoped for. And I think the progress we're seeing so far deals more with operational issues, which is great because it's going to lead us to sort of spend less time and maybe have less people sort of spending time on supervisory matters, and that's good, but that's not really going to change the game. I think sort of changing capital requirements is something that is unlikely. I personally don't find it desirable. I think the current capital requirements, yes, are very ample and solid and gives us as a system, a great degree of stability. And I think that's good over the long term. What I think is important is that we provide stability and that there's no doubt about capital levels going forward because the current levels are more than enough. I think supervision needs to be simplified. We have 27 supervisors, and we're not one of the most complex financial institutions in Europe. We're operating basically in the Eurozone and mostly in 2 markets. It gives you a sense of complexity and some of that should be addressed. There's obviously progress specifically on disclosure on topics affecting sustainability on securitization, which is very likely. I think the sort of development of instruments for saving and investment union, which is not exactly simplification, but it has a relationship with are also quite relevant. We'll have to watch and see. But this is, I think, going to take quite some time, and we may actually end up in a position that is not too far away from where we are now, barring sort of some, as you say, operational matters. And the other one, which I think is very important, is stopping the flow or significantly slowing down the flow of new rules, Level 2, Level 3, which is obviously, I think, more of a concern and easier to stop because it's more a political willingness to change the way future things are done to change the status quo is going to take time and may not be as significant as we would hope for. Matthias Bulach: If you allow me to complement Gonzalo on Maks. On your question on breakdown by segments of that loan outlook that you're asking for. 2025, we grew 7%, our performing loan basis, of which 6.5% was growth in mortgages, 12.4% in consumer lending and 7.6% in business lending. Now we are guiding for a 6% CAGR over the horizon of the strategic plan, and that implies somewhere between 5% and 6% for the remainder 2 years. And hence, let's say, the adjustment you would have to make to the 2025 numbers, I would say the structure of 2025 is a reasonable one that we would be seeing also in the future as basically the main driving forces macroeconomically speaking as well as from the market, we still see them holding true also for 2025 -- for 2026 and 2027. So let's take the structure of 2025. And as Gonzalo said, we want to be active in business lending, specifically in SME lending. We want to be active and gaining market share in consumer lending and typically be more in line with the market and hence, maintain our position for all the reasons that Gonzalo was commenting on mortgages. And that is more or less the structure that we had in 2025, and that is what we would be expecting in 2026. Why do we guide for slightly lower growth rates on the business volume? Even though macroeconomic performance is strong and keeps us strong, there is a certain reduction in the pace of growth, obviously, as Gonzalo said, 2.8% this year with the figures that were just published, and that might be slowing down slightly over the next 2 years, obviously. So together with that evolution of macroeconomic growth, obviously, we see nominal GDP growth as an anchor point both for growth in assets and liabilities. And this is why we are thinking that there might be a certain slowdown from 2025 levels. But then again, the future will tell. And obviously, we will do all the best to do better than that. But this is what is our current view. Operator: Next question is from Francisco Riquel, Alantra. Francisco Riquel: The first one is on fee income guidance that you are not changing, but wealth management and long-term savings volumes are growing ahead of expectations. So if you can explain what is the offset here, if it is, again, banking fees that you see weak trends? Or if you can please elaborate on the fee income guidance given that wealth management is ahead of expectations? And second is on the cost guidance that you have maintained also for -- in the new plan. I wonder if you are investing more in AI and in the technological transformation that what you were anticipating at the beginning of the plan? And what type of productivity gains shall we expect and when? Gonzalo Gortázar Rotaeche: Thank you, Paco. I would say, again, leaving the fees for you, Matthias. If you agree on cost and AI, yes, this is a key factor for our investment program, which is going according to plan. So in terms of the big numbers, we are reiterating the cost and the OpEx, CapEx spend last year, this year, 2027. And in terms of the efficiencies of the productivity that we expect here from AI, I think, is twofold. Most importantly, in a growing market and in an organization that is actually growing market share, it's going to allow us to have more revenues over the same platform basically. And I think this is very important for us. So that's the main factor. And the second one, obviously, is on the cost base. We -- and particularly when you look at sort of the engine room. I would say there are 2 places where we expect efficiencies. One is IT, and this is one where it's actually -- first, we need to invest more also in terms of people and with this Cosmos program, which is the whole sort of technology upgrade that we're doing, we now have over 2,000 people working full time on that. Now some of them are internal. Some of them are from partners and hence, call it outsourcing. And this is going up. It's going to come down. We said at the time of the plan, we will start with 6,000 people, of which basically 1,000 were internal IT employees and 5,000 external. We expect by the end of 2030 to have reduced that to 4,000 people, but to have more people internally. So we are basically in-sourcing, but the total FTE expense internal and external is going to come down. And this is something that you're going to start feeling really 2027 onwards because in the meantime, what we need to do is, as we transform, have actually more resources. And then there's operations as well where we have significant outsourcing, and I think that's likely to come down. So those are the sort of big areas to look for. But again, I'd say most of these efficiencies are coming into 2027 and beyond. That's why also if you look at our implied guidance for 2027 is more in line guidance of growth in order to make the numbers is more aligned to the 3% number compared to the 4.5% that we're doing this year. That's because not only, but among other things because we're having efficiencies already materialized in 2027. And obviously, that should continue beyond. Matthias Bulach: Thank you. On fees, Paco, I think, obviously, as you said, we are very upbeat on wealth management fees coming from that capital. As we said in the -- actually in the strategic plan, mid- to high single-digit growth here. 2025 has started very, very strong, and we do see strong growth also going into the future. As Gonzalo said, year-end balances in wealth management are 7% higher than average year balances of 2025. So we do see a very good starting point also here into 2026 and beyond. So that means that, yes, we are more cautious on banking fees. Actually, of our fee structure of our banking fees 20% more or less are CIB fees and 80% are recurring banking fees. We said CIB has a very strong dynamics. We've been growing 33% year-on-year full year 2025. So there's a very strong backwind and tailwind here, even though, obviously, those growth rates tend not to be sustainable. We do believe the levels are sustainable, and we should be able to grow still from there, but obviously at a certain lower pace. And that means that the drag we still do see coming from recurring banking fees and that 80% of fees, of which more or less half probably are in types of fees, which are basically exposed to quite some competitive pressure, namely speaking about account maintenance fees, payments and transfer fees or credit card fees, which obviously in that competitive environment and that profitability environment of client relationship are under pressure because they are lower value-added services. And in that capital, obviously, we still do believe that there is actually potential that these type of fees are still reducing over the next years as competition will be fierce in that area. And innovation in those areas, obviously, will also have an effect of bringing fees down. And that should then be compensated and this is our job by the other part of the fees on other transactional services, security trading, foreign exchange or loan-related fees, where we do expect a positive evolution, obviously, from the macroeconomic environment and from transactional increases. So there, we do see a positive way to partially compensate that reduction in recurring banking fees. Operator: Next question is from Cecilia Romero Reyes, Barclays. Cecilia Romero Reyes: The first one is on deposits. Obviously, the reduction in deposit cost is slowing and in part is because obviously, rates are stabilizing. Some competitors have standard attractive campaigns. How do you assess the current state of deposit competition in Spain? And are you seeing any incremental pressure from neobanks? And my second question is just a follow-up on the fee question. Could you remind us where are SRT costs included within your fee line? And is an acceleration of SRT making your view on banking fees more conservative if included there? Or is this not having a big impact? Gonzalo Gortázar Rotaeche: Thank you Cecilia. On deposits, I would say no change. We're not changing our strategy, and we are very comfortable about our position. We're not seeing any particular negative impact or difficult environment associated to neobanks. On fees? Matthias Bulach: Yes, the SRT Cecilia, the SRT part is in the banking fees. And hence, yes, there is a certain impact there. And as we are speeding up and as you have seen in the fourth quarter, SRT activity, there will be a certain drag also on banking fees, on other banking fees based on the SRT activity. Actually, in Q4 '25, there was EUR 12 million of impact, that is EUR 5 million down year-on-year, if you look at the quarterly data. And in the full year 2025, there was EUR 36 million, actually EUR 12 million more of fees paid on that capital. So yes, that is generating, obviously, as we are picking up activity here, a drag on banking fees. Operator: Next question is from Sofie Peterzens, Goldman Sachs. Sofie Caroline Peterzens: This is Sofie from Goldman Sachs. So my first question would be on your customer margin, which came slightly below 300 basis points. I know you talked quite extensively about kind of deposit costs and also lending rates. But how should we think about the customer margin? Is it fair to assume that the 297 basis points is a trough? Or could it kind of fall a little bit more in coming quarters? And then my second question would be the 20% return on tangible equity that you guide for in 2027. Is that sustainable to assume that will be the new run rate beyond 2027, so '28, '29, considering volumes are good. You mentioned cost efficiency should start to kick in post kind of '26. So how do you think about like the longer-term return on tangible equity level? Gonzalo Gortázar Rotaeche: Thank you, Sofie. On the profitability, I think we said and Matthias also mentioned NII and others, we see environment continue to be fairly positive beyond 2027. So by definition, that should be positive for return on tangible equity. You are somehow asking about our next 3-year plan, and that's a bit too early for us to get into the detail. But to be honest, my sense is this is not just a level that is sustainable, the 20%, but it should be actually the level on which we start working towards further improvement in profitability. But that's my qualitative sense based on all what I have seen. And obviously, we also have a very positive view for 2028 in particular. On customer margin, Matthias. Matthias Bulach: Yes. Thank you very much, Sofie. On customer spread, I'm afraid to say that the 297 or 302 depending on whether it's with or without hedges, has not yet been the trough. As I said, customer deposit cost at 47 basis points might be rather stable or we do see some potential here still for certain improvement, but probably a minor one. And yes, we do still see negative loan yield repricing specifically into the first quarter and the first 2 quarters of this year, 2026. So we would expect that to come down still slightly into the second quarter, but then we should be starting to see a recovery. And we still see the area of 300 basis points as our sustainable level once rates are picking up slightly over the next quarters. Operator: Next question is from Alvaro Serrano, Morgan Stanley. Alvaro de Tejada: It's kind of a follow-up, one for you, Gonzalo. The implied cost growth in '27 looks like around 2.5%. And with the revenue growth, your cost income is going to be in the mid-30s. And obviously, you've laid out both Matthias and yourself, how there's more to go for in '28. So the question is kind of where is the -- should we be thinking that 30% cost/income ratio over time is possible? Or the bigger question is at what point, Gonzalo, do you think that it's better to invest in the business because you think you might be missing out on growth or underinvestment? Just help us through think how you're thinking about the business and the long-term potential in the new world? And second, on the 6% loan growth CAGR, I realize it's a touch lower in the outer years, but still above what Spain is growing. And of course, there's some international growth there. But the question is, are you factoring further sort of market share gains? Or you're expecting the growth in the market to accelerate significantly or a bit of both? Just a bit of sort of color on your market share expectations. Gonzalo Gortázar Rotaeche: Yes. On the second one, market share, I'd say, yes, we are gaining market share now. We gained market share this year. It's likely if we have a position that I think is very strong on -- from a competitive point of view that, that process will continue. And we aim to do that subject to appropriate risk and pricing decisions. So if the profitability is not there, the risk criteria is not strict enough, we will certainly not grow faster than the market. But we have seen that the market is very big. And given our positioning, we can do that. And I think there is clearly a potential to see lending above nominal GDP, which is kind of the logical assumption to be made. But when we look at relative to our past and relative to Europe with 31 percentage points lower leverage of the private sector and an economy that is clearly outperforming, you can see obviously some cycle there. So I think 6% is reasonable. And yes, it includes some market share gains. But again, when we talk about market share gains, we're talking about 10, 20 basis points. Generally, this is the kind of market share gains that are consistent with good pricing decisions and good risk decisions, not something that is huge. And in terms of the cost income, I think it's important to say cost income for us is an output. It's not the target by itself. We -- now you look at our numbers and round numbers, we have 18% return on tangible equity this year, 40% cost income, a bit below the cost income. But our aim is not to bring down the cost income at our cost. Our aim is to create value. And obviously, if we can do the same volume with lower cost income, that's great. But very often, if you just focus on bringing down the cost income, you're not going to do investments at 18% return on tangible equity. So once you get to -- and many banks would dream in Europe, as you know well, Alvaro, to have a 40% cost income. And once you have a very profitable platform, you actually want to create value and that means growth. And that may mean doing and taking business initiatives at 40% cost income that create a lot of value, 18% return on tangible equity, but do not contribute to the objective of reducing further cost income down to 30%. Now as an output, if our strategy is successful and we continue to grow the business, the cost income should continue to go down. But it's not going to be our target. It's going to be a consequence of sort of management of revenues and costs to make sure that we produce sort of value when we make investments. So it will come down, but we're not targeting a given cost income. We're targeting shareholder value creation. I may just remind you of the case of Banco Popular 25 years ago, they were managing for ratios and return on tangible equities and cost income. And at some point, that doesn't make sense. And we're certainly going to be looking at NPV positive value decisions and that if our strategy is successful, will lead to lower cost income. We'll see when and to what extent. Operator: Next question is from Marta Sanchez Romero, JPMorgan. Marta Sánchez Romero: I got 2 questions, one on the structural hedge and the other one on capital. So on the structural hedge, you're adding receiver swaps, but you're reducing your holding of sovereign bonds. Can you explain the rationale of that? Any worries on the sovereign debt market? And also what is behind keeping the sensitivity still at 7.5% versus the 5% you had at the beginning of the year? If you could help us model how the ALCO portfolio size should expand going forward, that would be very helpful. And then on capital, 2 quick questions. What are you expecting in terms of RWA growth? In the previous plan, you were growing more slowly than loans. I think 3% CAGR you had at the time. Now you've got 6% growth in performing loans, how RWA should grow? And just quickly on the buyback, have you already put forward a request to pay that surplus capital to the ECB and the Board? Gonzalo Gortázar Rotaeche: Thank you, Marta. On the second point, capital, we are not -- we've made a policy out of it finally to say let's be consistently. We will not talk about when we do internal approvals and discussions with the ECB. We'll just communicate to the market when we have it and it's formally approved by the ECB and the Board. Absolutely no change in what we've been doing. We're talking about the seventh, eighth share buyback now. And you know how we behave that we're fairly quick, very disciplined. Look at all the banks in Europe, they say this is our target, but then you look at the capital, and it's way above that target. We are -- it's a bit like an ATM. As soon as we generate the capital, we give it back. So don't worry about that is something we're going to continue. RWA growth, obviously, it's going to be a bit higher if lending grows at 6% than at 4%. And I'll let Matthias elaborate on to it. Matthias Bulach: Yes. Thank you very much, Marta. As you said, we were guiding for a 3% performing loan growth in the -- back in the Investors Day, and that translated into about 2% growth in RWAs. Now we are guiding for 6% growth, and we do think that also helped by both the Basel IV impact that at the end of the day was more positive than we expected as well as an uptick most probably in SRT activity that we should be able to actually adjust that growth rate downwards and actually generate a sort of potential 2 percentage point gap between loan -- performing loan growth and RWA growth helped by these 2 factors. And on sensitivity, we do feel quite comfortable in that 7.5% sensitivity that we are managing right now. Recall that we are coming from ranges of 20% to 30% back in 2021 when obviously rates were negative or very, very low, bringing that down to 5% last year, and now we are hovering around those 7.5% levels in that environment where the ECB signals that the rate cutting cycle may have come to an end and the market expects certain increases from the current state. And the yield curve is actually pointing out to a steepening. We do think that, that 7.5% level is a level that we feel comfortable with in an environment in which we obviously would have been or are exposed to macro risks, both on the upside as well as on the downside. As to hedging strategy, we use both instruments, both ALCO book in order to invest and structural hedges. This quarter, we've been using approximately EUR 10 billion of structural hedges to hedge and to assure the sensitivity of 7.5%. And that might change depending on the size of the books, depending on sensitivity depending on opportunistic behavior also if sovereign spreads we feel are at the level they should be, we feel investment opportunities, we might be using more longer maturity instruments such as adding to our ALCO portfolio and picking up some of that sovereign spread or being more in the shorter range of maturities, which we typically do with the deposit swaps. So I would say we will see in the future. We want to keep some flexibility here to be able to react to market circumstances as they unfold and no clear guidance at that point on to which part of the portfolio should be growing more or we would be using more. Operator: Next question is from Ignacio Cerezo, UBS. Ignacio Cerezo Olmos: So I have 2 small ones actually and one slightly more qualitative. And the numerical ones are, if you can give us the NII in 2027 with no rate hikes. So we have actually flat as pancake type of yield curve. The second one is if you can give us actually the percentage of natural attrition you have on your headcount every year. And the qualitative one is on consumer lending, obviously growing quite strongly, 12%, I think it is at the end of the year. I mean, mimicking view on actually the trends we're seeing on a sector basis. I mean, does this raise any concern around asset quality about the kind of clients actually you're targeting or you're still within pretty tight kind of risk standards with your own client base preapproved like you have been doing in the last 3, 5 years. So if there is any change in terms of the risk profile of the clients you're acquiring on consumer? Gonzalo Gortázar Rotaeche: Thank you, Ignacio. Risk profile, no change in asset quality. We keep our standards. We're very comfortable with them. And that's perfectly consistent with good growth when you have such a large position and a lot of information with clients. Natural attrition for the headcount, I think we may actually want to come back to you, obviously, I want to make sure we give you the right number is small. NII? Matthias Bulach: Yes. NII, 2027 actually is not largely dependent on interest rate hikes. As I said, typically, the repricing of the portfolio is somewhat backloaded. And in the current interest rate curve, that increase that we are expecting slightly for 2026, but slowly and a little bit into 2027 actually would not have a significant impact on our EUR 12.5 billion guidance. As then the interest rate hike is much more backloaded and would much more positively affect 2028 and beyond. So I would see, obviously, that would have an impact, we would be below most potentially that 12.5%, but not far from guidance if interest stayed on current 2% deposit facility rate. Operator: Next question is from Andrea Filtri, Mediobanca. Andrea Filtri: You said consolidation will continue in Spain and that you're not interested in moving abroad. Can you elaborate on what you meant by that? And also, you made positive considerations on the U.S. as a market. What do you plan to do there? Gonzalo Gortázar Rotaeche: On the U.S. as a market? Operator: What you said -- last question, Andrea, we didn't hear it properly. Andrea Filtri: I also read positive comments on the U.S. What do you plan to do there? Gonzalo Gortázar Rotaeche: Yes. Consolidation, very clear, no change. We are not interested in consolidation. We have a very strong position in Spain. And we do not want to grow and we do not need to fill any product areas through consolidation. We want to grow organically. In Portugal, we have a great operation. We have a lower market share, but actually a business that is growing even faster than the Spanish one. So we're very happy with what we have. And what we see is increased value creation by combining the engines and the way we do business between Spain and Portugal with the whole, obviously, autonomy that BPA has because it's a great Portuguese and it needs to say as a Portuguese bank. And we're not seeing value creation in cross-border, to be honest, this is sort of a discussion that takes a very long time, but we don't see synergies. And as we look for shareholder value creation, we do not think we're going to find it in cross-border M&A. The U.S. is certainly even further away for us from the point of view of M&A, absolutely no interest there. Still it's a market where, obviously, we bank with many U.S. companies that are mostly operating in Europe. It's a market that we follow closely because it's relevant for the whole world. Operator: Next question is from Borja Ramirez, Citi. Borja Ramirez Segura: I have 2. Firstly, on the NII guidance, I would like to ask if you could provide the assumption on the deposit hedge growth? And also this EUR 10 billion of deposit hedges, could you remind me on which interest rate they have been acquired? And then my second question would be on the SRTs. If you could remind me what is the expected delay benefit and the fee cost, please? Matthias Bulach: On the deposit hedge growth, we don't give a specific guidance on what the volume is. But structurally thinking about what we should be doing is, obviously, we are adding, let's say, nonmaturing deposits on our liability side. And by the way that we are adding those nonmaturing deposits, we need a natural hedge on those, either through increase of the mortgage -- fixed mortgage portfolio, for example, or other fixed rate assets in the loan book or if that is not enough, then in order to manage the 7.5% sensitivity, obviously, other types of instruments should be used, namely being either hedging our deposit base or investing into fixed rate assets. So structurally, I would be thinking about the evolution that you're putting into your model in terms of noninterest-bearing deposits, which is our fixed rate liability side and then a combination of investing into fixed income assets, both on the loan side as well as on either of the 2 instruments, fixed income portfolio on the ALCO book or structural hedges. And -- sorry, on the interest rate acquired in the -- we do disclose the detail of the information of the next actually 4 to 5 years of the maturities of the ones that we acquired. So you have a very detailed portfolio evolution of those. Obviously, in the moment we acquire, as I said before, we typically tend to invest a little bit more long term when it is ALCO book and fixed income portfolio and a little bit more short term in duration when it comes to hedges. And this is already obviously then already -- and you can see that in the differences of those maturity rates that we have in the Page 30 of the disclosure. Marta Noguer: And then the SRT, Matthias mentioned that before, but it's also in the presentation, it's minus EUR 12 million in the fourth quarter and minus EUR 36 million for the full year '25. So for the cost of SRTs in the fees. Operator: Next question is from Miruna Chirea, Jefferies. Miruna Chirea: It was on costs, more specifically on your investments in digital. I think 1 year ago at the Investor Day, you were talking about EUR 5 billion of total investment in digital over '25, '26, '27. Could you remind us, please, what is the phasing of this in each of the 3 years? And how should we think about investment in digital going forward? So what is the run rate from 2028 onwards? Gonzalo Gortázar Rotaeche: Run rate from '28 onwards, we will obviously explain at the time. There's no decision made. But clearly, the effort that we're doing with '25 to '27 is a special effort that is not something we're going to repeat or planning to repeat in '28, '30. But again, specific numbers, we need to wait. And in terms of the breakdown of that investment, I think there's no change from what we said. But Matthias, do you want to... Matthias Bulach: Neither change in the breakdown nor on the phasing in of that. Obviously, there's a certain ramp-up phase when it comes to the investments in the first year in terms of incorporating the staff and incorporating the workforce that we wanted to incorporate, and this is obviously a phasing. On the other hand, there's a certain front-loading then with expenditure with our partners. So I would say the most reasonable assumption is that is in that 3-year horizon, rather stable in terms of investment needs over these 3 years. Marta Noguer: Okay. Operator, I believe we have time for one more question, please. Operator: The last question is from Lento Tang, Bloomberg. Lento Tang: I have 2 follow-ups, please. The first question is on structural hedges. On Page 30 of the slides, you have this maturity profile. In the past few quarters, they were mainly added in the second quarter of '27 to the third quarter of '28. But this quarter, you added significantly in 2029. So just wondering if you could give me your thought process why the change? And the second one is on SRT. So you previously guided EUR 6 billion by 2027. I just wonder if you have any change of view there given some of your peers have ramped up activity there. Matthias Bulach: Starting with the second one on SRT. We guided for the EUR 6 billion gross issuances by 2027. And as I said before, loan growth is stronger. We expect now 6% performing loan growth with respect to 4% that we expected in the strategic plan. So there will be an uptick most probably of volumes. We don't have a specific updated number on those as we will be making that dependent on market conditions. We want to be active in that market, but we also want to be very sure that we well manage maturities that we will manage the reinvestment risk of those and obviously, that we -- to some extent, don't go crazy about it in the sense of adding too much reinvestment risk in our CET1 capital ratio. So yes, expect us to be more active in that market, expect us to add some billions on that target, but not excessively neither. And on structural hedges, as I discussed before, we are typically taking those decisions to a certain extent on an operational basis each quarter when we see what is the interest rate curve environment, we are updating our business volume forecasts, obviously, into that 12- to 24-month horizon, which we are managing our sensitivities. And then depending on the structure of the curve, depending on the structure of the sovereign spreads, we are managing that more on an opportunistic basis. There's no such a very predefined strategy other than, as I said, on the long tail of the curve, we tend to be in fixed income instruments and for the rather short term, we tend to be in deposit hedges. And then we will be deciding quarter-by-quarter depending on business outlook and market conditions. Marta Noguer: Okay. Thank you, Lento. So that's all we have time for today. Anyone left out the queue, IR team will contact them later. Thank you all for joining us. Thank you, Gonzalo. Thank you, Matthias, and bye-bye. All the best. Gonzalo Gortázar Rotaeche: Thank you very much.
Operator: Good morning, ladies and gentlemen, and welcome to The Bancorp Inc. Q4 and Fiscal 2025 Earnings Conference Call. [Operator Instructions] This call is being recorded on Friday, January 30, 2026. I would now like to turn the conference over to Andres Viroslav. Please go ahead. Andres Viroslav: Thank you, operator. Good morning, and thank you for joining us today for The Bancorp's Fourth Quarter and Fiscal 2025 Financial Results Conference Call. On the call with me today are Damian Kozlowski, Chief Executive Officer; and Dominic Canuso, our Chief Financial Officer. This morning's call is being webcast on our website at www.thebancorp.com. There will be a replay of the call available via webcast on our website beginning at approximately 12:00 p.m. Eastern Time today. The dial-in for the replay is 1-888-660-6264 with passcode of 65852. Before I turn the call over to Damian, I would like to remind everyone that our comments and responses to questions reflect management's view as of today, January 30, 2026. Yesterday, we issued our fourth quarter earnings release and updated investor presentation, both are available on our Investor Relations website. We will make certain forward-looking statements on this call. These statements are subject to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and are subject to risks and uncertainties that could cause actual results to differ materially from the expectations and assumptions we mentioned today. These factors and uncertainties are discussed in our reports and filings with the Securities and Exchange Commission. In addition, we will be referring to certain non-GAAP financial measures during this call. Additional details and reconciliations of GAAP to adjusted non-GAAP financial measures are in the earnings release. Please note that The Bancorp undertakes no obligation to publicly release the results of any revisions to forward-looking statements which may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. Now I'd like to turn the call over to The Bancorp's Chief Executive Officer, Damian Kozlowski. Damian? Damian Kozlowski: Thank you, Andres, and thank you for joining our call today. At the beginning of -- we announced the new brand that better represents the future of our company. It is a bold representation of the exciting future in front of us. Please refer to our website and other company marketing materials transformation. The Bancorp earned $1.28 a share in the fourth quarter. EPS growth year-over-year was 11%. GDV continues to grow above trend at 16% increase for the quarter versus fourth quarter prior year. Revenue growth in the quarter, which includes both fee and spread revenue and excludes credit enhancement income was 3% versus fourth quarter prior year. For the year, GDP growth was up 17%. In 2025 over 2024 and total fee growth was up 21%. Our 3 main fintech initiatives ended the year well positioned to create significant shareholder value in the future. First, our credit sponsorship balances ended at $1.1 billion, up 40% from the third quarter and 142% year-over-year. We exceeded our goal of at least $1 billion in credit sponsorship balances ending at approximately $1.1 billion. We hope to add at least 2 new partners this year, and we'll make announcements at the appropriate time. Second, our embedded finance platform development continued to progress on pace with an expected launch early this year. And third, new program implementation time lines, Cash App being the largest are on track and should deliver meaningfully both to GDV and fee revenue in 2026 and beyond. All 3 initiatives should be an increasingly positive effect on our financials as we move through '26 and show significant impact as we enter '27. We also made progress in reducing our criticized assets, which include both substandard and special mention assets, these assets declined from $268 million to $194 million or 28% quarter-over-quarter. We expect more progress over the next few quarters. Delinquency declined substantially from 2.19% of loans at the end of the third quarter to 1.6% at the end of the fourth quarter. I now turn the call over to our CFO, Dominic Canuso. Dominic? Dominic Canuso: Thanks, Damian, and good morning, everyone. Overall, it was a strong fourth quarter and finish to 2025, building momentum on our APEX 2030 strategy. ROE was a record 30.4% in the quarter and 28.9% for the full year, continuing the trend of year-over-year improvements. Ending assets increased to $9.4 billion, up 7% versus prior year as the total loan portfolio increased $919 million to $7.26 billion, driven by $644 million in consumer fintech loans, which now constitutes 15% of our loan portfolio. In addition, in the quarter, we purchased $317 million in bonds, 82 of which were fixed rate agencies, bringing our investment portfolio to 18% of assets and relatively consistent with year-end 2024. Liquidity continues to be very strong with average deposits in the quarter of $7.6 billion with an average cost of 177 basis points. 95% of our deposits are from fintech with 92% of total deposits in short. With the continued growth of credit sponsorship and our overall fintech business, noninterest income, when excluding the credit enhancement, account for just over 30% of revenue in the quarter, with approximately 90% of fees coming from the fintech business. As Damian mentioned, we continue to see significant improvements in our leading credit metrics, including criticized assets, delinquencies and nonaccruals. When excluding fintech loans, which are covered through the credit enhancement, the provision for loans in the quarter was $858,000 down significantly from $5.8 million in the third quarter. Similarly, net charge-offs in the quarter was $629,000, also down meaningfully from the $3.3 million in the third quarter and consistent with the low end of recent historical averages. Noninterest expense for the quarter was $56.2 million and included $2 million from a legal settlement relating to a previously disclosed legal proceeding initiated in 2021. We are actively engaged with our insurance company on recovery, including potentially recapturing historical legal fees. When excluding the legal settlement, costs were up only 5% versus fourth quarter of 2024, as we continue to scale our platform and reallocate resources to support continued top line growth. Lastly, we purchased $150 million of our stock or 5% of outstanding shares in the fourth quarter bringing our full year repurchases to $375 million or 12% of outstanding shares. I'll now turn the call back over to Damian. Damian Kozlowski: Thank you, Dominic. We are initiating guidance of $5.90 EPS for 2026. We are targeting at least $1.75 a share in the fourth quarter 2026. We are maintaining a preliminary guidance for '27 of $8.25 a share. Our guidance in '26 and '27 includes stock buybacks. '26 buybacks are forecast to be $200 million total or $50 million a quarter. Our 3 major fintech initiatives, platform efficiency and productivity gains from platform restructuring and AI tools, plus a high level of capital return through continued buybacks will be the driving forces beat EPS accretion. EPS gains are subject to development implementation time lines in fintech and our stock price for buybacks. Operator, could you please open the lines for questions? Operator: [Operator Instructions] Your first question comes from Joe Yanchunis with Raymond James. Joseph Yanchunis: So your outlook calls for a rather steep EPS ramp. And I understand some of the underlying revenue drivers are dependent on partner activity, such as launching embedded finance and the new Cash App cards. Having said that, are you able to give us some more building blocks to help us bridge the EPS gap? Damian Kozlowski: Yes. So the -- they're large revenue opportunities. And we've got more clarity now than we did last -- end of last quarter where we did not issue preliminary guidance for 2026. We're on track with our initiatives. We continue to -- I think we're going to have some interesting announcements on the credit sponsorship over the next few quarters. And then we're going to be launching our embedded finance platform because we're at the stage now where we're confident that we'll be able to complete the platform for certain use cases by the beginning of '26. We're very clear on the -- because of other program implementation guidelines, we now can better predict where we're going to be at the end of the year. And we think we're confident that we can hit that $175 million number at the end of '26. And then if we stay on track where we are with our plans, '27 could be a really interesting year for the company. Joseph Yanchunis: Okay. I appreciate that. And if we just go back to the fourth quarter, you called out a couple of drivers or a few drivers that kind of weighed on results. Are you able to unpack those a little bit more? Dominic Canuso: Sure. Joe, this is Dominic. Yes, I think the first, obviously, we called out the legal fees. The second driver was just the unexpected duration of the government shutdown, which we believe affected the global economy and flow of both payments and deposits through the business. So reducing GDV slightly versus the higher expectation and run rate we had been at earlier in the year and affected our balance sheet mix, which were the 2 primary drivers, again, with GDV being part of that. And then lastly, while you saw significant growth in our credit sponsorship, balances, most of that was at the end of the fourth quarter, which demonstrates the anticipated growth we expect through 2026. But it occurred later in the quarter than we expected. So we didn't generate as much average balance income that we had expected throughout the quarter. So those are the 3 minor major drivers. And while they affected in the quarter where we ended the quarter, tees us up to achieve the full year and fourth quarter 2026 expectations that we've articulated. Joseph Yanchunis: Okay. So a potential weekend government shutdown is not going to have -- that wouldn't be called out as a potential 1Q '26 headwind should everything come back online? Damian Kozlowski: Yes. We don't think so because we're already receiving -- it's going to be a very large tax year. There's no doubt about it. We're already receiving a substantial amount of tax remittances that will go through our partner programs. So it's -- the first you never -- it hasn't happened yet, but early indications where there's been a lot of talk about how good this tax season, we're seeing it. And obviously, it's going to go to the underbanked and newly developed client wealth clients. So it should have a very good positive impact. And it should also affect our second quarter also as that gets spent through our programs. Joseph Yanchunis: Got it. And then one more for me here. So in your deck, you talked about -- you exited the quarter with $400 million in off-balance sheet deposits. Can you talk about the economics of this program? And should we expect all future deposit flows to be swept off balance sheet? Dominic Canuso: So we do expect to continue to generate, as Damian mentioned, particularly with the tax season coming up, generating deposit growth outpacing our demand for it. And so we will continue to look at the mix of our deposits and on balance sheet, the lower costing deposits while we mix shift to the higher cost deposits off balance sheet. And I think we continue to see this as an opportunity to not only optimize our earnings but generate revenue through this excess liquidity into the systems like IntraFi, and we look to monetize that particularly as we continue to grow in the second half of the year. Damian Kozlowski: Yes. Up to now, it's all been about reducing our funding cost as we've taken the high-cost deposits off balance sheet. In the future though, as we have larger and larger excess of deposits, we will have some income over the reduction in funding costs, but we haven't experienced that revenue yet. Operator: Your next question comes from Emily Lee with KBW. Emily Noelle Lee: This is Emily stepping in for Tim Switzer. So I have a few questions related to the REBL book. Can you confirm that all the announced refinancings were with entirely new partners? And was there any additional equity put in? And what were the new interest rate versus old ones? Dominic Canuso: Sure. Yes. So some of the refinancings were with new partners, some were recapitalizations. At the end of the day, the existing properties were incredibly stronger positions than when they're originated and then given the lower interest rate environment, there was some step down in yield in the portfolio. But all of the positions are stronger than when we originated them with stronger sponsorships and some existing partners, but mostly new. Emily Noelle Lee: Got it. And then what is the plan for the Aubrey now? I think on the Q3 call, you indicated you hope to get more clarity in the next 30 to 60 days. So just wondering if you have any update. Dominic Canuso: So we continue to see the benefits of the investments we've made to stabilize the property. Every incremental room we add increases occupancy rates. So in the last year, we've over doubled the available rooms and continue to see occupancy of available rooms in the '80s. We're getting close to breakeven on a cash flow basis, which we expect in the second quarter. So at this point, we continue to look for exit opportunities. But given the strength and the performance we expect in both occupancy and future positive cash flow after we get through the breakeven by mid-year, we will look for broader opportunities as a stabilized property exit, which would increase the potential value that we get relative to not only our balance sheet, but the estimates that are out there. Damian Kozlowski: Yes. And the appraisal is over 50. We had it reappraised and at a stabilized level now, we're getting -- if we're renting 80% available rooms, we have good line of sight to have completing all buildings and then having easily an 80% occupancy rate over the next couple of quarters. And then that's a -- once you get to that level, the number of buyers multiply significantly, and we have a potential to monetize, obviously, a gain on the property. So we're going to exit -- if we're going to exit in a prudent way, this was probably the most difficult situation that we've had in our portfolio over the last 5 years. But we're working out of it. We've retained the value. We've had multiple partners. There's a lot of people interested, but we're at a stage where we want to exit it in the right way. And now that it's approaching cash flow positive, we're going to be -- we're excited about in exiting, but we're also going to be prudent for our shareholders to make sure we get as much value out of the property as we can. Emily Noelle Lee: Great. That was helpful. And then I have 2 more questions. Just there's been a lot of discussion lately about fintechs obtaining their own bank charters. And most of that in the BaaS world has then how it could be a threat to partners, no longer needing a bank sponsor. So can you respond to that? And also just outline how there might be any opportunities here, if any? Damian Kozlowski: Yes. So in our -- with our partners, there are many partners that will -- that aren't ever going to get a license, right? So we're doing corporate payments. We're doing a lot of things across our 15 verticals governments that you're never going to need a license, right, or you're never going to obtain a license. It's really more narrow in some of the credit sponsorship areas, but also the Chimes and the PayPals of the world. Many of them do have types of licenses like Utah, industrial banks and stuff where they might issue credit and everything. But we don't see our major partners. The reason is valuation and oversight. It's once you -- there was a lot of concentration a few years ago and a few people did get licenses. But you then get all the scrutiny, you don't -- remember, our -- what we deliver to clients is a middle office, very scalable platform at a very low cost. And as you enter our ecosystem, you get to benefit all the information of all the programs and we have $1.1 trillion going through the bank. So it's incredibly scalable. It's at very low cost. Even if you do get a license, you may use our infrastructure. So it doesn't even preclude somebody getting a license and many of our partners have limited licenses of them using us because it's beneficial to them. So we don't see an impact right now on our portfolio, and we don't expect to have a major impact in the future. Emily Noelle Lee: Okay. Great. And then just if I could do one more. Can you walk us through the economics of your off-balance sheet deposits in the sweep program, specifically how much you generate off of that? And is the expectation going forward that most incremental deposit growth will flow from there? Dominic Canuso: Sure, Emily, this is Dominic. We had just mentioned in Joe's question that as of now, the leveraging the balance sheet to off-balance sheet deposits, was really a function to optimize our funding and increase our net interest margin. We believe going forward, as we continue to generate larger amounts of lower-cost deposits, that's when we'll turn it into a revenue generator. Now we do have plans this year to have deposit growth exceeding our balance sheet capacity and loan growth. And so we do expect some revenue generation from off-balance sheet in this but we look for more potential as we continue to add partners and grow programs. . Damian Kozlowski: It should, over time, our funding cost as we continue to generate -- there's like savings deposits that are higher cost. As we take those off the balance sheet, on a relative basis to Fed funds or deposit costs will go down right? It will go down. And if you net out some of the fees that we will generate by taking even lower cost deposits off balance sheet because they'll be under Fed funds, you'll continue -- if you add that back, you'll have even a lower funding cost. So it's very -- we're in a very liquid position with a downward pressure on deposit costs based on the liquidity of the balance sheet. Operator: Your next question comes from Stephen Farrell with Oppenheimer. Unknown Analyst: I just have a quick question about the REBL loans. Regarding the $102 million in criticized loans this quarter, can you provide any color on what markets they were in? Damian Kozlowski: Well, they were in a bunch of different -- there wasn't a single concentration. So we're in red and really red and purple states. We really aren't in California, New York, those type of markets. And the reason we've done that is because that's where the growing markets are, but that's also where the legal structural environment in real estate is advantageous. So for example, when we took over our asset in Houston. So we really focus on the -- it's really the Southeast, a lot in Texas and Florida, but also places like Georgia. And there was no -- it was across our portfolio. There's really no concentration in that number. Unknown Analyst: Okay. And I think you mentioned that some of the LPs were recapitalized. But the principal loan balance and the refinancing was the same, right? Damian Kozlowski: Yes. So we -- so when we do these, there's a very good marketplace after the event that happened. It happened across the industry, right? But there were definitely people -- pools of capital that formed that they're looking to take out other sponsors because if you think about what happened was these are 3-year loans, you transition a property after 2 years is when you might have a problem. You can't finish your property, but now you've invested substantial amount of money and remediating the property. Our worst asset was the Aubrey, and that's close to stabilize now. But generally, it's -- they get tapped out. These will have multiple of these properties usually might have multiple investors and at some point, they get tapped out. But there's pulls of capital there that we can, and we have a great industry knowledge locally in these markets. So there's always someone who's willing to take over in most cases, willing to take over the property, infuse more capital. Usually, the buyer will just either walk away or get some type of note. So when they monetize the property, they will get some of their investment back. So they're -- that formed after the -- as people got in trouble and that started to materialize in '24 and late '23, there was a lot of these sponsors. And we didn't have that many. To be honest, it was like close to 10 or 12 issues in our portfolio of 150-plus loans. But other players, as you are aware, I'm sure, had much more severe issues. And since we had exit debt yields that were fairly high and our loan to values were fairly low, we were able to find additional sponsors with liquidity as it started to appear in -- with investors to work out these properties and to stabilize the loan and get the path forward to full stabilization and takeout usually from government entities. Operator: Your next question comes from Joe Yanchunis with Raymond James. Joseph Yanchunis: So I believe you mentioned earlier in the call that you were looking to add potentially 2 new partners to your credit sponsorship lending portfolio. Do you have a sense for kind of a year-end exit rate for the size of that portfolio? And should you need to rationalize other portfolios to make room? Can you talk about where you kind of start? Damian Kozlowski: Yes. So we want to add at least 2 partners. And I think we've got good visibility on 2 partners. So we'll make announcements when appropriate. We're targeting -- and remember, the China program is growing pretty aggressively. So if you look at that level of growth, we haven't announced exactly where they're going to be. That's up to them. But with their growth and if you've seen the growth over time, we're -- it's going to be at least $2 billion, but it could be as high as $3 billion, right? So it's -- it really depends on the on-ramp of new partners because we have great visibility on the Chime relationship. But I think we're going to -- we could easily be double where we are today at the end of '26. And that's probably a good -- when we look at it, double where we are today is probably a good estimate of where we're going to be. Joseph Yanchunis: And then also, should you need to make room on your balance sheet, what would you... Damian Kozlowski: Yes. So we've already did some restructuring that we announced. So we have a very good idea of the economics of these businesses. So the first area where we reduced our participation was in our institutional business where we do nonpurpose securities loans. We also did loans for life insurance, the whole value and it's obviously liquid value of life insurance. And then we also did investor finance, which is really acquisitions in the RIA market. So we've stopped originating new loans in IBLOC and also in that RIA acquisition business. So we think we have enough liquidity. We also have pools of capital in multiple areas where we can room. For example, we have SBA guaranteed paper that we don't have to hold. And we'll just deemphasize -- we have very good understanding of the economics. So obviously, the lower spread will deemphasize first, and we already have. We think we have enough room for '26 to do business, and it gives us plenty of runway. But ultimately, as credit sponsorship grows, we will continue to refine our businesses to distribute the loans. If you think about what we've -- the businesses we have, we either have a demand loan or in many cases, even in the real estate area, we -- and we've done this before, we've securitized the loans into CLO structures or conduit structures. So we have a very good visibility. We won't have a problem around getting the liquidity we need to invest in new loan areas. And the real trick of our balance sheet is velocity. So as we continue to emphasize credit sponsorship, but also in the traditional businesses, we've set them up so that we can distribute them through usual market means. Joseph Yanchunis: Okay. And then last one for me here. So just kind of taking your prior answer of potentially doubling your credit sponsorship loans kind of winding down some of the lower-yielding portfolios. I was hoping you could kind of put all that in the blender as well as some of your other comments and help us think about the NIM a little bit more, which has been kind of volatile, jumping around a little bit. Dominic Canuso: Sure, Joe. This is Dominic. So there will continue to be some variability quarter-to-quarter in the net interest margin, particularly as deposits flow through and we optimize what's on and off balance sheet. And as Damian mentioned, what we want to do is maintain the flexibility of the balance sheet to maximize the leverage but also create room for the growth of the fintech business. So that mix that we'll see on balance sheet will affect the NIM. We do expect some compression of the NIM throughout the year, particularly as we shift more towards fintech and double that consumption on balance sheet, which generates more fee revenue and lower cost deposits than interest income. So that -- as that happens naturally, our profitability will increase, but net interest margin will come down a bit, but that will be replaced by a larger mix of fee revenue as a portion of total revenue. So I think we expect NIM to compress near 4%, but as we grow fee income to be 35% of total revenue when excluding the credit enhancement. Damian Kozlowski: Yes, you can always add back. We have a line that's very clear in our financials that basically is interest because that's the way we base it on. We get it in fees because that's the way we need to book it through the GAAP system, but you can always add that number back and that will give you a better idea of what total NIM is. Now this is a non-GAAP measure but just to make that clear, but we get a fee, but that fee represents an interest rate that were agreed with our partner on and if you add that back, you get a better sense of the total NIM of the company, even though that is once again a non-GAAP measure. Operator: There are no further questions at this time. I will now turn the call over to Damian for closing remarks. Damian Kozlowski: Thank you, everyone, for joining us on the call today. Management will be attending investor conferences and meetings throughout the quarter, including attending the KBW Winter Financial Services Conference in February, and we look forward to meeting with many of you. Have a great day. Operator, you may disconnect the call. Operator: Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.
Operator: Good day and thank you for standing by. Welcome to the First Hawaiian, Inc. Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions] Please be advised today's conference is being recorded. I would now like to hand the conference over to your speaker today, Kevin Haseyama, Investor Relations. Please go ahead. Kevin Haseyama: Thank you, Kevin, and thank you, everyone, for joining us as we review our financial results for the fourth quarter of 2025. With me today are Bob Harrison, Chairman, President and CEO; Jamie Moses, Chief Financial Officer; and Lee Nakamura, Chief Risk Officer. We have prepared a slide presentation that we will refer to in our remarks today. The presentation is available for downloading and viewing on our website at fhb.com in the Investor Relations section. During today's call, we will be making forward-looking statements. So please refer to Slide 1 for our safe harbor statement. We may also discuss certain non-GAAP financial measures. The appendix to this presentation contains reconciliations of these non-GAAP financial measurements to the most directly comparable GAAP measurements. And now I'll turn the call over to Bob. Robert Harrison: Hello, everyone. Thank you for joining us today. I'll start with some local economic highlights. The state unemployment rate continued to fall and was at 2.2% in November compared to the national unemployment rate of 4.5%. Through November, total visitor arrivals were down 0.2% compared to last year, primarily due to fewer visitors from Canada. Japan remained a bright spot, up 2.8% on a year-to-date basis. However, year-to-date spending through November was $19.6 billion, up about 6% compared to the same period of last year. Housing market remains stable with the median single-family home price on Oahu in December was $1.1 million, up 4.3% from the prior year. The medium condo sales price on a long in December was $512,000, down 5.2% from last year. Turning to Slide 2. We had another strong quarter. Our NIM expanded Net interest income grew, expenses were well contained and credit quality remained strong. Our profitability measures remained solid with return on average tangible equity of 15.8% in the fourth quarter and 16.3% for the full year. The effective tax rate in the fourth quarter was 24.8%. This was due to the reversal of our previously cure tax benefit. We expect the effective tax rate to return to about 23.2% going forward. Turning to Slide 3. Balance sheet remains solid. We continue to be well capitalized with ample liquidity. We had good growth in C&I loans as well as retail and commercial deposits. During February, we repurchased about 1 million shares, which used the remaining $26 million of our $100 million purchase authorization for 2025. Our new stock repurchase authorization is for $250 million. And unlike prior authorization, the current authorization is not for a specific time frame. Turning to Slide 4. Total loans grew $183 million in the quarter or 5.2% on an annualized basis. We had good growth in C&I loans primarily due to draws on existing lines as well as the addition of a new auto dealer customer. The CRE growth and decline in construction was primarily due to a couple of construction deals that were converted from construction to CRE. Outside of those conversions, balances in both portfolios were relatively flat. Now I'll turn it over to Jamie. James Moses: Thanks, Bob. Turning to Slide 5. We saw good growth in retail and commercial deposits, while a lot of the public operating deposits that came in during the third quarter flowed out in the fourth quarter as we expected. Retail and commercial deposits increased $233 million, while public deposits declined by $447 million. That dynamic resulted in a net increase in deposits of $214 million in the fourth quarter. The total cost of deposits fell by 9 basis points to 1.29% and our noninterest-bearing deposit ratio was 32%. On Slide 6, Net interest income was $170.3 million, $1 million higher than the prior quarter. The NIM in the fourth quarter was 3.21%, up 2 basis points compared to the prior quarter. The increase in the margin was primarily driven by lower deposit costs and the full quarter benefit of the borrowing that matured in September, partially offset by lower loan yields. The exit NIM for the month of December was 3.21%. Turning to Slide 7. Noninterest income was $55.6 million. Noninterest expense in the fourth quarter was $125.1 million. And now I'll turn it over to Lea. Lea Nakamura: Thank you, Jamie. Moving to Slide 8. The bank continues to maintain its strong credit performance and healthy credit metrics. Credit risk remains low, stable and well within our expectations. Overall, we're not observing any broad signs of weakness across either the consumer or commercial books. Classified assets decreased by 7 basis points, while special mention assets increased by 16 basis points. Quarter-to-date net charge-offs were $5 million or 14 basis points of total loans and leases. Year-to-date net charge-offs were $16.3 million. Our annual net charge-off rate was 11 basis points, unchanged from the third quarter. Nonperforming assets and 90-day past due loans were 31 basis points of total loans and leases at the end of the fourth quarter, up 5 basis points from the prior quarter, primarily driven by a single relationship. Moving to Slide 9, we show our fourth quarter allowance for credit losses broken out by disclosure segments. The bank recorded a $7.7 million provision in the fourth quarter. The asset ACL increased by $3.2 million to $168.5 million with coverage increasing to 118 basis points of total loans and leases. We believe that we continue to be conservatively reserved and ready for a wide range of outcomes. And now I'll turn it back over to Bob. Robert Harrison: Thanks, Lea. Turning to Slide 10. We have summarized our current full year 2026 outlook for some of our key earnings drivers. Starting with loans, we expect full year loan growth to be 3% to 4% range. The growth will be driven primarily by CRE and C&I loans. We anticipate that the full year NIM will be in the 3.16% to 3.18% range. We continue to expect tailwinds from fixed asset repricing and with additional Fed rate cuts and a decreasing deposit beta will remain headwinds. We expect noninterest income to be stable and to come in at about $220 million for the year. And finally, we expect expenses to be about $520 million in 2026. That concludes our prepared remarks and now we'll be happy to take your questions. Operator: [Operator Instructions] Our first question comes from David Feaster with Raymond James. David Feaster: I wanted to start on the loan growth. It was really encouraging to see some of the trends that you guys had and especially to see the C&I growth. I was hoping to maybe just get some color on, I guess, first of all, how pipelines are shaping up? And how much of the growth in C&I was increasing utilization versus new relationship growth? Just kind of some of the underlying trends you're seeing there. And then just some commentary too, on mainland versus Hawaii as well. Robert Harrison: Sure. Great question. Thanks, David. This is Bob. So on the loan growth, when we looked at it, it really was more -- as far as what happened in the quarter. It wasn't quite what we thought it would be. We had some payoffs in the CRE portfolio that we anticipated to come in later, which is why we didn't quite hit the number we had talked about on the third quarter call. But having said that, it really was pretty broad-based in local, primarily in some mainland draws underlines and then a new dealer relationship helped out as well. We'll see more of that, I think, in the quarters to come. So as we look forward, we're really looking towards as far as the pipeline of multifamily is still there. We're very, very busy and. And of course, when you book those deals, it will take a while for them to fund, we're still a little bit outrunning the payoffs that happened in that gap period we talked about on the last call of SVB kind of slowing down production for a while a couple of years ago. So that's behind us mostly in the first half of the year, and we expect the second half of the year to start to see more normalized growth in the CRE on the Mainland. We are still seeing activity here in Hawaii, a good amount of the activity this past quarter in Q4 was Hawaii-based but not exclusively. Does that cover what you're thinking about? David Feaster: That's extremely helpful. And could you maybe talk about the -- payoffs and paydowns have been a real headwind in the industry. Could you maybe touch on what led to maybe some of the payoffs and paydowns coming sooner than expected? And as you think about your outlook that you guys have laid out for loan growth, does that contemplate a continuation of payoffs and pay downs? Or is that a risk that you all are concerned about? Just kind of curious your thoughts on that side. Robert Harrison: Sure. I think there's 2 pieces to that. The first piece are the payoffs coming sooner than we expected. They have been a bit this year. I think all the permanent lenders are just as hungry for assets as the banks are. And so they're coming in maybe a little bit earlier than normal, not like we saw a few years ago when they were coming in before properties were even completed construction. But maybe before full stabilization, you're seeing permanent lenders come in on some of those multifamily projects. So that's kind of a men up the calendar a bit but not really a big difference. The paydowns in the industry, as we talked about before, I think we're in that belly of the part of the curve that -- where deals didn't get done a couple of years ago, after the concerns about liquidity with SVB, First Republic, Signature, et cetera. So we think that should be kind of burning through in the first half of this year and the back half of the year, that should give but there is still a high desire for assets out there and a good quality assets, which are the ones we like to fund, people are looking for that. David Feaster: Okay. And then maybe just shifting to the side of the balance sheet. I mean core deposit for instance has been really good. It's not -- you already have a low cost of deposits and you're continuing to take it down further, A lot of the NIM expansion that we've seen has come from reduction in funding costs. I know your margin guide has, I think, 2 cuts in there. As you think about margin expansion going forward, is on the funding cost side and the back producing really the tailwind there. And just how is the to reducing deposit costs thus far. Like have you seen any attrition or much pushback as you work through that? Robert Harrison: So Dave, you kind of cut out there a little bit, but I'm going to answer the question as I think you asked it. And then you can let me know if I missed something for you. I think the margin guide reflects both an ability to continue to cut deposit rates when the Fed cuts as well as that fixed asset repricing that we continue to talk about, and we've seen those trends over time. We think the beta is probably going to be a little bit lower go forward than where we were before. So fourth quarter interest-bearing deposit beta around 35%. And we would anticipate with 2 rate cuts that the interest-bearing deposit beta on that somewhere between 30% and 35%. So less than where we've been, but still pretty healthy for now at least. And then on the fixed asset repricing side, we kind of summarize that for you. So inclusive of all of the paydowns in the securities portfolio as well as fixed rate cash flows coming out of the loan portfolio. We think that's about $400 million a quarter or so with about 150 basis point repricing accretion on that. So we -- all of those things suppose a particular set of loan growth and obviously the way that the pace and timing of Fed rate cuts will impact that as well. But yes, that's kind of where we're at on the NIM. Operator: Our next question comes from Andrew Terrell with Stephens. Andrew Terrell: Just to start and just to clarify, the $385 million of fixed cash flows, that's on a quarterly basis, so kind of checks with the -- I think we've talked about like $1.5 billion in the past on an annual basis? James Moses: Yes. That was the fourth quarter to be very specific, Andrew, Yes. Robert Harrison: We did put that in the deck. Clarify that was in the quarter and not some of the annual assumptions we had in there in the rest of that page. Thank you for clarifying. Andrew Terrell: Yes. No worries. Could you maybe help me just bifurcating that out a little bit? And I think we have a good sense of relative dollars on other side that you've given. But just -- I want to talk about maybe spread competition you're seeing for new assets today. How much in marginal pickup would you expect from securities cash flow versus where loans are running off versus where you're kind of able to reprice that today? Just we've heard a lot on competition recently from other banks, and I'm curious if you're seeing the same thing on new loan growth James Moses: Yes, I would say that there is some spread competition. We've definitely seen that. We still think it's 180, 200 basis points on the securities portfolio, and that's that's pretty fixed. That's pretty well known. And so again, that's about $600 million for the next year and then about $1 billion on the loan portfolio. So a little bit less than that, maybe 100 basis points, somewhere like 80, 100 basis points pickup on the loans versus the $200 million or so on the securities. Andrew Terrell: Yes. Okay. And then on the -- just on the full year loan growth guide of 3% to 4%. It sounds like you might expect some payoffs maybe in the first part of the year, but then better on the second half of the year. And I guess the question is, is it fair to think you could start at the low end or even below the guide in terms of loan growth and then it picks up throughout the year? Or should we just think about it as kind of ratable 3% to 4% throughout the year? Robert Harrison: Yes. I think it's not so much more payoffs than the first half of the year. I think it's a normal payoff activity. There's just were fewer loans that are going -- that were done 1.5 years, 2 years ago that are going to be funding now. So it's really less of the new production from that multifamily portfolio, and that should be through that back half of the year. So yes, a fair assumption that it should be probably lower in the first half and a pickup in the second half. Operator: Our next question comes from Janet Lee with TD Cowen. Sun Young Lee: To clarify on your deposit beta expectations for 30% to 35% and after 2 cuts. So I see 40 -- if my calculation is correct I think I see 47% interest-bearing deposit beta for fourth quarter. So starting in the first or second quarter, does that step down at 30% to 35%? Is that the right way to interpret? James Moses: Yes. I think that's the right way to interpret it is that the interest-bearing deposit beta is going to step down over time. But we're -- I think we're okay with -- like with the 2 rate cuts, it should be -- it should continue to be close to what we've had in the past. Robert Harrison: And that goes to -- we've got a very low deposit cost. So at some point, you just can't keep cutting rates, even though rates are coming down. Sun Young Lee: Yes, definitely. And for the expenses. You've had, I guess, 2 years of flattish expense growth. It looks like it's going up about 4%, 5%. Is there -- is this just a normal adjacent of expense? Or are you hiring a little more in 2026? Or I mean it's a pretty specific number for the expense guide. How should we think about potentially you beat 520 or coming in above how should we think about your expense trajectory? Robert Harrison: Yes. Great question, Janet. Let me kind of back up a little bit and tell you one of the primary reasons why we've been able to hold costs down in the last year or 2 has been we're still going out and trying to hire people. Just to answer that part of your question, it's difficult to find the people we want to hire. So we haven't been able to staff all the people we want. But the reason for our good expense control over the last couple of years has been some of the investments we weighed in the past in technology enabled us to exit higher cost delivery, whatever it was, higher cost ways of doing business as we've brought things in-house. And so that's really been a huge help for us over the last couple of years as we've terminated expensive vendor relationships and been able to take that in-house. So -- we -- our rate of growth has been increasing over the last couple of years but it's been held down by our ability to reduce costs in other areas so far expense base. So as go forward into 2026, we see that most of that we've captured still be a little bit of it. And we will go back to a little bit more of a normalized expense growth number. Operator: Our next question comes from Kelly Motta with KBW. Kelly Motta: On capital return and the buyback, you've been pretty diligent with executing the $100 million you had for 2025. And you noted the 250 doesn't have any time period associated with it. I'm just wondering your appetite for continuing on at a similar pace here and how you're thinking through that versus some other maybe M&A aspects of the capital. James Moses: Thanks, Kelly. I think that we have a pretty good appetite to continue the pace that we had set last year. I think there always will be other considerations as well. There will be some -- potentially some opportunism baked into the program that we've set out but we haven't really made any firm commitment, I would say, internally, even around exactly the pace and timing of the share buyback other than that we recognize we have plenty of capital to do any number of things with, I think that Obviously, organic growth is what we're really looking for. And then the share buyback is a way for us to return some of that capital. So I think it's kind of a combination of all the things that we are looking at and that will determine that sort of pace. Robert Harrison: And just to add to Jamie's comments. We've messaged for a couple of years now a 12% CET1 target, and we're certainly well above that at 13 plus. So I think this larger buyback capacity, it's just an acknowledgment of that and it just gives us flexibility to bring it back closer to what we had targeted -- or what we had messaged in the past. . Operator: Our next question comes from Matthew Clark with Piper Sandler. Matthew Clark: Can we get the spot rate on deposits at the end of the year? James Moses: Spot rate on deposits at the end of the year, 124 in December. Matthew Clark: Okay. In December or at the end of December? . James Moses: It -- that's December. I'm not sure my calculus is good enough to give you that derivative at the moment. Matthew Clark: Okay. Just wondering if it was lower at the end of the year. Okay. And then on the -- on expenses, as sort of -- for the first quarter, can you remind us how the seasonality works, whether or not it's more in the first quarter or second or a combination of both? Just trying to get a sense for the run rate to start the year. James Moses: Yes. For the most part, the expenses are pretty flat throughout the year. We do see a pickup a little bit in the first quarter. You can see that in our numbers last year and the year before, and then they kind of declined a little bit from that. But in general, I think we're thinking about it pretty flat at the moment. Matthew Clark: Okay. Okay. And then just your updated thoughts on Mainland M&A any discussions you've been having and whether or not things are more active? And maybe just remind us what your ideal target would look like? . Robert Harrison: Yes. No, we're -- as Jamie mentioned, our focus is still on growing our core business, but still an option for us to consider for M&A. Some of the things we've talked about in the past, just to reiterate, we'd be looking for a strong management team, will stick around, be good partners with us. obviously, a disciplined lending culture, which is similar to the way we look at the business, strong deposit franchise. And I guess it's a little more touchy feely, but we want it well managed. We're not looking for fixer upper if we were looking to partner with somebody. And just for location, west of the Rockies is more what we're familiar with as an organization and where we've had people on the ground and where we have have a lot of relations already. And as far as size, probably somewhere between $2 million and $15 million would be the range. Operator: Our next question comes from Anthony Elian with JPMorgan. Anthony Elian: On deposits, Jamie, how are you thinking about balances in 1Q? If I look at your past couple of 1Qs, you typically see a seasonal decline. James Moses: Yes. I think that's fair. Again, that's probably something that we should expect in the first quarter. And then in totality, throughout the year, I think we're sort of mostly focused on what we can do with commercial and retail deposits. And so we're expecting kind of low single digits on that for the for the entire year. And then for us, it's tough in totality, the public deposits that we have, the kind of fluctuate, generally speaking, quarter-by-quarter, week by week even. But I think those -- in general, we should probably see some normal like state, like a GSP type increase for those things. So I think that's how we're thinking about balances. Anthony Elian: Okay. And then on the full year NIM guide of $3.16 to $3.18, so that's a pretty tight range. Do you expect each quarter to be within that range this year? James Moses: Probably -- that's maybe a little -- taken a little too far. But I think it's going to -- it really will depend on the amount of rate cuts that we see and the timing of those and whether they're 25, or whether they're 50. So this contemplate sort of a May, September version of that. And so I guess that's how I'd answer it. Anthony Elian: Any direction for the 1Q NIM, specifically relative to the $321 million you printed for 4Q? James Moses: Yes. I think we think it's going to come down a little bit. We had 2 cuts -- 2 rate cuts in the quarter, obviously, 1 in December. So we think it's probably going to come down a few basis points off of the December number. Operator: Our next question comes from Timur Braziler with Wells Fargo. Timur Braziler: Maybe just going back to the loan growth and trying to bifurcate how much of it is expected to come from some of the increased draws on production in years past versus what the opportunity to kind of reengage on the Midland with seemingly some better momentum starting there. Robert Harrison: Timur, I'm not sure 100% I understand your question, but there has been -- for our existing lines, it's a little hard to predict with our larger corporate and commercial customers exactly when an opportunity to come up that they need to fund versus their line versus new production. We are seeing while still continued activity here in Hawaii for sure and in Guam, there's just a broader economic base on the West Coast where we operate, and there's a lot of opportunities up there. So we're continuing to pursue new dealer opportunities as well as commercial real estate opportunities on the Mainland U.S., primarily on the West Coast. So I don't have a breakdown for you per se, but I guess that's broadly how we're looking at it. Timur Braziler: Okay. And maybe another way of asking that, just if you can kind of frame the opportunity set of -- I think you had mentioned the multifamily production that was booked 12, 18, 24 months ago that is going to start funding up, just how much of an opportunity that's going to be? Robert Harrison: Yes. I don't have that number handy, but we can look into that. Timur Braziler: Okay. And then during the prepared remarks, you had made a comment that you had a couple of construction deals that were converted to commercial real estate. I'm just wondering, is that pretty normal to have kind of the construction piece of it and then do the permanent financing in-house? Like is that a pretty normal kind of continuation for you guys? Robert Harrison: It depends on the sector. For customers kind of within the footprint, that is very normal. For the multifamily construction activity we're doing primarily in the Mainland on the West Coast, but it's not. And so it wasn't those deals. It was really more of our other customers within the footprint. So it really depends on the customer segment, if that's normal or not. Timur Braziler: Okay. Got it. And then just last for me. The C&I yields held up really well this quarter. I'm just wondering, is that kind of new production maybe offsetting some of the decline in the variable rate portfolio? Or maybe just kind of talk me through internally, if you were maybe surprised or that was kind of an expected decline within the C&I book because it seemed to hold up pretty well relative to the type of decline we saw during the 2024 rate cutting cycle. Robert Harrison: I think a little bit -- well, I'm not -- I don't have a perfect answer for you, but given that the draws were under existing lines, so I think that speaks to why the rate -- the yield didn't change as much in the fourth quarter. I think if you go back to, right, when the pandemic happened, you had a lot of backup lines with very highly rated customers that just had lower pricing at the time. And so when they were drawing that pricing structurally in those agreements was lower than more of our "normal base." -- but I need to do more analysis to make certain of that. Operator: And I'm not showing any further questions at this time. I'd like to turn the call back over to Kevin for any further remarks. Kevin Haseyama: We appreciate your interest in First Hawaiian, and please feel free to contact me if you have any additional questions. Thanks again for joining us, and have a good weekend. Operator: Ladies and gentlemen, this does conclude today's presentation. You may now disconnect, and have a wonderful day.
Operator: Good day, and welcome to the Imperial Oil Fourth Quarter 2025 Earnings Call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Peter Shaw, Vice President of Investor Relations. Please go ahead. Peter Shaw: Good morning, everyone. Welcome to our fourth quarter earnings conference call. I am joined this morning by Imperial's senior management team, including John Whelan, Chairman, President and CEO; Dan Lyons, Senior Vice President of Finance and Administration; Cheryl Gomez-Smith, Senior Vice President of the Upstream; and Scott Maloney, Vice President of the Downstream. Today's comments include reference to non-GAAP financial measures. The definitions and reconciliations of these measures can be found in Attachment 6 of our most recent press release and are available on our website with a link to this conference call. Today's comments may contain forward-looking information. Any forward-looking information is not a guarantee of future performance and actual future performance, operating results can vary materially depending on a number of factors and assumptions. Forward-looking information and the risk factors and assumptions are described in further detail on our fourth quarter earnings release that had be issued this morning as well as our most recent 10-K. All these documents are available on SEDAR+, EDGAR and our website. I would ask you to refer to those. John is going to start this morning with some opening remarks and then hand it over to Dan, who's going to go through the financial update, and then John will provide an operations update. Once that is done, we will follow with the Q&A. So with that, I will turn it over to John for his opening remarks. John Whelan: Thank you, Peter. Good morning, everybody, and welcome to our fourth quarter and full year earnings call. I hope everyone is doing well and that your year is off to a good start. And as always, we appreciate you taking the time to join us this morning. Let me start by saying I'm very pleased to report another strong quarter. We generated just over $1.9 billion in cash flow from operations in the quarter and $6.7 billion for the full year. At year-end 2025, our cash on hand exceeded $1.1 billion after funding our capital program and returning $2.1 billion to shareholders in the quarter and $4.6 billion over the year including dividends and the completion of our normal course issuer bid. Our integrated business model continued to demonstrate resilience with stronger downstream profitability in the quarter, and we continue to generate substantial free cash flow over a range of oil price environments with nearly $1.4 billion generated in the fourth quarter when WTI averaged less than USD 60 and $4.8 billion generated throughout 2025. While our financial results in the quarter were very strong, operationally, we encountered extremely wet conditions at Kearl in October and additional maintenance in our Eastern manufacturing hub in December. I'll touch further on these events and how we've moved past them during the asset updates. On the project front, we achieved first production from the Cold Lake Leming SAGD project in the beginning of November. As expected, production is currently ramping up to a peak of around 9,000 barrels per day. Now I'd like to briefly highlight 2 identified items that affected the quarter's results. First, we announced our decision to cease production at our Norman Wells asset in the Northwest territories, by the end of the third quarter of 2026, as it reaches the end of economic life after several decades of successful operations. This somewhat accelerated end of field life versus the end of the decade, resulted in a onetime charge of $320 million after tax, which is included in our fourth quarter identified items. I would like to take a moment to thank our Imperial team members and our partners that have continued to and are still supporting our efforts at Norman Wells. As we continue to supply central energy products to the North and as we move forward with the decommissioning at Norman Wells, our focus will remain on strong relationships and working closely with local communities. Separately, we completed a comprehensive review of our inventory practices across the company, informed by external benchmarking and inventory management best practices. Based on the review, we identified opportunities to further enhance our inventory management such that we can run more efficiently with optimized inventory levels while maintaining critical supplies. While we have recognized a onetime charge of $156 million after tax in our fourth quarter earnings to reflect the optimization of materials and supplies inventory, we expect to realize significant operating and working capital efficiencies going forward. Moving back to the overall results. The fourth quarter saw us continue our long track record of delivering industry-leading returns to shareholders. We paid $361 million in dividends and completed the accelerated share repurchases under the NCIB in mid-December, with share repurchases totaling $1.7 billion in the quarter. In total, we returned $4.6 billion of cash to shareholders in 2025. We and exceeded $23 billion over the past 5 years. I'm also pleased to share that this morning, we declared a dividend of $0.87 per share, payable on April 1, 2026. The increase of $0.15 per share is the largest nominal dividend increase in company history. To provide some context, 10 years ago, our quarterly dividend was $0.14 per share. As we move into 2026, we remain focused on our core strategy of being the most responsible operator, maximizing the value of existing assets, progressing our restructuring plan and continuing to deliver industry-leading shareholder returns. This strategy has allowed us to increase our quarterly dividend per share by 295% and repurchased 34% of our outstanding shares since 2020. With that, I'll now pass things over to Dan to walk through the financial results in more detail. D. Lyons: Thank you, John. I'll begin by covering the fourth quarter identified items that John just mentioned and provides additional context. First, consistent with our economic decision to accelerate the cessation of production at Norman Wells by several years, we have booked an earnings charge of $320 million. This charge includes a $108 million impairment charge to reduce the net book value of the asset to 0, the remaining $212 million reflects related contractual obligations with about half expected to be paid later in 2026 and the other half payable over a number of years going forward. Second, the optimization of our materials and supplies inventory resulted in an unfavorable earnings impact of $156 million after tax. While this onetime charge in the fourth quarter did not impact our operating cash flow, it did impact our simplified non-GAAP measures of unit cash operating cost at Kearl and Cold Lake. John will discuss these impacts in his asset updates. Turning to our underlying fourth quarter results. We recorded net income of $492 million. Excluding the 2 identified items I just described, net income for the quarter was $968 million, down $257 million from the fourth quarter of 2024, driven primarily by lower upstream realizations. When comparing sequentially, fourth quarter net income is down $47 million from the third quarter of 2025. When excluding identified items, net income is down $126 million, again, primarily due to lower upstream realizations. Now shifting our attention to each business line and looking sequentially. Upstream lost $2 million, down $730 million from the third quarter. However, excluding identified items, net income of $418 million is down $310 million, primarily due to lower realizations. Downstream earnings of $519 million are up $75 million from the third quarter. Excluding identified items, net income of $564 million was up $121 million, mainly due to higher margins. Our Chemical business generated earnings of $9 million, down $12 million from the third quarter. Excluding identified items, net income of $20 million is essentially flat as we continue to operate in bottom cycle margin conditions. Moving to cash flow. In the fourth quarter, we generated $1.918 billion in cash flows from operating activities. Excluding working capital effects, cash flows from operating activities for the fourth quarter were $1.260 billion, which included an unfavorable $325 million related to the identified items previously discussed. Taking this into account, normalized cash flow from operating activities, excluding working capital effects, was about $1.585 billion in the quarter. As John mentioned, we ended the quarter in a strong cash position with over $1.1 billion of cash on hand. Shifting to CapEx. Capital expenditures in the quarter totaled $651 million, $228 million higher than the fourth quarter of 2024 and $146 million higher than the third quarter of 2025. Full year CapEx was $2 billion, consistent with our guidance, up from $1.9 billion in 2024. In the upstream, fourth quarter spending of $508 million focused on sustaining capital at Kearl, Syncrude and Cold Lake. In the downstream fourth quarter CapEx was primarily spent on sustaining capital projects across our refinery network. Shifting to shareholder distributions. We continue to demonstrate our long-standing commitment to distribute surplus cash to shareholders returning $4.6 billion over the course of 2025, including $1.4 billion of dividends and $3.2 billion in share repurchases. Looking ahead to 2026, and as John already mentioned, we announced a first quarter dividend of $0.87 per share this morning. This increase of just over 20% reflects our confidence going forward and demonstrates our long-standing commitment to deliver a reliable and growing dividend. Now I'll turn it back to John to discuss the company's operational performance. John Whelan: Thanks, Dan. I'll now take the next few minutes to share the key highlights from our operating results. Upstream production for the quarter averaged 444,000 oil equivalent barrels per day, down 18,000 oil equivalent barrels per day versus the third quarter and down 16,000 versus the fourth quarter of 2024. That said, for the full year, we achieved the highest annual production in over 30 years at 438,000 oil equivalent barrels per day. And in fact, our liquids production was the highest ever. I'll now cover each of the assets, starting with Kearl. Kearl's quarterly production was 274,000 barrels per day gross, down 42,000 barrels per day versus the record quarterly production in the third quarter. As I mentioned in my opening comments, we experienced some extremely wet conditions in October that prevented us from mining per the optimized sequence in our plan. This temporarily impacted our ability to access some of the higher quality ore we were planning to mine in the quarter. However, as conditions improved, the team was able to return to normal operations. In December, Kearl produced 298,000 barrels per day, achieving its second highest monthly production ever. I was pleased to see those production levels even as temperatures dropped for the last 2 weeks of the year. Given the performance in December, the fact that 2025 had more days over 300,000 barrels per day than any previous year and the good start to 2026, I have high confidence in our annual guidance for the year and in the path to our target of 300,000 barrels per day. Turning to Kearl's unit costs. Kearl's fourth quarter unit cash cost of USD 23.84 included approximately USD 4.50 impact due to the inventory optimization. Kearl's 2025 full year unit cash costs of $19.50 was also impacted by the inventory optimization by about USD 1. Excluding these impacts, Kearl's unit cash costs were well below USD 20 for the year, and well on our path of achieving USD 18 per barrel. This year, we completed the K2 turnaround, advancing our plan to double our turnaround intervals to an industry-leading 4 years. In 2026, we will complete the program by undertaking comparable work on the other train at K1. In turnaround, interval extension, along with other initiatives such as the productivity and reliability projects and secondary recovery investments underpin our strategy to maximize value from our existing assets. Moving next to Cold Lake highlights. Cold Lake's quarterly production averaged 153,000 barrels per day, up 3,000 barrels per day versus the third quarter of 2025. First production from the Leming SAGD project was achieved in November. As we speak, the project is producing approximately 4,000 barrels per day, which gives us confidence in the ramp towards 9,000 barrels per day over the course of the year. Moving to Cold Lake unit cash costs, which were USD 16 during the fourth quarter, and impacted by approximately USD 1 per barrel due to the inventory optimization. On a full year basis, Cold Lake achieved a unit cash cost of USD 14.67, which was impacted about $0.25 due to inventory optimization. The Grand Rapids SA-SAGD continues to perform well, Leming SAGD is ramping up and continuous efforts to improve our unit cost structure, give us the confidence in reaching our unit cash cost target of USD 13 per barrel in 2027. Activities in Cold Lake in 2026 include high-value infill drilling and early development of our next SAGD project, which will be at Mahihkan. This will be our second commercial solvent-assisted SAGD operation and follows the successful startup of Grand Rapids in 2024. Mahihkan SA-SAGD start-up is anticipated in 2029 with a peak production of 30,000 barrels per day. And to round out our Upstream, I'll cover Syncrude results. Imperial share of Syncrude production for the quarter averaged 87,000 barrels per day, which was up 9,000 barrels per day versus the third quarter and up 6,000 barrels per day versus the fourth quarter of 2024. Higher volumes reflect turnaround optimization and stronger mine performance. This quarter, the interconnect pipeline enabled Syncrude to produce approximately 7,000 additional barrels per day, our share of Syncrude suite premium production. Now let's move on and talk about the Downstream. In the fourth quarter, we refined an average of 408,000 barrels per day, equating to a utilization of 94%. Compared to the third quarter, refinery throughput was down 17,000 barrels a day due to additional maintenance in our Eastern manufacturing hub in December. The maintenance was completed in December and will have no impact on our 2026 throughput. For the full year, our refineries achieved a throughput of 402,000 barrels per day, equating to a utilization of 93%. That throughput was up versus the 399,000 barrels per day achieved in 2024. With the successful completion of the Sarnia turnaround in the fourth quarter, the execution of all downstream turnarounds in 2025 occurred ahead of schedule and below budget. We also started the Strathcona renewable diesel facility midyear. The facility is running well and has reduced our reliance on high-cost imported products and strengthened our competitive domestic supply. We continue to optimize production at the facility based on hydrogen availability. Looking ahead, we remain focused on delivering industry-leading operational performance while enhancing logistics and processing flexibility to further improve our competitive position and the long-term results. Turning now to Chemicals. Earnings in the fourth quarter were $9 million, down $12 million from the fourth quarter of 2024, impacted by the inventory optimization. Excluding this impact, earnings were consistent with the fourth quarter of 2024. And although market conditions remain challenging, our integration with the Sarnia refinery continues to add value and provides resilience in low price environment. In closing, 2025 was another strong year for Imperial. We generated approximately $4.8 billion in free cash flow and returned $4.6 billion to shareholders through dividends and buybacks. Operationally, we achieved record annual volumes in our upstream and made further progress on our unit cash costs at Kearl and Cold Lake. We also successfully completed our planned turnarounds across all business lines. As we look to 2026, our priorities remain clear and consistent, continue to profitably grow volumes, further lower unit cash costs and increased cash flow generation. We remain committed to optimizing production across our asset base, progressing towards our volume and cap cost targets, driving greater efficiency and delivering unmatched industry-leading shareholder returns. We continue to prioritize a reliable and growing dividend, and we will continue to return surplus cash in a timely manner. Our restructuring that was announced in September is progressing on plan and will advance our long-standing strategy of maximizing the value of our existing assets. In closing, let me say, the combination of our financial position, strong operating results and our strategic initiatives to further strengthen efficiency and effectiveness, gives me confidence in the future of Imperial, and our ability to further enhance our leading -- our industry-leading position. As always, I want to thank our employees for their hard work and dedication throughout the year. And I would like to thank all of you once again for your continued interest and support. And now we'll move to the Q&A session. I'll pass it back to Peter. Peter Shaw: Thank you, John. As always, we'd appreciate it if you could limit yourself to one question plus a follow-up. And with that, operator, could you please open up the line for questions. Operator: [Operator Instructions] Our first question will come from Dennis Fong with CIBC World Markets. Dennis Fong: I appreciate the thorough ops update in the prepared commentary. My first question is focused on Kearl. So you highlighted obviously wet conditions driving some of the production impacts early in the quarter. Do you mind discussing some of the learnings or even implementation of different, we'll call it, maintenance or standard operating procedures that could help mitigate kind of such, call it, downtime or inaccessibility to certain regions in the mine on a go-forward basis, especially as we think about obviously continued operations? John Whelan: Sure. Thanks, Dennis. Maybe let me step back a little bit. And I think you're right. I mean if you think about our winter operations and the steps we've made to improve performance in winter, and then wet conditions, it falls in the same category for us. So it is a good question. We look at all of these. Weather is a reality, and we need to operate efficiently and effectively through that. But let me step back a little bit to what happened in the fourth quarter. The root cause of that lower production, as we talked about, was these exceptionally wet conditions in the fourth quarter. And to give you a sense, we experienced more rain in a few days in October than we typically get all summer. So it was a significant event. And what happened there was that impacted the mobility of the equipment in the mine and it delayed accessing high-quality ore that we had planned to get to. And unfortunately, it took a little time to recover to that -- recover from that. So part of it did creep into November as well. But as I said, we recovered strongly in December with our second highest production of the -- in the assets -- monthly production in the assets history. And despite cold weather in the second half of December as well. And I would say there's no carryover from this event, but we will be stepping back for sure and looking at are there other things we can do around the way we design our roads, the drainage of our roads and those type of things to make sure that even in -- this was an extreme event, but even in those events that we can weather those better and continue to produce. But overall, I'd say still, it was an extreme event. We will learn from it. I feel really good about our plans at Kearl. Our guidance between 285,000 and 295,000 this year is -- we're very confident of that. Our path to 300,000 and the things we're doing around turnaround optimization, productivity and reliability improvements and higher recovery. And again, it was encouraging to see 2025, we had more days again above 300,000 barrels a day than we've experienced in the past. So we continue to see that metric improve, which is one we watch closely. So we'll definitely step down and learn from it, but we remain highly confident in Kearl and the path forward. Dennis Fong: Great. Really appreciate that, that thorough answer. My second question turns my attention, frankly, over to Cold Lake. You mentioned Mahihkan as the next project for SA-SAGD. Can you give us a little bit more of a background there? Are you targeting a similar reservoir to the Grand Rapids operation? How are you thinking about production ramp-up? And then what is the impact potentially to field SOR and operating costs once that project is wrapped up? John Whelan: Yes. Thanks, Dennis. I mean -- so a couple of things. I think the -- if you think about the Grand Rapids, SA-SAGD, that was a different reservoir. That was the Grand Rapids reservoir, which is shallower than the Clearwater where we've been producing for almost 50 years from at Cold Lake. So the beauty of that project was it was opening up a new reservoir and it was testing a new technology. And as we've talked about, that's gone extremely well. And it ramped up quicker than we anticipated and went to a higher plateau and that plateau is hanging in longer than anticipated. So that one kind of -- we're seeing the benefit of the technology, and we opened up a new reservoir. We talked about Leming SAGD. Of course, that goes back into the Clearwater back into the original reservoir that we started to produce from and where we produce most of our production from today. Beauty of that is, it's going back -- right back to where we've started the pilot at Cold Lake 50 years ago and capturing the remaining resource in that part of the field. Now Mahihkan, it uses the same SA-SAGD that Grand Rapids uses, but it will be in the Clearwater reservoir that will produce that. We're very encouraged by, of course, what we've seen from Grand Rapids and how the technology is playing out. We know the Clearwater reservoir extremely well, so we feel good about that. So we're highly confident when I think about Mahihkan SA-SAGD. We're starting to invest in that now. We plan to start up in 2029 and produce 30,000 barrels a day. So we feel very good about that and glad to see that we're getting started on that project. Operator: And our next question will come from Manav Gupta with UBS. Manav Gupta: Congrats on that almost 21% dividend hike, better than expected. So my first question is more on how you're thinking about shareholder returns and does that leave you enough cash for a possible NCIB later in the year? And then a quick second follow-up, which I'll ask straight up is refining came in much stronger than expected. Your refining earnings have been very resilient. And if you can talk a little bit about Imperial and the overall refining macro, and I'll turn it over. John Whelan: Thank you, Manav. First, so if we think about the dividend -- and thank you for the feedback on that. First and foremost, when we thought about that dividend, it reflects management and the board's confidence in the company's strategies and plans to create value. So as you know, we're working to maximize value and to grow profitability and lower our unit cost and increase our cash flow, and we are highly confident we will do that, and that's what you see reflected in the, as you say, a 21% dividend increase. And we're doing, of course, a lot of things to focus on that, and that's going to be -- and why could we do that? Well, I think it's -- we've consistently increased the dividend over the last 2 years. It reflects our financial strength, our low breakeven of our business. And of course, the use of surplus cash to buy back shares. And as we mentioned earlier, that's reduced our outstanding shares by 34% since 2020. We did a -- as you can imagine, a full range of tests against low price scenarios, and we continue to feel very good about this level of dividend and the resilience that's in our business. So our capital allocation approach won't change. This is consistent with that, growing -- a reliable and growing dividend remains a priority. And of course, we've been doing that for over 100 years, and this is a 32nd year of growth. And then we're going to continue to -- our plans see us generating with these low breakeven substantial free cash flow over a range of prices and scenarios, and we're going to continue to return that surplus cash flow in a timely manner, as we've demonstrated this year where we generated $4.8 billion of free cash flow and returned $4.6 billion to shareholders. So that approach and strategy continues. D. Lyons: Maybe I'll just add, Manav, we don't really see -- I mean, the dividend increase is a few hundred million over the course of the year. And the dividend increase is not really based on current market conditions. As John explained, it's a longer-term outlook and confidence in our business. It's not really driven by what's happening in the short term. The NCIB, obviously, our surplus cash is a result of what happens in the short term where prices, commodity prices are. So we still remain committed to the NCIB and expect to be able -- we renew that program at the end of June, and we expect to commence on that. The level of that and the level of additional cash distributions beyond that will be depending on what commodity prices do. But we don't see the dividend and NCIB is competing. We see them as quite complementary. John Whelan: And I'll jump over to your -- thanks for that, and I'll jump over to your downstream question. We feel really good about that part of our business. And we saw it in the results in the quarter. Overall, we continue to focus on further improving and maximizing the profitability of our downstream, leveraging our, as we've talked about before, our coast-to-coast network, our advantaged assets, our strong brand loyalty programs that enable us to move products into high-value markets. And we're continuing to invest in our flexibility and our logistics to continue to improve on our position and capture high-value markets. And when we look at the demand in the future, we see strong liquid demand in Canada as we go forward. The mix may change a little bit. Biofuels demand is growing. Of course, we feel really well positioned for that given our Strathcona renewable diesel project and the coprocessing of vegetable oil feedstocks at our refinery. So we feel good about that. We see a stable jet and distillate market moving forward, and we're well positioned for that. Gasoline, that could -- demand could moderate with EVs and things, but we've got plans to grow our gasoline market share in that regard. So overall, we feel really well positioned with the assets we have and really well positioned as fuel demand kind of evolves over time. So feel good about that. I'll hand it over to maybe to Scott, if just specifically on the quarter and your question around the performance in the quarter. Scott Maloney: Yes. Thanks, John, and thanks, Manav, for the downstream question. Yes, it's specifically just a couple of additional specific comments for the fourth quarter. We saw refining margins in general, fluctuate throughout the quarter. But generally, they were strong, and they were especially strong in the month of November. And that's when we had our highest utilization months. So that really helped generate some returns for us. The other notable item for the fourth quarter was not just strong refining margins, but we noticed that the distillate refining margins were actually quite strong. And so we used, as John mentioned, our flexibility and our operational capability to tweak our refining output to maximize our distillate production. So that allowed us to take advantage of the especially high distillate margins that we experienced in the fourth quarter. So those -- combination of those 2 events really enabled a strong refining earnings for us in the fourth quarter. Operator: And the next question will come from Menno Hulshof with TD Cowen. Menno Hulshof: My question. Maybe I'll just start with one on optimization of materials and supplies inventory. Can you maybe elaborate on the scope of this optimization work? And what practically changes in terms of procurement and inventory management looking forward? John Whelan: Thanks, Menno. Yes, thanks for that question. As you know, we did report this charge around inventory optimization in the quarter. I'll tell you, we see the optimization that we're doing here provides a significant opportunity for us in how we manage our materials and supplies across the company, doing that in a consistent approach and better leveraging technology. So we -- and this has all been informed by external benchmarking and a review of best practices, not just across the energy business, but beyond the energy business as well. So we took a very deep dive and based on that benchmarking and best practices review, we studied our inventory utilization, the movement of our inventory, the age of what we have in the inventory, the cost of maintaining each part versus the benefit of having it and what technology solutions were out there for us to better manage our inventory. And we found an opportunity for significant efficiency, capture and effectiveness to position ourselves to be industry-leading. So these improvements are the improvements we made. They involve enhanced analysis better optimization of materials that should be held in inventory while still maintaining the critical supplies that we need. So we're implementing this standardized approach across all of our sites, that's going to improve visibility of what's in inventory for our operations and improve the utilization of inventory, and it's going to be a simpler, more efficient process to run. We'll have fewer storage requirements, fewer warehouse requirements, fewer material accounts and that's enabled by technology and best practices because we have better improved visibility of the material, and it's going to reduce the overall complexity of the system, without losing in any way the reliability and integrity of having those that inventory available. So for me, this is kind of what we do. This is applying technology, best practices looking outside of our industry to drive us to be industry-leading and best-in-class. Menno Hulshof: Terrific. That's very helpful. And then maybe the second question, more so related to the outlook for Western Canadian heavy oil. There's clearly a lot of moving parts at the moment, including increased risk of Venezuelan supply and rising apportionment on the Enbridge Mainline, which is catching a lot of people by surprise. But what are you seeing on the ground in terms of shifting fundamentals for Canadian heavies since the Venezuelan news first broke, if anything at all? John Whelan: We are not seeing any big changes, to be honest. Of course, we're staying very well informed around everything that's happening in Venezuela. We're watching that closely. But we're not seeing any significant -- I mean the differential did kind of widen a bit originally when there was this talk at the 50 million barrels coming to the Gulf Coast, seem to be a little bit of overreaction that kind of came back down. It's pretty marginal, if any, impact that we're seeing right now. And then if we think longer term about this, obviously, I think the outlook around Venezuela does remain uncertain. There's a lot of things that need to happen before we probably see longer-term production increases there, stability, investment conditions like the legal and commercial constructs in the country, infrastructure and supply chain improvements and things. But we do -- we are watching that. We'll continue to watch that closely. But our real focus is when I think about Imperial is again, our balanced integrated business model, low breakevens that keep us resilient across a range of macro environments. And of course, we're not standing still. We're continuing to improve our competitive position, growing profitable volumes, lowering unit cost, increasing cash flow. And that's what we focus on. That's the part we control, and that's where we're putting our position. And as I look forward, I see Imperial being in a very strong competitive position. And I see a huge role, of course, for Canada when you think about global supply-demand balance as well, kind of regardless of what happens with Venezuela over time. Operator: And the next question will come from Patrick O'Rourke with ATB Capital Markets. Patrick O'Rourke: Maybe just to go back to Kearl here and you talked about the high output in December. How that has sort of continued on into January here? I know whether from time to time impacted this quarter, it's impacted quarters in the past. I think Fort McMurray has had about a 50-degree swing in temperature this month. And then if you could sort of benchmark those 300,000 barrels a day high output days, what's sort of the goal as a percentage of the days for 2026 or total nominal days you would be looking to hit this year? John Whelan: Thanks, Patrick. I'm going to -- I've got Cheryl here with me, and she's the expert on all things, Kearl. I'm going to pass this one over to Cheryl. Cheryl Gomez-Smith: Sure. So thank you for the question. And let me hit the first one, Patrick, around cold weather protocols. And we talked to you about this before and what I would start out saying is, we're applying those learnings and we're seeing the benefits. You heard John mention in December. We're seeing the same thing with January. So the protocols are working as intended. If I sit back and I think about what allowed us to recover in fourth quarter and as we're heading into the first quarter, technology. And what we're leveraging is our ore selectivity process. We're making sure we're being very deliberate and thoughtful in terms of prioritizing our shovels and making sure we're getting to that good ore. The other thing I'll highlight that we did in the fourth quarter is we did obtain regulatory approval to use a secondary process at chemical for fines management. So as we look forward, we're going to be looking for the secondary and tertiary recovery. So what gives me confidence as I look forward in the 300 days? So first of all, we've got a well-defined path. The second thing, and you've heard me mention this before, which is we're building on a strong foundation, and this goes back to being a culture of continuous improvement as well as most responsible operators. So continued focus on facility integrity, risk management, environmental stewardship. The second item, continued focus on productivity and reliability. So specifically, what that means is enhanced mine planning and fleet optimization. Third thing is turnaround interval optimization, so not only shortening the duration of each turnaround, but making sure we're advancing and getting to this one turnaround every 4 years schedule. The third thing -- or the fourth thing I'll mention is recovery projects. And in particular, at the end of this year, we're going to bring on our float column cell projects. So that will allow us, again, from a secondary recovery standpoint to get these -- the fines management and improve our bitumen recovery. The other thing I'll tell you is we don't see 300 barrels -- 300,000 barrels a day of the end state. So we always challenge our organization to do better. We do see opportunity for more than 300,000 barrels. We've got a road map. We have credibility, and we built the history at Kearl to outperform. So what I would say is this is the continuation of our journey. Patrick O'Rourke: Okay. Great. And then just on the downstream. I looked at, at least on my numbers, like market capture was up a little bit. You talked about the flexibility of the [ kit ]. As we roll into 2026 here, maybe if diesel and distillate gets a little bit softer. Just what you're seeing boots on the ground in terms of those local markets today looking out into 2026. John Whelan: Thanks, Patrick. I will hand that one off over to Scott. Scott Maloney: Sure. Yes. Thanks, Patrick. Yes, we have -- even throughout the fourth quarter, we saw some fluctuation in the refining margin. So it's down a little bit from the peak that we saw in November. But we're still seeing positive margins out there and running our units full to capture that margin. We've shared in the past with our Downstream business, in particular, we feel like we have assets located throughout the country to be able to go after the demand and especially demand where the margin presents itself in each of the markets across the country. And so that combined with our logistics network that allow us to efficiently get the product to the marketplace. We feel like that's a resilient business for us. And so even when the margins ticked down a little bit, we still feel like that's a profitable business that we will continue to generate positive returns. And then when the market based on global supply demand balances kind of blows out a little bit, we'll be there, and we'll be able to capture that enhanced margin like we did in the fourth quarter of this year. Operator: And the next question comes from Neil Mehta with Goldman Sachs. Neil Mehta: The first question I had is just around Syncrude. It was a good quarter here from a production standpoint. Just for perspective, on where we are on the journey at Syncrude. Any things that you and your partner are focused on there? And while we're on the topic of Syncrude, any thoughts on realizations in a pretty good distillate market right now? John Whelan: Yes. Not a lot to say on Syncrude. I mean, we're pleased to see the performance improvement over the last couple of years at Syncrude. And I feel that as a partner in that, we contribute to that. I think we look at the learnings we have at Kearl, and we contribute that to -- we kind of bring those learnings to bear at Syncrude. And I think the operator has been improving their performance. And of course, we've been involved in Syncrude from the beginning. The only owners that are in there today that have been. So we've learned from Syncrude over the years as well and been able to apply those things at Kearl. So I'm pleased to see the performance improvement, and we're a big part of that and supporting that going forward. And -- and maybe I'll ask Scott on the diesel question. Scott Maloney: Yes. Sure. Yes. As we look at the distillates market, the global supply-demand balance is really created supply/demand imbalances in certain locations. And so that's really what's pushed up a little bit more on the distillate margin even versus the gasoline margins that we've seen over the last several months. And so as I mentioned before, we're uniquely advantaged to be able to tune our refinery to make sure we're putting the output, matching the margins that are available in the marketplace and then leveraging our logistics to get there. The other factor that is starting to play into the Canadian marketplace is the onset of additional renewable diesel and our unique position there by producing renewable diesel at our Strathcona refinery has enabled us to bring that locally produced product to market and blend into our diesel sales throughout the year with our technology to be able to blend that year round. And so we're seeing the benefit of that versus having to import additional renewable diesel from other markets. And so that's the other thing that's supporting our distillate plans and margin capture in the downstream. Neil Mehta: That's helpful. And John, I'd love your perspective on where you stand in terms of continuing to drive efficiency and reduce costs, that's something that Exxon talked about this morning. But I think since the last call, you announced an update of the sale of the campus and relocation of some of the staff. And so just talk about organizationally some of the changes that you are making and how that fits into it in terms of driving some of the cost calls you have. John Whelan: Well, that -- yes, that is a big part of it. But I would say everything we've been doing over the last number of years to reduce our cost structure, we talked about the Kearl journey we're on and Cold Lake and so on, all of those things contribute to that as well. So it's not -- we've been part of that moving our cost structure down, and you see that in our results. The restructuring piece that we announced in September, of course, that really is consistent with our strategy to maximize value, use technology and leverage our relationship with Exxon Mobil. And so as we talked about at the time, that with data availability, processing capabilities, technology in general growing, and we see that all around us. It's moving in leaps and bounds at an accelerating pace. So with that kind of that aspect of it. And then in addition to that, we see these global capability centers growing both in terms of not just capacity but capability, the type of work that those global capability centers were doing. We saw an opportunity to move through a transformation, and we announced the reduction about 20% of our staff with a focus on our above field staff. And that -- so that's going to be a 2-year process. And then we said when we get down to that smaller size, we'll move the majority of our folks to sites, predominantly Strathcona and Edmonton. And we see that efficiency capture to be $150 million a year starting in 2028. That's the annual savings we would get from that just from the efficiency side of things, which is we are capturing efficiencies and getting smaller and then we're also outsourcing work to these global capability centers. The net effect of that is $150 million per year. But as we talked about, we also believe as we do that, we're going to be able to further accelerate the application of technology and leverage more a broader global fleet of learning that we can learn from, that's going to improve our effectiveness as well. So I would say it's -- we announced it in September. We're currently going through the staffing of the future organization. We're starting to outsource work to those -- more work because we've already been outsourcing work in the past, continuing to outsource work to those global centers. The restructuring is going to take place over a couple of years. We're going to manage that in a very rigorous orderly fashion to migrate work and capture the planned efficiencies, and it's going as per plan. And so it is going to contribute significantly to our -- again, our leading position and our foundation for growth going forward. Operator: And the next question will come from Doug Leggate with Wolfe Research. Douglas George Blyth Leggate: I know a lot of stuff has been hit, so I want to try and come back to a couple of things to get some clarification. Obviously, a lot of focus on Kearl today. Maybe you could just help us with -- if you strip away weather, what do you think today is the sustainable production capacity, gross production capacity at Kearl? John Whelan: Thanks, Doug. And I mean, of course, our guidance is for -- 2026 is where we're focused, the 285,000 to 295,000 barrels per day. But I'll pass off to Cheryl to kind of put a little more color to that. Cheryl Gomez-Smith: Sure. And I'll go back to the 300 kbd is our target, for this year 285,000. Obviously, we're going to continue to focus on winterization and maybe a little bit more color on that, which is really around maximizing the reliability of our existing kit and closing the gap to targeted areas. One of the areas I've mentioned before is we're continuing to debottleneck our hydro transport line. That's building capacity on the front end. The other thing, as I think about mining and specifically for 2026, at the end of this year, we'll be moving into the East pit. So we've got opportunity both from the front end, we're debottlenecking the facilities and, of course, working on water management and tailings throughout this process. So what I would say is we've got good line of sight and a well-defined path to get to 300 kbd. I said that will be our target for this year. But like I said, at 285,000 and continue to grow 300,000 plus. Douglas George Blyth Leggate: So to be clear, there's nothing terminal or it was very much just a one-off weather in the fourth quarter? No reason to be [ yourself ] or anything like this. Cheryl Gomez-Smith: That's right. So wet weather in October is behind us. Yes, sir. John Whelan: No, we remain very confident, Doug. We remain very confident in the 285,000 to 295,000 target for this year, the path to 300,000. And as Cheryl said, we see potential upside beyond that. Douglas George Blyth Leggate: Yes. We're just trying to understand why the market has been so short cycled, I guess, is my issue, but thank you for the clarification. My follow-up, I'm afraid, Mr. Lyons, you're up. So 20% dividend bump, I think, Manav hit on it earlier. But -- so I've asked you this question multiple times, multiple different ways. Are you prepared to leave in your balance sheet? Are you prepared to allow your dividend breakeven to move up? Well, based on today's decision, you don't -- maybe I'm wrong in this, but you don't have a big step change in free cash flow capacity outside of what the commodity gives you. So can you help us reconcile which of those 2 is supporting the dividend growth? Is that the breakeven creeping up? Or is it the balance sheet a little bit or is there something in the outlook that we don't currently have into -- we're not currently taken into account? D. Lyons: Okay. Thanks, Doug. I appreciate the recurring question. I would say when we look at the dividend, we're not -- as I said a little bit earlier, we're not looking at the short-term environment or even the current strip, we're looking at a long-term outlook. And our goal is to grow the dividend robustly, but sustainably. So we obviously do stress tests and things. But what affects that long-term outlook is the work we're doing to reduce unit OpEx, the incremental volume growth we're pursuing at Kearl and Cold Lake, so the growth capital, the secondary recovery that Cheryl talked about and also the restructuring, which is improving our cost structure as well as generating more revenue over time. We roll all of those things into our outlook, then we run various cases, and we see what we think is we can handle sustainably. And that's how we get to the dividend. So we're committed to continue that process. And so, yes, you're right. As you increase the dividend, if nothing else happens, the breakeven moves up. But if you're running down your unit cost, as we are at Kearl and Cold Lake, that kind of offsets that. But we don't have a specific breakeven target, right? So if we have to go above a certain dollar breakeven, we won't increase the dividend. That's not really -- there's no set number of breakeven that we're trying to achieve. We're trying to grow the dividend sustainably robustly over time. So I don't know if it's a satisfying answer. And of course, the whole buyback is really about returning surplus cash as we generate it over time, which we'll continue to do. Douglas George Blyth Leggate: Yes. I think -- it does indeed. I'll congratulate you on lulling the market into a false sense of sub-10% dividend growth because I think this surprised a lot of people and it seems that a low dividend growth per share does correlate extremely well with your share performance. One month of wet weather seems to have overlook this very significant move you made today. So we'll continue to watch it. I'll continue to ask it, but a very impressive move, I guess, would be our conclusion. Operator: And that does conclude the question-and-answer session. I'll now turn the conference back over to Peter Shaw, Vice President of Investor Relations for closing remarks. Peter Shaw: Thank you. And so on behalf of the management team, I'd like to thank everyone for joining us this morning. If there are any further questions, please don't hesitate to reach out to the Investor Relations team. We'll be happy to answer your questions. With that, thank you very much, and have a great day. Operator: Thank you. That does conclude today's conference. We do thank you for your participation. Have an excellent day.
Operator: Welcome to Seacoast Banking Corporation's Fourth Quarter and Full Year 2025 Earnings Conference Call. My name is Mark, and I will be your operator. Before we begin, I have been asked to direct your attention to the statements at the end of the company's press release regarding forward-looking statements. Seacoast will be discussing issues that constitute forward-looking statements within the meaning of the Securities and Exchange Act, and its comments today are intended to be covered within the meaning of the act. Please note that this conference is being recorded. I will now turn the call over to Chuck Shaffer, Chairman and CEO of Seacoast Bank. Mr. Shaffer, you may begin. Charles Shaffer: All right. Thank you, Mark, and good morning, everyone. As we move through today's presentation, we'll reference the fourth quarter and full year earnings slide deck available at seacoastbanking.com. Joining me today are Tracey Dexter, our Chief Financial Officer; Michael Young, our Chief Strategy Officer; and James Stallings, our Chief Credit Officer. The Seacoast team delivered another exceptional quarter, highlighted by the closing of the Villages acquisition and strong growth in loans. Loan outstandings grew at an annualized rate of 15% driven by the continued success of our commercial banking team and the additional mortgage volume contributed by the Villages acquisition. The addition of the Villages mortgage team expands our optionality for future portfolio decisions. The residential loans we added this quarter were very high-quality credits with high FICOs, strong yields and generally shorter expected lives than traditional mortgage products, given the unique characteristics of this borrower base. We also continue to see meaningful improvements in noninterest income with stronger performance across almost every major category. Wealth Management had an excellent year, adding $550 million in new AUM and treasury managed fee -- treasury management fees and other service charges also continue to grow as new clients were onboarded. On the expense side, overhead was well managed, and our expense ratio improved from the prior quarter and the ratio of adjusted noninterest expense to tangible assets declined to near 2%. Our plan to drive improved shareholder returns remains firmly on track. Excluding the day 1 provision and merger-related expenses associated with the Villages acquisition, our ROA for the fourth quarter was 1.22% and the return on tangible equity was 15.72%. These results demonstrate the strong return profile of the combined institution which will be fully realized following the Villages technology conversion in July 2026. The Villages acquisition also closed with materially higher tangible equity than initially projected, shortening the earn-back period. We are deploying a portion of this excess capital into the securities portfolio reposition that was executed this week and Michael will walk through these details here shortly. Overall, I'm very pleased with the progress we're making, and I remain highly confident in our outlook for 2026. As noted in the slide deck, we expect to achieve earnings per share for the full year in a range of $2.48 to $2.52 and anticipate exiting the year in the fourth quarter of 2026, after the Villages technology conversion with an ROA above 1.30% and a return on tangible equity of approximately 16%. And asset quality remains solid. Charge-offs were a modest 3 basis points for the fourth quarter and the full year average for 2025 was only 12 basis points. Our CRE and construction and land development ratios remain low following the addition of the villages. And as a reminder, our portfolio is composed almost entirely of franchise quality relationships. Long-standing borrowers across our footprint, which include consumers, businesses, nonprofits and municipalities. And lastly, capital and liquidity remain exceptionally strong. We continue to operate with a fortress balance sheet. We remain one of the strongest banks in the industry. And with that, I'll turn it over to Tracey Dexter to walk through our financial results. Tracey? Tracey Dexter: Thank you, Chuck. Good morning, everyone. Beginning with Slide 4 and fourth quarter performance highlights. The Seacoast team delivered a strong quarter with adjusted net income, which excludes merger-related charges increasing 18% year-over-year to $47.7 million. Consistent with the accounting requirements, this includes the initial provisions for loans and unfunded commitments on the Villages Bank Corporation acquisition, which totaled $23.4 million. Pretax pre-provision earnings on an adjusted basis rose to $93.2 million in the fourth quarter, an increase of 39% from the third quarter and an increase of 65% from the prior year quarter. The efficiency ratio improved and on an adjusted basis, is below 55%. I'll note that our presentation of the efficiency ratio now includes the amortization of intangible assets which added $10.4 million to expense in the fourth quarter. Loan production was very strong with organic growth in balances of 15% on an annualized basis. Higher commercial production, which increased 22% from the prior quarter reflects the success of a multiyear hiring strategy. Deposit costs were well managed and also benefited from the addition of VBI overall declining 14 basis points from the prior quarter to 1.67%. Net interest income was $174.6 million, an increase of 31% from the prior quarter. Net interest margin, excluding accretion on acquired loans expanded 12 basis points to 3.44% consistent with the guidance we provided. Our capital position continues to be very strong. Seacoast Tier 1 capital ratio is 14.4% and the ratio of tangible equity to tangible assets is 9.3%. We grew the branch footprint through 2 de novo openings in the fourth quarter, 1 in the greater Atlanta area and 1 on the Gulf Coast in Bradenton, Florida. For the full year 2025, we opened 5 de novo branches. We completed our acquisition of VBI on October 1, 2025, with the technology conversion planned for July of 2026. On to Slide 5. Tax equivalent net interest income increased by $42.3 million or 32% compared to the prior quarter and by $60.1 million or 52% compared to the prior year quarter. The net interest margin expanded 9 basis points to 3.66% and excluding accretion on acquired loans expanded 12 basis points from the prior quarter to 3.44%. Loan yields increased 6 basis points to 6.02%. Excluding accretion, loan yields increased 7 basis points to 5.68%. Overall cost of funds is down 16 basis points from the prior quarter. With strong momentum in loan growth, funding costs now lower, additional liquidity and accretive acquisitions, we expect continued expansion in the net interest margin. Turning to Slide 6. Noninterest income was $28.6 million, increasing 20% from the prior quarter. Fee revenue continues to benefit from our growth in commercial customers and with the addition of the Villages in the fourth quarter, service charges on deposits increased 4% from the prior quarter. Mortgage banking activities have expanded with the acquisition of VBI. This includes increases in saleable and portfolio production in the fourth quarter along with servicing income introduced by the Villages activities. Moving to Slide 7. Our wealth management team delivered another quarter of remarkable results with income growing 21% from the prior quarter, largely attributed to organic growth, bringing new assets under management in 2025. Total AUM increased 37% year-over-year with a 23% annual CAGR in the past 5 years. We're incredibly proud of our wealth team and their amazing success in 2025. Moving to Slide 8. Noninterest expense in the fourth quarter was $130.5 million, an increase of $28.5 million from the prior quarter. The fourth quarter included $18.1 million in merger and integration costs and $23.4 million in day 1 credit provisions for the Villages acquisition. Higher salaries and benefits and higher outsourced data processing costs reflect continued expansion and the addition of recent bank acquisitions as well as higher performance-driven incentives. Other categories of expenses were in line with expectations. Our adjusted efficiency ratio improved to 54.5%, demonstrating continued operating leverage. We continue to remain focused on profitability and performance and expect continued disciplined management of overhead and the efficiency ratio. As a reminder, looking ahead, the first quarter typically has seasonally higher expenses from FICA and 401(k) resets. Turning to Slides 9 and 10 on the loan portfolio. Loan outstandings, excluding the impact of the VBI acquisition, increased at an annualized 15%. We continue to see strong broad-based demand across our markets and commercial production increased by 22% during the fourth quarter. Loan growth was further strengthened by strong mortgage production at VBI, much of which we chose to retain in the portfolio. Loan yields increased 6 basis points and excluding the effect of accretion, yields increased 7 basis points from the prior quarter to 5.68%. The overall mix of loan types has remained generally consistent quarter-over-quarter. Portfolio diversification in terms of asset mix, industry and loan type has been a critical element of the company's lending strategy. Exposure is broadly distributed, and we continue to be vigilant in maintaining our disciplined, conservative credit culture. As we have for many years, we consistently managed our portfolio to keep construction and land development loans and commercial real estate loans well below regulatory guidance. These measures are significantly below the peer group at 32% and 216% of consolidated risk-based capital, respectively. We've managed our loan portfolio with diverse distribution across categories and retain granularity to manage risk. Moving on to credit topics on Slide 11. The allowance for credit losses totaled $178.8 million with coverage to total loans increasing to 1.42%. Loans acquired from VBI have coverage of approximately 2% as we take a conservative approach while transitioning to Seacoast portfolio management and monitoring practices. The allowance for credit losses, combined with the $150 million remaining unrecognized discount on acquired loans totaled $329 million or 2.61% of total loans that's available to cover potential losses. The acquisition of VBI added approximately $59 million in accretable purchase mark. That's included in the figures presented on the slide that if not needed to cover losses will be recognized through yield over time. Moving to Slide 12. Looking at quarterly trends and credit metrics, which remain strong. We recorded net charge-offs of $936,000 during the quarter or 3 basis points annualized bringing the net charge-offs for the full year 2025 to 12 basis points of average loans. Nonperforming and criticized and classified loans grew slightly with isolated additions from VBI but remain low as a percentage of total loans. Turning to Slide 13 and 14 on the deposit portfolio. Deposits increased to $16.3 billion, largely attributed to the acquired VBI deposits. Average balances in the fourth quarter were up 29% from the prior quarter, benefiting from the acquisition and the seasonal effect of higher public funds deposits. The cost of deposits declined to 1.67%, exiting the year at 1.64%. Seacoast continues to benefit from a diverse deposit base. Customer transaction accounts represent 48% of total deposits which continues to highlight our long-standing relationship-focused approach. On Slide 15, our capital position continues to be very strong. Tangible book value per share shows the initially dilutive impact of the VBI acquisition, which we expect to be earned back ahead of our original projection. The ratio of tangible equity to tangible assets remained strong at 9.3%. As expected, return on tangible equity decreased, reflecting the impact of the acquisition. Our risk-based and Tier 1 capital ratios remain among the highest in the industry. I'll now turn the call over to Michael to discuss recent strategic capital actions in the securities portfolio. Michael? Michael Young: Thank you, Tracey. I'll be referencing Slide 16 for the comments on the securities portfolio. With the closing of the VBI merger, our securities portfolio grew substantially to $5.75 billion in the fourth quarter, combining 2 low-cost granular deposit franchises, with a large, primarily agency-backed securities portfolio that has only further strengthened our balance sheet's liquidity position as we converted excess capital into low-risk earnings. Immediately following the merger close, we sold approximately $1.5 billion of the $2.5 billion securities portfolio at VBI with an emphasis on reducing risk throughout the liquidation of over $600 million in corporate debt that was sold. We patiently redeployed that liquidity throughout the quarter, avoiding periods of low rates, which resulted in higher cash balances for much of the quarter, creating a slight drag on the NIM. The net unrealized losses in the AFS portfolio improved by $18.5 million during the fourth quarter, leading to additional tangible book value accretion. This has been a hallmark of our 2025 performance with the unrealized losses on the securities portfolio improving by $137 million, adding nearly $1 to tangible book value and materially reducing the dilution from the acquisitions of Heartland and VBI. The portfolio yield increased 21 basis points to 4.13% in the fourth quarter with additional yield expansion expected in the first quarter of '26 with a full quarter benefit of the fourth quarter actions. Now turning to Slide 17. We have materially outperformed our conservative assumptions related to the VBI acquisition. The primary contribution came from lower marks on the securities portfolio at close with additional benefits from lower credit marks on the loan portfolio. These positive developments delivered significantly lower dilution and materially higher pro forma capital, as you can see. We have about 90 basis points of additional total risk-based capital or approximately $92 million compared to the 14.7% that we originally articulated at deal announcement. Given the significant capital outperformance, we are once again trending towards elevated capital levels. As a result, we elected to convert 1/3 of that excess regulatory capital generation into higher future earnings profile, delivering what we believe is a win-win for shareholders with no tangible book value dilution, but higher pro forma earnings and allowing us to exceed the $2.46 that we originally articulated at deal announcement. We sold $317 million in book value of available-for-sale securities with a projected book yield of below 2%, and we received proceeds of $277 million that were invested at a taxable equivalent yield of 4.8% for a pickup of almost 290 basis points as part of the securities restructure action we took this week. And finally, on Slide 18, we felt it important to provide some additional guidance around our expectations for 2026. Our guidance numbers reflect adjusted performance metrics largely calibrating for merger-related charges that may take place in 2026. We expected adjusted revenue growth of 29% to 31% for the full year 2026 compared to the full year 2025. We believe our adjusted efficiency ratio will be in the 53% to 55% range for 2026, with the primary driver being the pace of banker hiring during the year. We plan to increase our banker count by approximately 15% in 2026, and the benefit will be fully realized in 2027 and 2028. Most importantly, however, we plan to manage these outcomes within tight bottom line performance of $2.48 in earnings to $2.52 in earnings, an increase from our articulation of the $2.46 target last year. We expect to exit the year with a 1.3% adjusted ROA and a 16% ROTE in the fourth quarter post conversion activities as we balance the investments for future growth with strong current profitability. We plan to deliver all these financial outcomes while continuing the organic growth momentum that we've seen in 2025 and we expect to deliver high single-digit loan growth and low to mid-single-digit deposit growth as we move forward throughout the year. I'll now turn the call back to Chuck for final comments. Charles Shaffer: Thank you, Michael. And before we open the line for questions, I'd like to once again express my deep appreciation for our Seacoast associates, our customers and our shareholders. We closed out a truly transformational year, one marked by industry-leading loan growth, 2 exceptional acquisitions and meaningful investments across our company that position us for long-term strength. We operate one of the best banking teams in the Southeast and some of the strongest markets in the country. We have an exceptionally strong balance sheet. I remain very confident in our growth outlook and our ability to deliver upon our strong return profile in 2026. And it's especially gratifying to enter our 100th anniversary in 2026 with such a strong foundation. As we celebrate a century of serving our communities, we do so with confidence, momentum and tremendous optimism for what lies ahead. And with that, operator, we'll open the line for questions. Operator: [Operator Instructions] And our first question comes from the line of David Feaster with Raymond James. David Feaster: [indiscernible] Charles Shaffer: David, you're a little garbled. I think maybe you got a bad connection. Do you want to drop and come back in? Sorry. Yes. I think, operator, we'll go to the next one. David Feaster: Is that better? Charles Shaffer: Yes. Better, David. Good, perfect. David Feaster: Okay. Sorry. I was just saying I appreciate the guidance this quarter. That is super helpful. I wanted to start on the efficiency side. I guess, first, I just wanted to clarify, when we talk about an adjusted efficiency ratio, does that exclude intangible amortization like we have in the past. And then just looking at the efficiency, it is a bit higher than where the Street is. It sounds like there's some new hiring embedded in that. But just wanted to get your thoughts on how expenses are, specifically in investments kind of on the horizon. Tracey Dexter: Yes. David, I can take the first part. This is Tracey. Our adjusted efficiency ratio includes -- leaves in the expense for amortization of intangible assets. In the past, we had excluded that. We know that's been kind of a difference in the way you keep track of it. So it's in there. Michael Young: And David, regarding the investments, I think if you look back to the original deal deck, we had an efficiency ratio of about 52.5%. That was run rate post all the expense takeout with the acquisitions. We obviously won't have that impact until kind of the midway part of this year. So that naturally pushes the efficiency ratio up for 2026 guidance. But also, as articulated in the prior prepared remarks, we plan to be aggressive in hiring bankers. We've had a lot of inbound demand, as Chuck has referenced many times in the past, but we wanted to balance that growth in banker count with profitability. We're in a much stronger profitability footing now. And given the merger disruption that we see in the industry, we want to be on the front foot in hiring. We articulated a 15% increase in the banker account is the expectation. And some of the driver will just be how successful we are and how early in the year as to when we see the expenses ramp versus kind of the future production. David Feaster: That's helpful. And then maybe kind of staying on the hiring side. You've obviously had a lot of success. There's more opportunity on the horizon. I guess, first off, the loan growth, I mean, 15% was great. I wanted to get a sense of how much of that would you attribute to the new hires versus improving demand or just increasing productivity from your existing team? And then is the hiring investment that you're contemplating key to the achievability of that high single-digit growth guide or would that be additive just given the time it takes for these lenders to ramp up? Charles Shaffer: Yes. Maybe I'll take that one, David. So I think if you look back at the quarter, the way to break it down, and this is rough, so this isn't super precise. But out of the 15%, I'd say, roughly 10% came out of what was legacy Seacoast, so our commercial banking team. The hiring we've done over the last couple of years, that drove about 10% of that annualized growth. There's another 2% to 3% that came from the Villages acquisition, as we talked about in my prepared comments. When you kind of look at the opportunity there, it's really high FICO credit, a more senior borrower and typically shorter life duration assets. So we really like that paper. And as a result, we took the opportunity in the portfolio, and then there's probably another 1% to 2%. It's just a little bit slower paydowns. When you look into the coming year, we've contemplated arguably a little bit higher pay downs as we move into the coming year, but bake that into our model. And so we guided to that high single-digit growth rate. I would tell you that if you really think about the hiring profile, if we do exceptionally well here in the first half of the year and are able to add that 15%, while it will benefit late in 2016, really, we won't see the benefit until '27, '28. And the other thing that you have to sort of contemplate is the balance sheet will grow as we move through the year with a high single digit, call it, 8% to 9% growth rate. If we achieve that you got fairly sizable growth in the loan portfolio that we need to kind of continue to reoriginate to. And as we've talked about before, we're always going to be thoughtful about what our credit risk appetite is and what we're willing to take into the portfolio. We're going to do the loans we like in our credit profile and largely don't want to sort of be held to such a high growth rate that we wouldn't be able to continue to be thoughtful and selective on what credits we're willing to put in the portfolio. So I think if you're thinking about modeling sort of that high single-digit growth rate is the right way to think about it. We'll have optionality with the Villages portfolio to kind of move that in and out depending on where rates are and where the yield curve is. And as Michael mentioned, we still have a lot of opportunity to hire. So on the growth side, particularly loan growth side, I feel really confident about what's out ahead for us. David Feaster: That's exciting. Maybe just last one for me. Switching gears to capital. You talked about capital pro forma being higher than expected, deployed a portion of that into the repositioning here in the first quarter. But look, based on your pro forma profitability, you're going to be accreting a lot of capital even with high single-digit loan growth. How do you think about capital return going forward, just as maybe M&A is less of a focus like you talked about, would you expect to see more capital return or would you rather accrete capital back closer to maybe where you were previously? Charles Shaffer: Yes. We'll see how the year plays out, what opportunities emerge. We took the opportunity here this quarter to do the securities loss trade. And I think that was a good use of capital given the significant capital appreciation that we saw on the Villages transaction and the shorter earn back than what we originally put in the deal modeling. And so we will continue to monitor, David. I mean, obviously, we're going to have a lot of capital that's going to give us opportunities to think about things like dividends and buybacks over time. As you mentioned, there's a lot less opportunity for M&A. And at the moment, we're heads down, highly focused on getting this Villages deal done. I mean that's kind of the priority right now. We want to get through the middle part of the year, have an amazing conversion for our customers, deliver really solid experience in the Villages come out of that and then we'll see what opportunities present. But at the moment, we're -- I hear you, we're growing a lot of capital. That's a conversation we continue to have with our Board and something we'll continue to monitor. But yes, I mean we'll continue to look at other options as we go through the year here. And there's buybacks and dividends and other things we can do through time. Operator: And your next question comes from the line of Russell Gunther with Stephens. Russell Elliott Gunther: Maybe I'd like to start, if I could, on kind of margin and NII. I really appreciate the revenue guide for the year. Given the securities actions taken within 4Q and then again here in 1Q, kind of how are you thinking about where that first quarter margin could shake out? And then an adjacent question within the NII expectation for the year. Kind of what is your overall level of purchase accounting embedded in that guide? Michael Young: Russell, I'll take the first part of that and turn the second part to Tracey. Two key things to think about. One is the margin side, but the other is the average earning asset balances. In the fourth quarter, we have public funds balances that tend to fund up and fund back down as well as you mentioned kind of the -- taking our time on the repositioning. So we had some excess cash balances related to that as well. So both of those kind of weighed on the margin a little bit in the fourth quarter. We would expect the average earning asset base to be down in the first quarter by a couple of hundred million dollars, but the margin will expand pretty nicely probably in that 10 to 15 basis point range in the first quarter. So those are the dynamics you want to think about kind of the start of the year and then moving throughout the year to hit the guidance that we laid out. And I'll turn it to Tracey on the purchase accounting accretion question. Tracey Dexter: Yes. Russell, the expectations for accretion are always kind of difficult to predict, maybe more so with the addition of this portfolio. The base level of accretion is derived using the loan's contractual life and the maturities here in the villages portfolio are relatively long. So the accretion will be accelerated upon payoff that will create a lot more volatility in the accretion, and we've got that baked into our forecast, too. But our model uses the fourth quarter of '25 as the run rate for '26, but do expect volatility in that accretion number. Michael Young: Yes. Just one other point I wanted to make, we've been kind of calling this out a little bit more recently, but just the nature of our acquisitions being heavy core deposit franchises, there's more core deposit intangible expense. And so if you look at the net effect of the purchase accounting marks in both revenue and expenses, they largely balance one another. So if you take kind of a low 40 number on purchase accounting accretion and you see our kind of $38 million roughly number on core deposit intangible expense, you've got a pretty marginal contribution on a net basis to earnings. So we just want to call that our earnings guidance for the year has really not been contributed to on a net basis from purchase accounting accretion in a significant way. Russell Elliott Gunther: And then, I guess, next question for me would be, given the overall excess capital you guys discussed, how you're thinking about that in the context of the actions already taken within the securities portfolio. Is there room or appetite left for additional restructurings in '26 beyond what's currently contemplated in the guide? Michael Young: Russell, I think we don't expect to execute any additional securities restructures and that's certainly not reflected in the guide. So this is the only piece that's reflected in the guidance. And maybe zooming out more broadly, most of the other securities that are at loss positions or more material loss positions are in the HTM portfolio. We don't have any plans to pierce the HTM portfolio. So I think we're pretty much done with this capital action. Russell Elliott Gunther: Okay. Yes. Michael, helpful. And then you touched on another one I had earlier in terms of just average earning asset expectations. So as we think about the mix within securities and into this high single-digit loan growth expectations, beyond the step down you mentioned in the first quarter, how are you expecting average earning asset levels to trend over the course of the year? Michael Young: Russell, yes, it's pretty similar commentary to last quarter. The thing that's changed, we started the year with a little higher loan-to-deposit ratio because of some of the proactive actions we mentioned but we'll remix relatively slowly from here, and that's just going to be the delta between our loan growth versus our deposit growth really is going to be the driver of that. So if we're guiding to high single-digit loan growth and low to mid-single-digit deposit growth depending on where you shake out in that mix of ranges, that's going to be really the driver of our remix throughout the year. Russell Elliott Gunther: Okay. And if I could sneak one last one, guys. I appreciate it. The efficiency ratio guide is helpful. Maybe could you just give us a sense for the reminder of the cadence of the cost saves within the Villages acquisition. I think you mentioned the conversion in July. Just kind of where an exit expense rate might be for the year. And then perhaps more bigger picture, but how should we think about a normalized expense growth rate for Seacoast going forward? Michael Young: Russell. Yes, so in the acquisition deck, the base run rate for them was about $64 million at inflation year-over-year to that. That's kind of their base expense rate that would come out post the conversion in early third quarter. And so we would expect to see that kind of underlying drop. Now to offset, though, is we are investing into banker hires and ramping that during the year. And so one will kind of impact the other and could see a little more stability, if you will, in the expense base, but with much higher production and productivity going forward. And then I forgot the last part of your question was... Russell Elliott Gunther: I think really just -- yes, as I'm thinking about sort of '27 and even beyond, given your commentary around the benefits from hiring in '27, '28, just as we exit with a cleaner run rate post all the Villages expense saves, what is a decent normalized growth rate to think about that captures the franchise investment you guys are making? Michael Young: Appreciate you reminding me the last part of the question. I think as we zoom out, and this is hypothetical conversation, not guidance, obviously, but as a larger company today at $21 billion in assets, there's a lot of opportunity for us to drive scalability across the company. And a lot of our processes with investment into technology that leads to material expense rationalization and really our ability to grow into our existing expense base in many different areas. So I think we're really excited about that opportunity as we move forward into '27 and '28 and driving some of that scalability and operating leverage. But we obviously want to maintain our ability to invest into the company and into the future growth prospects. We're not running this for 1 year or 2 years. We're running it for continued growth and sustainable growth over a long period of time. And so we'll balance those 2 as we've done in the past and maintain a reasonable profitability level and efficiency level as we move forward, balancing those 2 key critical pieces. Charles Shaffer: Just to add a little bit there, just in a long-term sort of view on efficiency ratio is one way to think about things, it's probably low to mid-50s type efficiency ratio target is where we want to operate the company over the cycle. Operator: And our next question comes from the line of Stephen Scouten with Piper Sandler. Stephen Scouten: Just one point of clarification potentially. Do you guys have a good number for where the securities yield can kind of shake out the first quarter after all the actions completed. Michael Young: Stephen, this is Michael. It will be a little bit dependent on the pace of prepayment speeds. We have a lot of discount mortgage backs in the portfolio. But generally, it's going to be in that kind of 4.40% to 4.50% range. Stephen Scouten: Okay. I appreciate the context there. And then anything in terms of updates on the Atlanta market, just kind of curious what that may have contributed to growth maybe this quarter and how it plays into this 15% uptick in lenders? How much of those might be contemplated in the Atlanta MSA. Charles Shaffer: Yes. Thanks, Stephen. As we've talked in the past, we've got a team of roughly 10 or so bankers up in that market. It's gone exceptionally well. I've been really pleased with the success we've had over the last couple of years there. We entered with an LPO about 3 years ago, built a CRE team and program, moved a little further into C&I, opened a branch here recently. As we've said in the past, I would expect over the next, call it, 3 years or so to roughly have about a 5 branch footprint in the Greater Northern Atlanta market as we build out up in there and roughly to 20 bankers calling in that market with treasury support and the like. And so it was -- it's been helpful. We've definitely seen a lot of success there, and we do expect to continue to build in the Atlanta market in the coming years. Stephen Scouten: Okay. And just -- and can you contextualize that 15%? Or just remind me like what would that be ballpark on just FTE count perspective? Charles Shaffer: It's roughly about 15 bankers. Stephen Scouten: Okay. Perfect. Great. And then just kind of lastly for me in terms of -- and then, Chuck, you gave a lot of great color about the moving parts around growth. But the payoffs in particular, which you noted, you're kind of forecasting in higher payoffs next year. How do you think about the puts and takes of what you might see from a payoff perspective, especially within the context of rates. If we get lower rates, should that escalate payoffs? Or do you think kind of increases in production activity might kind of actually lead to a better environment if we get lower rates from here? Michael Young: Stephen, this is Michael. I'll take that one. Yes, I think it is somewhat pretty heavily rate dependent as we move into next year. We have a fair bit, as we've talked about, of low fixed rate maturities that are coming due as well. Some clients or customers may choose to pay off or refinance elsewhere. But generally, it's just going to be a nature of kind of where the rate environment heads, particularly in the middle of that curve, as to whether or not people pay off or refi or if they continue to refinance with us. Charles Shaffer: Stephen, I'll remind you, we really pulled back on lending and particularly construction lending in 2023. And so we didn't quite see the level of payoffs that others have dealt with probably here in 2025. And I think we'll probably still not quite see the level of payoffs that others may feel in early '25. Probably more of our challenge around that will emerge in '27, '28, '29 but we did take that pause back then when rates were really low, given what we viewed as a higher risk environment and didn't want to be delivering into potentially a weaker economy. Obviously, that didn't fully play out. The economy is pretty dog on strong at the moment. But it's nonetheless, that dynamic plays out for us. And so that issue hasn't been quite as strong for us as others in the industry. Stephen Scouten: Got it. Really helpful. And then maybe just one last for me actually. We're seeing more headlines about potential weakness in residential housing in certain pockets within Florida. Can you maybe contextualize that in any of your markets? Is there anything that you see that's concerning at all? I can't say that I'm really seeing it being that widespread or of a concern, but just wondering your context being in those markets. Charles Shaffer: Yes, really high level. And just to remind you, we don't have a lot of exposure to builder lines, just to kind of point that out. That's not something we've done a lot of, particularly post GFC. We've stayed out of the builder line sort of lending. It's not a real -- we do a little bit here and there, but it's not a big part of our portfolio. And -- but nonetheless, the way I'd characterize Florida is it is very market specific and then I'd start with saying the condo market has been weak, primarily driven by condo having to be retrofitted for new standards. And so that's put additional cost on associations that have to be passed on to backfill condo owners and therefore, new buyers have slowed down and buying into that market until you have that retrofit done. Once the retrofit is done, those condos move pretty quickly. But we're going through this cycle where you just kind of the have and have nots. Those have gotten done, you can sell your condo, those that haven't, it's a weak market. So you kind of got to pull that out. And then when you get to the residential market, there are pockets of weakness, and there's pockets of strength. I described Southeast Florida, Palm Beach County down to Miami-Dade being exceptionally strong. Prices have not come down much. Demand for housing remains really strong in those markets. But you move just directly over to the West Coast into that Fort Myers, Cape Coral area, and there was a lot of sort of post-COVID boom that happened with a lot of development, a lot of overdevelopment and now we're seeing prices come down. So it is very much sort of depending upon the market in Florida. But I'd say, generally, it's not as weak as probably advertised, but there are pockets of weakness where there's been some oversupply. Stephen Scouten: And really great quarter. Congrats on a great year. Operator: And our next question comes from the line of David Bishop with Hovde Group. David Bishop: Chuck, I'm curious, you guys also maybe got lost in the shuffle, had pretty strong core deposit growth this quarter. Just curious if there's any sort of breakdown you have commercial versus consumer inflows there? I'm just curious what the main drivers were. Charles Shaffer: I don't have that in front of me. We can pull that for you, David. We do have that table in the earnings release, but it's hard to get to the number because of the acquisitions in there. We can kind of pull that apart for you. I would say generally, we saw a little bit of -- just on the high level sort of we all saw some deposit outflow in Q4 primarily in CDs as we kind of backed off of the higher-priced CD options, just given all the liquidity we had, we didn't feel like we needed to compete there. But the underlying core dynamics, DDAs, the typical operating accounts continues to be really strong with the growth and onboarding of new clients particularly the commercial client base that continues to -- the C&I base continues to come on. So -- but we'll see if we can pull that apart a little bit for you and give you some detail after the call. David Bishop: Perfect. And then one follow-up. Most of my questions have been asked and answered. But just curious, it sounds like some of your peers new loan origination yields are quickly, actually more quickly than I thought they would approaching what's rolling off. Just curious what the spread is between new originations and what's maturing. Michael Young: David, this is Michael. Yes, our new originations in the quarter were kind of in the low 6s. Our roll off yields, it will depend. It's a little episodic throughout the year, given we have some periods of lower fixed rate maturities, and we have a lot of ARMs that are coming in to reset windows from the pandemic vintage. So we're still getting that positive back book dynamic on repricing, but those portfolios are a little lower in aggregate now pro forma. So -- but we're still probably picking up maybe 50 to 100 basis points kind of in terms of the new add-on rates versus the cumulative impact of the fixed rate, adjustable rate repricing and kind of fall off rates. Operator: And our final question comes from the line of Wood Lay with KBW. Wood Lay: I wanted to touch on fee income. Fees this past quarter came in pretty well above the guidance you provided, and I know there are some questions on especially villages mortgage unit and portfolioing that versus selling. So how do you think about the toggle between that going forward? And just any expectations on the fee income side near term? Michael Young: Woody, it's Michael. Yes, we did retain as we talked about, more of the mortgage production in the fourth quarter, which drove a little additional balance sheet growth as part of the restructure to move us a little faster there. I think we may still do that a little bit here in the first quarter, potentially but then we'll start to ease off of that as we move throughout the year, but it just remains a really important lever for us as we move forward to kind of manage the overall balance sheet. And as Chuck mentioned, just the quality of that paper is so strong given the high-quality borrowers that are in the market. We just -- it's a very attractive asset to have on the balance sheet. So that's kind of how we're thinking about it from that side. And that will obviously have flow-through impacts into fee income in 2026, depending on the level of sold volume versus retention of the volume on balance sheet, and that's kind of why we just gave a total revenue guidance. It could flip between NII or fee income a little bit depending on our optionality and how we lean into that. But we'll deliver the total revenue that we articulated. Charles Shaffer: Yes. Just generally, we probably will see mortgage banking income a little higher than we have in the past. We picked up a servicing portfolio there that the Citizens First Bank of the Villages was servicing that was fairly sizable. And so it's a nice revenue stream that will be continuing through the income statement. Wood Lay: Got it. And then maybe last for me. Again, on Villages. We touched on at announcement, there could be several revenue synergy opportunities. And I know we're still very early on in the process. But are you seeing any early signs of those synergies. Charles Shaffer: Yes, early on, we've built the wealth management team. We're starting to see opportunities there. That's been great to see. As we talked about the mortgage business has gone very well, really exceptionally well. We like everything we're seeing there at the mortgage business. Ultimately, with time, we'd like to get some insurance offerings in that market as we have an insurance agency just north of there, near Gainesville. So we're continuing to look at opportunities to expand our carrier rights into that market, and hopefully, with time, we'll find our way there. But the biggest driver that we've seen so far is just the wealth management side of the business is starting to get traction there. Operator: That concludes our question-and-answer session. I will now turn the call over to Chuck Shaffer for any closing remarks. Mr. Shaffer? Charles Shaffer: Okay. Thank you, operator. Thank you all for joining us today. We appreciate the support, and thank you to our team for another great quarter and on to an awesome 2026. So that will wrap up our call. Operator: This concludes today's conference call. You may now disconnect.
Operator: Good morning, and welcome to the SB Financial Fourth Quarter and Full Year 2025 Conference Call and Webcast. I would like to inform you that this conference call is being recorded. [Operator Instructions]. I will now turn the conference over to Sarah Mekus with SB Financial. Go ahead, Sarah. Sarah Mekus: Thank you, and good morning, everyone. I'd like to remind you that this conference call is being broadcast live over the Internet and will be archived and available on our website at ir.yourstatebank.com. Joining me today are Mark Klein, Chairman, President and CEO; Tony Cosentino, Chief Financial Officer; and Steve Walz, Chief Lending Officer. Today's presentation may contain forward-looking information. Cautionary statements about this information as well as reconciliations of non-GAAP financial measures are included in today's earnings release materials as well as our SEC filings. These materials are available on our website, and we encourage participants to refer to them for a complete discussion of risk factors and forward-looking statements. These statements speak only as of the date made, and SB Financial undertakes no obligation to update them. I will now turn the call over to Mr. Klein. Mark Klein: Thank you, Sarah, and good morning, everyone. Welcome to our fourth quarter 2025 conference call and webcast. The fourth quarter and full year 2025 results reflected continued strong execution across our franchise, delivering one of the strongest earnings quarters and year in our history. This includes a stronger presence in our core markets and steady progress in select expansion wins. Notably, we achieved this performance in a year where industry-wide mortgage activity include volume at State Bank remained clearly under pressure. Throughout the quarter and year, we focused on disciplined lending, balanced loan and core deposit growth, prudent expense management and maintaining strong credit fundamentals while navigating a fairly competitive environment. As we pivot from 2025, we believe our well-capitalized balance sheet, diversified business lines and revenue model, sound asset quality, and disciplined approach to capital management positions us well to support prudent growth and long-term value creation for our shareholders. Some highlights for the quarter and full year include net income of $3.9 million, diluted EPS of $0.63, up $0.08 or approximately 15% compared to the prior year quarter. When considering the service rights recapture adjusted EPS of $0.65, marking our 60th consecutive quarter of profitability. For the full year, our GAAP EPS of $2.19 represents the second highest per share earning performance in the last 20 years and a 27% lift over our 2024 EPS of $1.72 and 18% over our 2025 budget. Clearly, a very successful year for SB Financial. Tangible book value per share ended the quarter at $18, up from $16 last year or a 12.5% increase. Adjusted tangible book value now rests at $21.44 per share and drives our current market price to reflect an approximate 100% threshold. Net interest income for the quarter totaled $12.7 million, an increase of nearly 17% from the $10.9 million in the fourth quarter of last -- of 2024. From the linked quarter, net interest income increased 3.1% and for the year rose to $48.4 million, representing an increase of $8.5 million or 21%. Interestingly, 50% came from a larger balance sheet and 50% from wider margins. Recurring net interest margin revenue now represents nearly 75% of our total revenue, reflecting a larger balance sheet and expanded margins as fee-based business line revenue pulled back from our historical average of 35% to just 26%. Loan growth for the quarter was $70 million or an increase of 25% on an annualized basis. On a year-over-year basis, we delivered growth of $133.9 million or 12.8% and now marks 7 consecutive quarters of sequential loan growth. Our trajectory has enabled us to also outpace our peer performance and those at the 75th percentile. Driving our acceleration was our meaningful commercial lending activity in and around the Greater Columbus market of over $73 million this year with a solid contribution also from our new ag lender located here in Northern Ohio. Total deposits increased this quarter by $45 million or 14% on an annualized basis. On a year-over-year basis, our deposit growth escalated by nearly $155 million or 13%. This expansion includes $47 million related to the Marblehead acquisition. Strong organic deposit growth continued to support balance sheet expansion and liquidity. Deposit balances and client relationships at Marblehead have remained stable, and retention trends have been well in line with our expectations. Excluding acquired balances, deposits grew 9.3% compared to the prior year, reflecting continued engagement with our client base across all 7 of our regional markets. Importantly, our balance sheet remains liquid and well positioned for continued growth. At quarter end, we held approximately $50 million in excess liquidity and had ready access to $160 million in outstanding debt capacity, each providing meaningful flexibility to support organic growth, capital deployment and potential strategic acquisitions. Total assets under our care expanded this quarter by $62 million, representing annualized growth of 7%, this quarterly growth was a derivative of our annual trend that enabled us to reach now the $3.6 billion mark. This number includes bank assets of $1.5 billion, a nearly 9,000 household residential servicing portfolio of $1.5 billion and wealth assets of $566 million. Together, this diversified asset base provides meaningful revenue diversification and certainly supports performance across a number of varying market conditions. Mortgage originations for the quarter were $72.4 million, down from the prior year, but up compared to the linked quarter. We do still see a solid pipeline in the $25 million to $30 million range. Obviously, the pipeline can be extremely fluid as even a 0.25 point drop in rates would potentially move reluctant buyers off the sidelines into the market, albeit with limited housing inventory that we've discussed for a number of quarters. Operating expenses declined approximately 2.3% from the linked quarter and were up slightly compared to the prior year. Full year expense growth, excluding the onetime merger costs, was 7.7%, well below the 15.1% full year 2025 revenue growth, resulting in core operating leverage of 2x. Asset quality metrics remain -- continue to reflect the overall strength of the portfolio during the quarter with nonperforming loans to total loans declined to 0.39%, down from both the linked quarter and prior year period. Nonperforming assets also decreased on both a sequential and year-over-year basis, reflecting continued progress in resolving problem credits and maintaining disciplined credit oversight. While we did see some isolated pressure in certain credit relationships, we are actively addressing and resolving those exposures to continue to make progress to sustain our overall credit quality. Our strategy remains anchored in our key 5 strategic initiatives: Growing and diversifying revenue, greater footprint and scale for efficiency, a larger share of the client's wallet, which is all about scope, operational excellence and, of course, always asset quality. Looking a little closer at revenue diversity. As I mentioned, mortgage originations totaled approximately $72.4 million during the quarter. While activity remained slightly below the prior year period, production continues to improve compared to earlier quarters in the year, reflecting gradual softening in Freddie-Fannie fixed rate salable products. Clearly, we had higher expectations for the residential market this past year with a support team that has remained in place to deliver a far higher volume number. Overall, the $278 million in annual volume missed our budget level by approximately 28%, but we were pleased that compared to the prior year, volume was higher by over 8%. And most importantly, our loan sales volume eclipsed the 2024 level by nearly $34 million or 16%. Also, 2025 did not provide the historical boost to volume that we typically experience from refinance activity. For the year, 73% of our volume was purchase activity with another 6% from construction, supplemented by 20% from refinance from both internal and external clients new to State Bank. On a positive note, the fourth quarter's originations contained over 42% in refinance volume as clients took advantage of a window of several rate reductions during the quarter. Noninterest income was down by 18.6% from the prior year quarter at $3.7 million and down 12.6% from the linked quarter. For the entire year, our noninterest income was approximately $17.1 million and right at recent year's levels. The decrease from the fourth quarter of 2024 was primarily driven by decreased mortgage servicing rights as well as other fee-based business line revenue. Peak Title made great strides throughout the year to not only expand contacts outside of State Bank, but to also leverage internal referral resources, each contributing to a full year improvement in revenue of $413,000, up to $2 million or an increase of 25% and expansion in net income of $219,000, up 60% to $583,000. We have hinted at new initiatives within our Wealth Management group over several quarters that reflect the expanded resources and capabilities from our partnership with Advisory Alpha. We're excited to bring a number of their professionals, bench strength and talents to our markets to help build our client base as well as inform the public on market dynamics and investment strategies. The latter being just one example of the expanded advice and product knowledge that will be brought to bear throughout our footprint beginning in 2026. On the scale front, Marblehead team that we acquired is now fully embedded with State Bank platform and operating under one unified operating model, allowing us to deepen relationships and pursue new business opportunities in that market. The successful conversion of Marblehead's customers into our core system in October marked the final step in aligning operations and technology and positions us to scale efficiently going forward. As a result, the acquisition has transitioned from now integration to execution, providing us with an established presence in a new market with nearly 2,500 deposit accounts that bear a weighted average rate of just 1.35% and provides a solid foundation for organic growth beyond the initial transaction. As noted earlier, deposit growth, both inclusive and exclusive of acquired balances, was an important contributor to earnings performance in 2025 with total deposits improving to $1.3 billion. The strength of our deposit base continues to support balance sheet liquidity and provides flexibility to fund our ongoing loan growth. This funding profile remains a key element in our ability to support clients while maintaining disciplined balance sheet management. Again, we have grown loans now for 7 consecutive quarters with the 2025 annual growth rate of 12.8%, finishing well above our historical average of high single digits. Our continued success in the Columbus market is a model that we expect to translate more into our other 6 regions in 2026. Additionally, we have witnessed early success in the de novo expansions of Napoleon, Ohio and Angola, Indiana markets with nearly $15 million in loan growth during the quarter. Also, we are leveraging our strategic focus on the Fort Wayne, Indiana market with a new additional commercial lender. Fort Wayne continues to be a growth market that houses significant upside for organic balance sheet expansion in 2026 and well beyond. More scope in our relationships with our clients. During the quarter, we continued to build on our client-centric approach to growth, focusing on building durable relationships and expanding client engagement across all markets. As we continue to invest in both newer and established markets, we continue to evaluate how our physical presence, staffing and resources are best positioned to support sustainable growth and solidify long-term client relationships. As we've noted in prior quarters, ongoing consolidation across our markets has continued to create opportunities to engage clients. In fact, this quarter, we saw continued success converting that activity into meaningful relationships and growth that after just 8 months is boarding around $80 million in new loans and deposits to our company. Our focused calling efforts remain an important contributor to this growth initiative and continue to support both new and existing clients across our 20 community base. A center post of our operating model continues to rest in our ability to optimize interdependence and to ensure that no client in need of a full relationship is left behind. This past year, that optimization led to our 7 business lines identifying nearly 1,400 referrals with 53% or 734 referrals successfully closing that delivered $92 million in new business for our company. Operational excellence. As we indicated in previous quarters, we believe that agricultural lending opportunities have begun to surface in many of our markets. The new agricultural lender that we recently added is a highly seasoned professional with a sizable book and strong track record of production. When we combine this level of experience with our 25-year ag production leader, we further strengthen our potential and positions us well for continued growth in this sector. Interestingly, this initiative has already delivered funded loan growth of $19 million or 20% in that portfolio with another $3 million of core deposits. Finally, asset quality. Our asset quality remains one of our competitive advantages. It allows us to embrace measured credit risk opportunities by driving balance sheet growth while expanding margin revenue. As I mentioned, charge-offs rose to 4 basis points from 0 basis points in the third quarter, but were only 2 basis points for all of 2025. Nonperforming assets totaled $4.7 million. We remain focused on maintaining our strong asset quality as demonstrated by our continued management of our criticized and classified loans, which stood at $5.7 million, down from $5.8 million in the linked quarter and $6.4 million in the prior year. Our allowance for credit losses remained a robust 1.36% of total loans, now providing 352% coverage of nonperforming assets. We expect to make more progress in the first half of 2026 to further reduce our NPL portfolio. We have workout plans in place that should deliver improved metrics with certainly minimal losses. I'd like to turn the call over to our CFO, Tony Cosentino, for some additional comments on our quarterly performance. Tony? Anthony Cosentino: Thanks, Mark, and good morning, everyone. Let me outline some additional highlights and details of our fourth quarter and full year results. On the income statement, in the fourth quarter, total operating revenue increased to $16.4 million, representing a 6.3% increase from the prior year period and a 1% decrease from the linked quarter. As Mark mentioned, net interest income was the primary driver of revenue growth, up 17% year-over-year. The increase was supported by higher loan balances and continued portfolio repricing, while interest expense increased during the quarter at a more measured pace. Loan-related interest income totaled $17.3 million for the quarter, supported by continued growth in average loan balances and the ongoing repricing of the portfolio. Loan yields were consistent from the linked quarter at 5.94% and increased 19 basis points year-over-year. As a result, the yield on earning assets improved by 17 basis points to 5.32%. Our full year ROA was 93 basis points, up 11% from the prior year, with our pretax pre-provision ROA for the year increasing to 1.33%, a 21 basis point improvement over the '24 full year performance. Total interest expense for the quarter of $6.6 million was up $610,000 or more than 10% from the prior year. And for the full year, interest expense increased by $1 million compared with a $9.5 million increase in interest income, reflecting favorable balance sheet growth and pricing dynamics within our markets. Our average rate on interest-bearing liabilities was 2.34% for the quarter, declining by 1 basis point from the prior year, but up 1 basis point from the linked quarter. Funding costs benefited from continued core deposit growth and a favorable deposit mix shift across our markets. While funding costs may trend higher over time as rate dynamics evolve, we continue to see opportunities through ongoing asset repricing and the reinvestment of lower-yielding securities into higher-yielding assets to support net interest income. Our decline in noninterest income from the linked and prior year quarters was a reflection of a negative contribution from other noninterest income, driven by an OMSR impairment during the quarter. Core fee-based revenues remained relatively stable, though the stronger contribution from net interest income reduced our reliance on fee-based revenue that historically was required to drive our top quartile financial performance. Our total mortgage banking contribution this quarter of nearly $1.5 million was down compared to the prior year, but in line with the linked quarter. Aggressive sales and continued opportunistic hedging resulted in the highest level of gain on sale revenue since the peak pandemic year of 2021. We fully expect that volumes will climb in 2026 by low to mid-double digits while maintaining our traditional sales level of 85%. Operating expenses for the fourth quarter remained in line with recent trends, reflected continued discipline around cost management. Overall, noninterest expense declined 2.3% from the linked quarter, but increased 2.1% compared to the prior year. Headcount remained largely unchanged from the prior year as staffing additions in Marblehead and other select areas were offset by efficiencies elsewhere in the company. Reviewing the balance sheet. As Mark noted, loan and deposit growth continued to support earnings performance during the year. Entering 2026, we believe our balance sheet is well positioned to support ongoing organic loan growth that is expected to be funded primarily through continued deposit growth and reallocation of bond proceeds, consistent with our long-standing balance sheet strategy. We continue to benefit from a stable core deposit franchise that has historically funded the majority of our asset growth. Wholesale borrowings remain a complementary funding source, and our overall contingent liquidity position remains strong at over $550 million. All of our liquidity ratios are well within internal policy between 5% to 10%, and we continue to have access to the wholesale market should retail deposit growth lag expectations. Our loan-to-deposit ratio moved slightly higher compared to the linked quarter at 90.3%, but continues to fall within our targeted operating range of 90% to 95%. Given the stability of our deposit base and predictable deposit behavior, we believe our funding profile appropriately balances profitability, liquidity and risk as we move into the coming year. On capital management, during the fourth quarter, we purchased nearly 32,000 shares of our stock at an average price of just under $21, which was roughly 114% of tangible book and 96% of tangible book when adjusted for AOCI. For the full year, we repurchased a little over $283,000 for $5.5 million, using 40% of our earnings with an average price year-to-date of just over $19 per share. Tangible book value per share was up 12.5% year-over-year and was up from the linked quarter by 79% -- $0.79, driven by a $1.9 million benefit on AOCI, higher earnings and a reduction in share count from the buyback. Lastly, on asset quality. Total delinquencies increased 4 basis points from the linked quarter to 49 basis points. Compared to the prior year, total delinquent loans decreased by $1.6 million. Total classified loans also declined from the prior year by approximately $816,000 or 15%. Our allowance for credit losses increased approximately $171,000 during the quarter, reflecting continued loan growth and changes in portfolio mix, while the allowance as a percentage of total loans declined 8 basis points as loan growth outpaced our reserve build. Overall, reserve levels remain aligned with portfolio risk characteristics, recent loss experience and current credit quality trends. I'll now turn the call back over to Mark. Mark Klein: Thank you, Tony. We remain encouraged by our positioning as we enter 2026, supported by strong credit fundamentals, a growing balance sheet, larger footprint, disciplined expense control and capital management. We continue to see a healthy loan pipeline and benefits from a stable core deposit base that together provides a solid foundation to support performance improvement. As we look around the corner, we intend to focus on disciplined execution across all markets to optimize the production capacity of our entire lending team. Likewise, we intend to drive cross-sales in our 27 office retail footprint to grow core deposits as we balance projected growth metrics and identify the most prudent path to deliver long-term value for our shareholders. We recently announced a dividend of $0.155 per share, equating to approximately 2.8% yield and just 25% of our earnings. This will complete our 13th consecutive year of increasing our annual dividend payout to our shareholders. In summary, we continue to believe the current environment presents attractive opportunities to accelerate our growth. Our capital levels provide the flexibility, our collective knowledge of the path to a broader footprint and our attitude of persistent dissatisfaction with our performance, will deliver our short-term goal to build a high-performing $2 billion balance sheet. Now I'll open it -- open the call for any questions. Sarah? Sarah Mekus: Operator, we're now ready for some questions. Operator: [Operator Instructions]. Our first question comes from Brian Martin with Janney Montgomery. Brian Martin: Maybe just a couple of things for me. Maybe, Tony, can you comment a little bit on just -- or just elaborate on your comments on margin and just kind of your outlook here. I think last quarter, we talked, it seemed as though deposit pricing was a bit more of a concern given the environment, both for growth and the rates. And I guess in that context, and then also just remind us what repricing on the asset side you have that is maybe a bit of a tailwind to some of that deposit offset? Anthony Cosentino: Sure. I'll address the deposit side first, and Steve and Mark can comment on repricing, although a little bit of fact. I think we did see in the quarter, deposit pricing show some stress in terms of higher competitive pricing and more requests from our current client base for something in the mail that causes us to rethink where we are. So we ended the quarter with NIM at, call it, 3.51%. We're forecasting that, that's going to kind of gradually move down in 2026, probably 5 to 7 basis points, I would guess, by the time we sit here next year based exclusively on, I think, a higher funding cost mix. And we're going to start to see a little bit of pressure of deposits that we have on our books today that will be under pressure to move out, I think that will be relevant in 2026. We still do have a portion of our assets that are going to reprice. As we sat here last year at this time, it was probably $250 million of contractual repricing. Probably half of that has finished during 2025. I think we have about $125 million to $140 million of remaining loans that are contractually slated to reprice in the first 9 months of 2026. Mark Klein: Yes. From the loan side, Brian, and Steve can weigh in here. But certainly, the loans we're finding are of high quality, and we continue to price at or above the margin. So I would think those would be accretive to a NIM, Tony, and our total operating revenue. Certainly, continued pricing pressure out there because competition is stiff. But we found the deals that we've wanted, albeit with a certain level of concentration in and around that Columbus market. But in 2026, we're looking for more inertia from our other 6 or 7 markets that last year found it difficult to expand beyond their current level. But we're certainly optimistic this year that we'll continue to book more loans again, at or above the margin. And Steve, you might have some comments on what we're seeing, what the pipeline looks like and what those rates are on a variable basis? Steven Walz: Yes. Certainly, pipeline remains stable and expect continued performance that we've enjoyed here much of '25. And last comment on the repricing expectations, Brian, we kind of anticipated that we would retain those loans as they reprice when we were talking about this last year. That has proven to be the case as our spreads were appropriate to the market. We do examine upcoming loan reprices on a regular basis and get out in front of any that we think may be a challenge in effort to retain those. So our experience has been very good. We expect that to continue, as Tony said, in '26. Mark Klein: And Brian, that last comment. Obviously, the word of the year for '26 for us and maybe many other banks is deposits and making sure that we reap some of those relationships that have deposits at other banks that we're going to be making loans at the margin and greater is to fund it with progressively lower deposit yield. So we look to be making sure that that's a focus in '26 is delivering that lower cost funding that's going to keep and be accretive to that 3.51% margin, Tony. Brian Martin: Yes. And just the current pricing, I don't know, Steve, just in terms of the -- what you're seeing new production come on at, where is that at? Steven Walz: I think, Brian, typically, we're seeing that stay stable in the, I'll call it, 300 basis points over a corresponding treasury, for example. And we've enjoyed the ability to price up and down as those rates move. Anthony Cosentino: And we've traditionally priced at, call it, either the 3- or the 5-year treasury. That's probably where 90% of our loan volume is priced at relative to that index. Mark Klein: With the caveat that deposits need to come along with relationships. It's the same narrative, Brian, that's going on in all banks, but again, it's all about execution. Brian Martin: Right. No, understood. And maybe just on the mortgage side, Tony, just you made some comments in the call, but was it about 10% growth on mortgage production, I guess, is that how you're thinking about 2026 at this point? I know you said there's still a high sales volume or high sales percentage, but just in terms of actual volume or production, how do you feel about that? Anthony Cosentino: Yes. So kind of our $280 million, if you're 15% on my calculation gets us to about a $325 million, 10% is, call it, $310 million. So I think we're safely in a low to mid-single-digit growth rate for 2026. I think Mark would say that given our desire and our model to get additional lenders, we might push that on the upper end of that number to the $350 million to $375 million range. But I think with our current staff and process and what we're seeing on pricing, I think that $310 million to $325 million, $330 million range is well in hand for 2026. Mark Klein: The other thing, Brian, I'd add to that is that we're committed to finding about what, 4 or 5 additional mortgage lenders. We have 23 now. We're looking for a couple more in not only the Cincinnati, but the Indi market plus up in the Northwest Ohio footprint. And as we've indicated a number of times before, our backroom remains built for that something in that $400 million plus number. So we've got the capacity. We've retained the capacity to make sure that we can feel that additional volume when rates drop. And of course, we all know that if Trump had his way, we'd have a 5 handle on a 30-year mortgage. And we think that's going to be bullish for 2026, and we're going to be prepared to take the market as it unfolds. Brian Martin: Yes. Okay. And maybe just last 2, just on the expense side, Tony, I mean, you guys have done a great job there. I guess, just in terms of keeping a lid on cost this year, I guess, or just -- I guess, what are you thinking about in terms of type of expense growth, maybe annual expense growth or just big picture commentary on how you're thinking about expenses looking into '26? Anthony Cosentino: Yes. I think that's a great question. I mean I think we had really double luxury in '25 that revenue growth was really spectacular, but we were able to really get some efficiencies done on the expense side. We had some positions that left, and we were able to do more with less people and reallocate and do those kinds of things. I don't know that we've got some of those on the handle for '26 for more reallocation. I do think expense growth will be still pretty well maintained kind of in that 3.5% to 4% range on the back end. But I do think positive operating leverage will still be 1.5 to 2x in 2026. So that, to me, is the driver for us on everything that we look at. And Mark has tasked me with taking care of the expense side, and we're going to look at every opportunities. We got a number of things in '26 with our sub debt coming together and some other things that have the potential to help or hurt our, call it, bottom line. So we've got a lot of things that are in place that we need to work on. Mark Klein: We certainly, Brian, have been optimistic about improving that operating leverage on the revenue side, but I've challenged Tony in 2026 here to move the lever on the other side, which is the expense side. And and do some things that we think are going to widen that operating leverage and drive net income on up to the $15 million mark for 2026. Brian Martin: Got you. And you talked about the loan pipelines. They're still pretty healthy today. I think I heard that, that's just the -- that's the key driver here, just given maybe the margin stability or a little bit lower that you're talking about, that's really the driver of NII growth as we look to '26? Mark Klein: Well, as I mentioned in our little presentation there, Brian, half of our $8 million expansion in operating revenue, half came from a bigger balance sheet and half came from wider margins. So we're looking for more scale, try to constrain expenses to drive revenue and net income higher. But our pipeline, Steve, stands pretty good. We've certainly had options with a number of commercial lenders across our entire I don't know, 15-county footprint. We certainly had a plethora of opportunities, but I'm not sure where the pipeline stands like today. Steven Walz: Yes. As Mark referenced, Brian, certainly, Columbus is a great story for us and drove the bulk of growth for us, and we expect that demand to continue into '26. That said, as Mark noted, we added a strong ag lending presence in the latter half of '25 that we've seen benefits from and expect continued benefit as well as the addition very recently of more capacity in Fort Wayne, which is a great market. We expect increased participation from those other urban markets going forward as well as really the Marblehead story. We think there remains opportunity there for a little more commercial participation given our growth in that environment. Mark Klein: And Brian, last comment. Everyone is aware of the consolidating landscape, and we've launched a strategy to seize upon that disruption and the crack in the landscape. And as I mentioned, we're at about $80 million of incremental additional business on a goal of $500 million. So we set the bar really high. We may not get there because we'd have to drop maybe our credit standards to pull that off. But nonetheless, that's what we talk about, and that's what we're impassioned with, and that's going to be the crux of a lot of our growth in 2026. Brian Martin: Got you. And the last one was just on credit quality. It sounds like there's a bit of improvement coming. But just in general, is that kind of how to think about it? And just the reserve levels where they're at today, given the quality, how do you feel about that as you go into '26? Steven Walz: Yes. I think, Brian, on the credit quality standpoint, I've become a broken record on this admittedly. It has taken us longer than we would like to resolve some of these credits. So while we've seen improvement, it's been slower than we desired. The good news is that pace is not a function of resolving credits and then having new ones crop up is the time it has taken us to resolve existing. We do, as I've mentioned before, have a very robust internal loan review process. We think we have a good handle on our portfolio and know it well. So we do expect that continued improvement in '26 as we resolve credits that, again, frankly, have taken longer than anticipated. Anthony Cosentino: Yes. And I would just to add a little bit there, Brian. I think as we've talked about on a number of these calls, we feel positive about our review process and where we are from a credit quality standpoint. Obviously, we have a pretty robust loan growth level. We still expect to fund provision relatively flat to what we did in 2025. That probably trends down our reserve ratio 3 or 4 basis points by the time we get to this time next year, but we still feel a 130 reserve ratio puts us well at the top end of our peer group and in really good shape relative to our nonperforming profile that we're going to have at that time. Brian Martin: Congrats on a great finish to the year and look forward to '26. Mark Klein: Brian, thanks. Looking forward to catching up with you in a few days. Anthony Cosentino: Appreciate your support, Brian. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Mark Klein for any closing remarks. Mark Klein: Yes. Thanks, everyone. Thanks for joining us this morning. Certainly, we look forward to speaking with you in April and giving you the details on our first quarter 2026 operating results. Have a good day, and talk soon. Operator: The call has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Greetings, and welcome to the Weyerhaeuser Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Andy Taylor, Vice President of Investor Relations. Thank you, Mr. Taylor. You may begin. Andy Taylor: Thank you, Rob. Good morning, everyone. Thank you for joining us today to discuss Weyerhaeuser's fourth quarter 2025 earnings. This call is being webcast at www.weyerhaeuser.com. Our earnings release and presentation materials can also be found on our website. Please review the warning statements in our earnings release and on the presentation slides concerning the risks associated with forward-looking statements as forward-looking statements will be made during this conference call. We will discuss non-GAAP financial measures and a reconciliation of GAAP can be found in the earnings materials on our website. On the call this morning are Devin Stockfish, Chief Executive Officer; and David Wold, Chief Financial Officer. I'll now turn the call over to Devin Stockfish. Devin Stockfish: Thanks, Andy. Good morning, everyone, and thank you for joining us. Yesterday, Weyerhaeuser reported full year GAAP earnings of $324 million or $0.45 per diluted share on net sales of $6.9 billion. Excluding special items, full year 2025 earnings totaled $143 million or $0.20 per diluted share, and adjusted EBITDA totaled $1 billion for the year. For the fourth quarter, we reported GAAP earnings of $74 million or $0.10 per diluted share on net sales of $1.5 billion. Excluding special items, we reported a loss of $67 million or $0.09 per diluted share for the quarter. Adjusted EBITDA was $140 million. I'll start this morning by thanking our employees for their solid execution and resilience in 2025. Notwithstanding extremely challenging market conditions, we delivered on the multiyear targets we established back in 2021 and launched an ambitious company-wide growth strategy through 2030. Specific to 2025, we further optimized our timberlands portfolio, expanded our climate solutions offerings, broke ground on our new TimberStrand facility in Arkansas and captured additional operational excellence improvements. We also increased our base dividend by 5% and returned $766 million of cash to shareholders, including $160 million of share repurchase. These are notable accomplishments given the headwinds our industry faced in 2025, and they demonstrate the power of our integrated portfolio, deeply embedded OpEx culture and flexible capital allocation framework. Looking forward, we remain constructive on the longer-term fundamentals that support our businesses. And as we outlined at our Investor Day in December, we're uniquely positioned to accelerate growth and drive significant value creation for shareholders through the balance of the decade. Before getting into the business segments, I'll provide a brief update on recent actions to further optimize our timberlands portfolio, all of which were previously announced. During the fourth quarter, we completed 2 divestiture transactions covering non-core timberlands in Oregon, Georgia and Alabama for total proceeds of $406 million. In addition, we entered into an agreement to divest approximately 108,000 acres in Virginia for $193 million, and we expect this transaction to close next month. Moving forward, we will continue to evaluate capital-efficient opportunities that enhance the return profile of our timberlands while balancing other growth initiatives and levers across our capital allocation framework to drive long-term value for our shareholders. Turning now to our fourth quarter business results. I'll begin with Timberlands on Pages 7 through 10 of our earnings slides. Excluding special items, Timberlands contributed $50 million to fourth quarter earnings. Adjusted EBITDA was $114 million, a $34 million decrease compared to the third quarter, largely driven by lower sales volumes and realizations in the West. Starting with the Western domestic market. Log demand and pricing softened in the fourth quarter as supply remained ample and mills continue to carry elevated log inventories to navigate a very challenging lumber market. As a result, our average domestic sales realizations decreased moderately compared to the prior quarter. Our fee harvest volumes were lower, largely due to fewer working days in the fourth quarter and the pull forward of volume over the summer months given a relatively light wildfire season. Per unit log and haul costs decreased and forestry and road costs were seasonally lower. Despite a challenging fourth quarter, it's worth noting that regional log markets are trending towards a more balanced state as supply moderates into the winter months and mills work through elevated log decks. As a result, we expect stable domestic log pricing in the first quarter with upside potential if lumber prices further improve from current levels. Moving to our Western export business. In Japan, finished good inventories remained elevated in response to ongoing consumption headwinds. As a result, demand for our logs softened in the fourth quarter, and our sales volumes decreased compared to the prior quarter. That said, our average sales realizations for export logs to Japan were moderately higher, largely driven by freight-related benefits. Looking forward, we expect demand for our logs to improve over time as inventories normalize in the Japanese market and as our customers continue to take market share from competing imports of European lumber. Turning briefly to China. In November, the ban on log imports from the U.S. was lifted. As a result, we're in the early stages of reestablishing our log export program to strategic customers in the region. However, we expect limited shipments in the near term given the weakness in the Chinese real estate sector and the seasonal slowing of construction activity around the Lunar New Year holiday. For the fourth quarter, we delivered one vessel to China and expect to send a second vessel in the first quarter. Turning to the South. Adjusted EBITDA for Southern Timberlands was $69 million, a $5 million decrease compared to the third quarter. Southern sawlog markets remained muted in the fourth quarter as dry weather conditions kept log supply ample and mills continued to align capacity with lower takeaway of finished goods. In contrast, Southern fiber markets were relatively stable outside of a few localized regions impacted by recent mill closures. On balance, takeaway for our logs remained steady, given our delivered programs across the region. And our average sales realizations increased slightly compared to the third quarter, largely due to a higher mix of grade logs and export volumes to India. Our fee harvest volumes were moderately lower compared to the prior quarter, primarily driven by fewer working days. Per unit log and haul costs increased and forestry and road costs were seasonally lower. In the North, adjusted EBITDA was comparable to the third quarter. Turning now to Real Estate, Energy and Natural Resources on Pages 11 and 12. In the fourth quarter, Real Estate and ENR contributed $84 million to earnings. Adjusted EBITDA was $95 million, a slight increase compared to the prior quarter and approximately $19 million higher than our fourth quarter guidance. This outperformance was largely driven by the timing of transactions, including the completion of a conservation easement in May. Notably, our average price for real estate sales reached a record high in the fourth quarter at over $8,200 per acre. This was mostly attributable to some high-value development transactions in South Carolina. For the full year, Real Estate and ENR generated $411 million of adjusted EBITDA, moderately higher than our revised full year guidance and $61 million higher than our initial outlook. These results were largely driven by strong demand and pricing for HBU properties in our real estate business, resulting in high-value transactions with significant premiums to timber value. They also reflect a significant year-over-year increase in contributions from our Climate Solutions business. As shown on Page 19, full year adjusted EBITDA for Climate Solutions was $119 million, a 42% increase compared to 2024, primarily driven by strong contributions from our conservation, mitigation banking and renewables businesses. Importantly, we exceeded our multiyear target to reach $100 million of annual adjusted EBITDA by year-end 2025. And at our Investor Day this past December, we announced a new target to grow the business to $250 million of annual EBITDA by 2030. I'll briefly discuss some recent highlights today and would refer you to our Investor Day materials for a comprehensive overview of each Climate Solutions business, including growth projections through the balance of the decade. In the fourth quarter, we received approval for our fifth forest carbon project and have 4 additional projects in the development pipeline. In 2025, we generated approximately 630,000 credits, a significant increase relative to the prior year, and we sold 120,000 credits in the voluntary market. We continue to see growing demand and solid pricing credits given our commitment to developing projects that meet high standards for quality and integrity. And finally, on Climate Solutions, we announced an exciting new business opportunity at our Investor Day in December. We're partnering with Aymium, a global leader in biocarbon technology to produce and sell up to 1.5 million tons of biocarbon annually by 2030. We're advancing the first facility adjacent to our lumber mill in McComb, Mississippi, and the companies are working to identify additional sites to construct new facilities across Weyerhaeuser's footprint over the next 5 years. At full scale, the platform of biocarbon facilities will have the potential to convert over 7 million tons of wood fiber on an annual basis to be provided primarily by Weyerhaeuser. This is an excellent example of how we can leverage our scale and expertise to go on offense and create new pathways for growth across our integrated portfolio. Now moving on to Wood Products on Pages 13 through 15. Earnings for Wood Products was a $78 million loss in the fourth quarter, and adjusted EBITDA was a $20 million loss. These results reflect extremely challenging lumber and OSB markets in the quarter, with pricing hovering near historically low levels on an inflation-adjusted basis. Starting with lumber. The framing lumber composite began the fourth quarter on a slight upward trajectory, largely supported by improving Western SPF pricing and broader concerns around the Section 232 tariff, which took effect in October. As the quarter progressed, ample product supply and seasonally softer demand drove composite pricing lower through early December. By quarter end, the market improved slightly as buyers replenished lean inventories and lumber volumes from Canadian producers declined noticeably. Collectively, these dynamics supported increased pricing recently, albeit from a low starting point. In particular, Southern Yellow Pine prices have steadily improved over the past 2 months. For our lumber business, fourth quarter adjusted EBITDA was a $57 million loss. Production volumes decreased 14% compared to the third quarter, and this reflects our election to moderate production across our mill set in response to the softer demand environment as well as the volume impact associated with our Princeton sawmill, which we sold late in the third quarter. As a result, our sales volumes were lower in the fourth quarter and unit manufacturing costs were slightly higher. Our average sales realizations decreased 3% compared to the third quarter, which was favorable to the framing lumber composite, and our log costs were moderately lower. Looking forward, we are encouraged by the recent increase in lumber pricing and expect demand to improve into the spring building season. As a result, we anticipate stronger performance from our lumber business in the first quarter. Now turning to OSB. Fourth quarter adjusted EBITDA was a $10 million loss, primarily driven by weaker product pricing in response to the seasonal reduction in residential construction activity. I'll note that composite pricing stabilized in December after decreasing for most of the fourth quarter. And we've seen pricing move slightly higher here over the last several weeks. For our OSB business, average sales realizations decreased by 6% compared to the third quarter, largely in line with the composite. Our production and sales volumes were slightly higher and unit manufacturing costs were comparable. Fiber costs were slightly lower in the fourth quarter. Engineered Wood Products adjusted EBITDA was $49 million, a $7 million decrease compared to the third quarter. This was driven by a seasonal decline in sales volumes across products and slightly higher unit manufacturing costs. We continue to align our production with customer demand and single-family homebuilding activity, both of which moderated into the winter months. Notably, our average sales realizations were comparable to the third quarter. Raw material costs were also comparable. It's worth pointing out that both third and fourth quarter results included a small benefit from insurance proceeds associated with the early 2025 fire at our MDF facility in Montana. In Distribution, adjusted EBITDA decreased by $2 million compared to the prior quarter, largely driven by lower sales volumes for most products. With that, I'll turn the call over to David to discuss some financial items and our first quarter and full year 2026 outlook. David Wold: Thank you, Devin, and good morning, everyone. I'll begin with key financial items, which are summarized on Page 17. For the full year, we generated $562 million of cash from operations. Excluding a $200 million contribution related to pension liability management, cash from operations would be $762 million for the year. We ended the year with just under $500 million of cash and total debt of $5.6 billion. As Devin mentioned, we returned $766 million of cash to shareholders during the year. This includes quarterly base dividends, which we increased by 5% in 2025 and $160 million of share repurchase activity. It's worth noting that we completed our prior $1 billion share repurchase program and announced a new $1 billion authorization in 2025. This provides capacity for future opportunistic share repurchase activity and represents a meaningful lever for driving long-term value for our shareholders. Notwithstanding the challenging market backdrop in 2025, we continue to operate from a position of strength. In addition to returning a meaningful amount of cash back to shareholders, we made significant enhancements to our timberlands portfolio, grew our Climate Solutions business, deployed capital towards strategic growth opportunities and launched an ambitious multiyear growth strategy. As we've demonstrated over the last several years, we have a strong and proven track record of disciplined capital allocation and a cash return framework that's aligned with the cyclicality of our businesses. Looking forward, our balance sheet, liquidity position and financial flexibility remains solid, and we are well positioned to navigate a range of market conditions and execute our accelerated growth plan. In the fourth quarter, we took advantage of a favorable opportunity to complete the purchase of a group annuity contract that transferred approximately $455 million of our U.S. pension liabilities to an insurance carrier. This was funded with $440 million from our U.S. pension plan assets and resulted in a noncash $111 million after-tax settlement charge, which was included as a special item in our results. As previously mentioned, we also made a $200 million voluntary cash contribution to the plan in conjunction with this transaction. These liability management activities represent the latest in a series of actions we've taken to reduce our pension obligations, minimize the costs associated with servicing the liabilities and lower volatility. Since we began these efforts in 2018, our gross pension plan obligations have decreased approximately $5 billion to $1.9 billion as of year-end 2025, and we've improved our funded status by more than $1 billion as well. Key outlook items for the first quarter and full year 2026 are presented on Pages 21 and 22. In our timberlands business, we expect first quarter earnings before special items and adjusted EBITDA to be comparable to the fourth quarter of 2025. Starting with our Western Timberlands operations. As Devin mentioned, domestic log markets are trending towards a more balanced state, largely driven by a seasonal reduction in log supply, which is typical in the winter months. As a result, we expect increased demand for our logs and slightly higher domestic sales volumes compared to the prior quarter. Our average domestic sales realizations are expected to be comparable to the fourth quarter, but could see upside if lumber takeaway and pricing improve into the spring building season. Absent weather-related disruptions, fee harvest volumes and forestry and road costs are expected to be comparable and per unit log and haul costs are expected to decrease given the seasonal transition to lower elevation harvest operations. Moving to the export markets. In Japan, we anticipate steady demand from our customers and stable pricing for our logs in the first quarter. That said, we expect higher sales volumes compared to the prior quarter due to the timing of vessels. Our average sales realizations are expected to decrease slightly, largely attributable to freight-related impacts. Turning to China. As Devin mentioned, we are in the early stages of reestablishing our log export program and expect to deliver 1 vessel to China in the first quarter. As a result, our sales volumes will be comparable to the prior quarter, and we expect slightly higher average sales realizations. Moving to the South. Southern log markets are expected to be fairly stable in the first quarter. Mills continue to carry elevated log inventories and navigate lower pricing and takeaway of finished goods. That said, demand signals could improve as the quarter progresses, particularly if weather conditions limit log supply or if we see a strengthening lumber market into the spring building season. On balance, we expect our average sales realizations to decrease slightly compared to the fourth quarter, largely driven by a higher mix of fiber logs and lower export volumes to India. Our fee harvest volumes are expected to be slightly lower due to wet weather conditions that are typical in the first quarter. Forestry and road costs are expected to increase moderately compared to the prior quarter, and we anticipate slightly lower per unit log and haul costs. In the North, our fee harvest volumes are expected to be slightly lower compared to the fourth quarter, and we anticipate comparable sales realizations. Turning to our full year harvest plan. For 2026, we expect total company-wide fee harvest volumes of approximately 35.5 million tons. From a regional perspective, we anticipate the South will be slightly higher than last year. The West will be comparable and the North will be slightly lower. Moving to Strategic Land Solutions. As we announced at our Investor Day in December, this is the new name for our Real Estate, Energy and Natural Resources segment. Beginning with first quarter results, we will expand our disclosure for the segment to 3 business lines: Real Estate, Natural Resources and Climate Solutions. The new name reflects our broadening scope and growth focus across these businesses and the new reporting structure enhances the cadence of disclosure for our Climate Solutions activities. For the segment, we expect full year 2026 adjusted EBITDA of approximately $425 million. Basis as a percentage of real estate sales is expected to be between 25% and 35% for the year. Entering 2026, we anticipate steady demand and pricing for our real estate properties, resulting in a consistent flow of transactions with significant premiums to timber value. Additionally, we expect to deliver steady growth from our Climate Solutions business in 2026. First quarter earnings for the segment are expected to be approximately $75 million higher than the fourth quarter of 2025, while adjusted EBITDA is expected to be approximately $90 million higher. This reflects a very strong first quarter for our Strategic Land Solutions segment, largely driven by the timing and mix of real estate sales and the completion of a sizable conservation easement transaction in Florida. This transaction closed in January and involved approximately 61,000 acres of Weyerhaeuser timberlands. We received nearly $94 million of proceeds to convey our acreage into a permanent conservation easement, the largest of its kind in the state of Florida. The easement adds acreage to a larger Wildlife Corridor, protecting the land from future development. Importantly, the easement allows Weyerhaeuser to retain ownership of the land for continued sustainable forest management. This is an excellent example of how we can leverage our size, scale and sophistication to drive material value uplift opportunities across our timber holdings while also demonstrating our commitment to sustainable land stewardship and long-term conservation outcomes. Turning to our Wood Products segment. Excluding the effect of changes in average sales realizations for lumber and OSB, we expect first quarter earnings and adjusted EBITDA to be slightly higher compared to the fourth quarter of 2025. Benchmark prices for lumber have increased steadily over the last couple of months, and we've seen OSB composite pricing move slightly higher in January. As the quarter progresses, we expect demand for both products to improve seasonally into the spring building season. It's worth noting that a $10 change in commodity prices translates to approximately $50 million of annual EBITDA for lumber and approximately $30 million for OSB. For our lumber business, we expect higher production and sales volumes in the first quarter and lower unit manufacturing costs as we return to a more normal operating posture. Log costs are expected to be slightly lower. For our oriented strand board business, we anticipate slightly higher sales volumes and slightly lower unit manufacturing costs compared to the fourth quarter. Fiber costs are expected to increase slightly. In our Engineered Wood Products business, we continue to anticipate close alignment between product demand and single-family homebuilding activity. As a result, we expect relatively stable sales volumes for most of our products in the first quarter with some slight seasonal improvement as the quarter progresses. Our average sales realizations are expected to be slightly lower and raw material costs are expected to be comparable. For our distribution business, we expect adjusted EBITDA to increase compared to the fourth quarter, largely due to improved sales volumes. I'll wrap up with some additional full year outlook items highlighted on Page 22. In 2026, we expect our interest expense to be approximately $255 million. For taxes, we expect our full year effective tax rate to be between 8% and 12% before special items based on the forecasted mix of earnings between our REIT and taxable REIT subsidiary. Our noncash nonoperating pension and post-employment expense is expected to be approximately $60 million. We do not anticipate any required cash contributions to our U.S. qualified plan in 2026, but expect approximately $20 million of required cash payments for all other plans. Turning to capital expenditures. We expect our typical programmatic CapEx to be between $400 million and $450 million in 2026, in line with our new multiyear target. This excludes the investment required for the construction of our new EWP facility in Arkansas, which we expect to be approximately $300 million in 2026. As we've previously communicated, capital expenditures associated with this project will be excluded for purposes of calculating the company's annual adjusted FAD as used in our flexible cash return framework. With that, I'll now turn the call back to Devin and look forward to your questions. Devin Stockfish: Thanks, David. I'll make a few brief comments on the housing and repair and remodel markets. Starting with housing. Overall, housing activity was lackluster in 2025. While we don't yet have the most recent housing data, we do expect total starts to come in somewhere around 1.3 million units and single-family starts a fair bit below 1 million units. The combination of weak consumer confidence and ongoing affordability challenges continue to be headwinds for housing activity. While mortgage rates have declined in the low 6% range here recently, many potential homebuyers remain on the sidelines, given elevated uncertainty about unemployment and the economy. Based on conversations with our homebuilder customers, we've heard some modest optimism for 2026 in response to the administration's recent actions and commentary to support the housing market, most notably their decision to purchase $200 billion of mortgage-backed securities. While it's too early to gauge the full impact of federal housing-related policies, they should be directionally positive, especially if we see mortgage rates trend lower. And aside from federal policies, we're also seeing state and local governments expressing an increased level of interest in supporting the housing market. All of this should create some tailwinds for housing activity, but it will likely take some time to play out. In the near term, I suspect we'll continue to see choppiness in the housing market as consumers navigate ongoing affordability challenges and uncertainty around the economy. That said, our longer-term outlook on housing fundamentals remains favorable, supported by strong demographic trends and a vastly underbuilt housing stock. Turning to the repair and remodel market. Activity decreased somewhat in 2025, largely driven by many of the same factors impacting the residential construction market, namely lower consumer confidence, higher interest rates and concerns around the trajectory of the economy. And to some degree, the repair and remodel market continues to be impacted by the lower turnover of existing homes as a result of the lock-in effect. Looking out into 2026, we could see an uptick in R&R activity, especially if interest rates move lower and we get some improvement in existing home sales. In addition, the deferral of large discretionary projects over the last few years should ultimately serve as a tailwind, particularly as the macro environment improves. But similar to housing, a material pickup in repair and remodel activity likely will require an improvement in overall consumer confidence. Putting the near-term uncertainty aside, our long-term outlook continues to be positive as many of the key drivers supporting healthy repair and remodel demand remain intact, including favorable home equity levels and an aging housing stock. Finally, I'll make a few comments regarding the multiyear targets we set in 2021 and touch briefly on the accelerated growth strategy we outlined at our recent Investor Day in December. As highlighted on Page 19, we successfully delivered on the ambitious multiyear targets we announced at our previous Investor Day back in 2021. Starting with our portfolio, with the transactions we completed and advanced in 2025, we achieved our multiyear billion-dollar timberlands growth target. In the process, we offset a substantial portion of our acquisitions with divestitures of non-core acreage, effectively recycling capital to enhance the quality and value of our portfolio. In Climate Solutions, we exceeded our 2025 growth target by $19 million. We've built a world-class team. We've expanded our offerings and have a strong pipeline of future opportunities to drive incremental growth. In lumber, we made disciplined investments to reduce costs across the mill set, and these investments will ultimately enable production growth as market conditions improve. In terms of our operations, we maintained strong relative performance across our businesses and met our multiyear OpEx targets, a notable achievement given the inflationary and market-related headwinds we faced during this period. And finally, we continue to demonstrate our commitment to returning meaningful amounts of cash back to shareholders through 4 consecutive annual increases to our quarterly base dividend and over $6 billion of cash return from 2021 through 2025, including nearly $1.1 billion of share repurchase. I'm incredibly proud of these accomplishments, all of which enhance our strong foundation and position us for our next chapter, which is accelerated growth. Page 20 summarizes the key takeaways from our Investor Day in December, which is a target to deliver $1.5 billion of incremental adjusted EBITDA by 2030 measured against the 2024 base. Over the next 5 years, we intend to catalyze growth initiatives across the entirety of our integrated platform to significantly grow the value and cash generation capabilities of our company and further strengthen our competitive position. I'll note that most of our growth initiatives are, to a large extent, within our control and already underway. These actions will enhance our ability to maximize cash flow per share while maintaining a stable foundation across market cycles and ultimately, position Weyerhaeuser to deliver industry-leading shareholder returns. I'm very confident in our ability to achieve our 2030 growth plan and excited to deliver on this transformational program for our stakeholders. So in closing, our performance in 2025 reflects solid execution across our businesses, notwithstanding the persistent and significant headwinds in many of our end markets. Entering 2026, our foundation is strong, and we're well positioned to capitalize as market conditions improve. We remain focused on serving our customers and advancing our strategy to accelerate growth and drive significant long-term value for shareholders. So with that, I think we can open it up for questions. Operator: [Operator Instructions] Our first question comes from Hamir Patel with CIBC. Hamir Patel: Devin, on the pricing front, do you think the improvement we've seen so far this year for both lumber and OSB is largely a reflection of curtailments? Or is underlying demand actually picking up? Devin Stockfish: Yes. I mean I think the reality is it's primarily driven by curtailment activity. I think on the lumber side, a piece too, just the reduction in the volumes coming across the border from Canada. That being said, as we continue to approach the spring building season, you do typically start to see some level of pickup in demand. Obviously, across the South, we've had a pretty significant weather event here. So I'm not sure there's been a lot of construction activity. But that being said, every week that you progress towards spring building season, people are starting to ramp up. And so that's probably a small piece. But I do think at present, it's largely a supply side-driven increase. Hamir Patel: Okay. And then just given how much Southern prices have moved, it looks like they're quite comfortably above breakeven for the industry. Are there any constraints that would stop us seeing a more meaningful production response? Devin Stockfish: Yes. I mean a couple of things I would highlight. I mean, I think you're right. Obviously, we've seen a nice run-up in Southern lumber prices, and that's probably moved most of the industry above cash flow breakeven, whether it's all of the industry or not, open question, I suppose. But you can see some level of increase in production. I think overall, the industry has been pretty restrained in terms of running overtime shifts, running a full operating posture. So there's probably a little bit of flex in the system. But that being said, I do think you're going to continue to see less volume coming across the border from Canada. So part of this story is really about how quickly we can convert some of these traditional SPF markets to Southern Yellow Pine. And I will say on that front, I mean, we're encouraged by some of the early activity that we've been involved in, in making that happen. So there's a little bit of additional volume that we could see if the producers really start ramping up production. But I still think, particularly as demand picks up into the spring building season, it feels like there's still probably some room to run on Southern lumber prices. Operator: Our next question comes from Susan Maklari with Goldman Sachs. Charles Perron-Piché: This is actually Charles Perron in for Susan. I just wanted to follow up, Devin, on the last question that was asked about the demand. Considering the commentary and the increased optimism that we've seen over the past few weeks from the builders, I was wondering if you can talk about the thoughts on inventory and how you approach the spring and busy season here? And especially any thoughts on the retailers and how they're approaching this market given the potential for some inflation in commodity prices? Devin Stockfish: Yes. When you're talking about inventory, you're talking about home inventory or lumber and OSB inventory? Charles Perron-Piché: Sorry, lumber and OSB inventory. Devin Stockfish: Yes. I mean I think on balance, inventories across the channel are in a pretty reasonable state for this time of year. I wouldn't say for the most part, they're either lean or heavy. The one maybe minor exception to that would be in certain regions with OSB. I do think towards the end of last year, a lot of folks really ran their OSB volumes and inventory is pretty low. And so that might be a minor exception. But on balance, I think the inventory levels across the channel in all of the products are adequate for the level of building activity. Now clearly, as the weather improves and we start getting deeper into the spring, people will have to start building inventory because demand just seasonally picks up regardless of what you think is going to happen in terms of overall housing improvement. So I think we're pretty well set. And a lot of this will just depend on when people start building inventories, when the building season really starts ramping up, there's a weather component to that. But I think we're optimistic that we could see some nice pickup in demand as we hit the seasonal spring building season. Charles Perron-Piché: Got it. That's helpful color. And then switching to the timberland portfolio. How are you approaching your A&D decisions into 2026, considering the strong appetite that you noted for HBU properties in this environment? David Wold: Yes, Charles, you bet. This is David. I'll take that one. I mean right now, I think you're right, we continue to see a very solid market right now. I guess just reflecting on the market as a whole, we typically think about that being in somewhere the $2 billion to $3 billion range on the timber acquisitions and divestiture market, came in towards the upper end of that range for 2025. And I think as we move into 2026, expect to see a similar normal level of activity. There's plenty of capital that's pursuing these transactions, a significant amount raised over the last several years with a mandate to invest in this asset class. So I think we continue to expect to see that demand with the growing appreciation for all the alternative land-based value opportunities that are inherent. And I think you also see that in our HBU transactions over the course of the fourth quarter. Our real estate team did a great job capitalizing on a couple of transactions in the Charleston area. We talked about some of our real estate development opportunities at our December Investor Day, and those were some great opportunities for capitalizing on some high-value acreage, really unlocking the value of our portfolio. And so we're really pleased to be able to see that. Charles Perron-Piché: And just to follow up on the last comment. Is there any other opportunities you could see to make similar deals to the large conservation easement transaction that you've done in Florida? Is this something like that could happen again across your portfolio? David Wold: Yes, certainly. I mean we have a dedicated team that's focused in this area. Really, the transaction that we executed on in December was a really unique opportunity that our scale, sophistication, the talent that we built up uniquely positioned us to be able to execute on a transaction like that. And similarly, in the future, we'll evaluate all sorts of opportunities to do transactions such as those. Operator: Our next question comes from Anthony Pettinari with Citigroup. Anthony Pettinari: I was wondering if you could talk about operating rates in lumber and OSB. And then in the spirit of black at the bottom, what kind of steps you've taken to improve profitability ex-product price improvement? And if we stay 1.3 million starts, maybe single-family $1 million or below $1 million, if that were to continue for a few years, just kind of how you think about the footprint and the size and just sort of general thoughts there. Devin Stockfish: Yes. Well, first, on the operating rates, in Q4, in lumber, we were sort of in that mid-70% operating rate. As we noted, we took some steps to intentionally dial that back just given the dynamic in the market. OSB kind of in that mid-90% range was pretty typical for us. As we think about the overall market, obviously, the Q4 pricing environment for lumber and OSB was about as tricky and challenging as we've seen in a very long time. And so while we're certainly not pleased to have been underwater in Q4, we weren't alone. I think that was something that impacted the industry as a whole. I think over time, what you'll see is that we have navigated this better than the rest of the industry. We're always focused on OpEx. Certainly, in a market where you're at sort of trough pricing, that becomes pretty challenging. But over time, it all comes down to where are you on the cost curve relative to the rest of the industry and the work that we've been doing over the past decade, the focus that we've had on OpEx, I think, has positioned us very well on the cost curve. And that will show up over time. The reality is you're not going to see pricing at levels where the majority of the industry is underwater. We've seen that play out perhaps for a little bit longer period than we had expected. But you've seen a fair bit of mill closure announcement. You've seen mill capacity curtailments. You're starting to see the results of that activity and some of the pricing uplift. So I know it's tricky when you are at that trough. But when you look out over a broader period of time, certainly, I think we're going to be positioned well relative to the rest of the industry, and I expect us to get back to profitability here in the very near term. Anthony Pettinari: Got it. Got it. That's very helpful. And then just switching gears on EWP and Monticello -- like given the weakness in single-family housing construction, if you had all that capacity with Monticello if it was online today, is the performance of the product such and the market -- kind of the share gain such that you'd be able to kind of be sold out? Or I'm just trying to understand like if single-family starts continues to be kind of tepid and Monticello comes online, is the demand for the product such that you're just going to sell it out anyways? Or would the ramp be slower? Or just how should we think about that in the context of sort of different levels of single-family demand? Devin Stockfish: Yes. I think a couple of things to keep in mind with respect to timber strand specifically. Number one, we do think we can take market share from other products with the TimberStrand product line. It's got a cost structure and a performance structure that we think we can effectively go out and take market share from other products, whether that's lumber or other EWP products. Second, it is a pretty broad end-use opportunity, whether you're talking about single-family, multifamily, I think there's opportunities in commercial, in mass timber. So it's got a pretty broad set of opportunities beyond single-family. And so we're feeling very optimistic about this mill coming online and our ability to sell it out relatively quickly. Now obviously, when you're starting up a new mill, it's not going to come out of the box on day 1 at 10 million cubes, right? It takes a little time to ramp these up. But we've got a sales and marketing plan in place to be able to go out there and move this product. And it is, as we've mentioned previously, one of the top products in our suite of EWP products. So we're encouraged and excited about it. And even if we are in this kind of housing market, we feel good about our ability to move it. Operator: Our next question comes from George Staphos with Bank of America. George Staphos: So David, Devin and Andy, I guess the first question I had, you did a real nice job in the South on mix from what we were looking for. You had mentioned a lot of things that you were sort of challenged by. We had heard log decks were pretty full and the like, and yet you had nice mix. You were up. A lot of that you said was from fiber log sales in the quarter. I was wondering what else contributed to the mix benefits? I know you mentioned exports to India and why that doesn't continue into the first quarter? Because it sounds like mix will be down even though you're going to be selling a bit more on the side of fiber logs. Is it just that exports will dissipate sequentially into 1Q? And what are the risks to the upside on that front? And then I had a follow-on. Devin Stockfish: Yes. I mean the answer to your initial question is really just we have the scale and diversity of customers to be able to operate through a whole variety of different markets. And that's really what we've been doing here over the last several quarters where you've seen some headwinds, largely related to end markets in lumber and OSB. But as we think about Q1 and the mix, I mean, to a degree, these are all around the margins, right? And so in any particular quarter, your harvest plans might have a little bit more big logs versus small logs or vice versa. You may have a little bit more thinning activity in the mix. And so really in the South, the Q1 is -- we just have a little bit more thinning activity. So there's just a little bit more pulpwood in the mix. I don't think there's any sort of material change in how we're operating the business. You see those sort of minor fluctuations quarter-over-quarter, and that's really just a reflection of that. In terms of India export program, we're really excited about how that's going. In any particular quarter, just depending on how the shipping schedule plays out, you might have 1 break-bulk ship versus 2 or vice versa. And so that's really just the mix story is nothing material. It's just kind of those minor differences you see quarter time to time. George Staphos: And then a follow-on question in EWP, we're seeing at least some pickup in dimensional lumber markets. Again, as was discussed earlier, a lot of that at this juncture is probably more supply than demand driven. But nonetheless, prices are heading higher. We'll see what happens, but it sounds like construction markets will be stable or better this year. And just wondering why we're not seeing that yet show up in EWP pricing and it's not significant. You didn't say it would be down a lot, but you're signaling a modest decline in EWP pricing sequentially into 1Q. And just wondering how you see that market in terms of supply-demand, competition, mix this year and in particular, what's driving 1Q? Devin Stockfish: Yes. I mean, as you know, George, it's really all about what's going on in single-family. That's the primary driver for EWP. And we have seen 2025 was the fourth down year in a row in terms of housing starts. And so that just puts some pressure on EWP. Unlike OSB and lumber, you just haven't really seen mill shutdowns or the level of curtailments that you've seen in some of those other product lines. So on the demand side, we're expecting -- our base case is that housing is going to be up slightly in 2026 relative to 2025. And look, perhaps if we could see even more downward pressure on mortgage rates, perhaps there's even some upside. So that's just kind of where we are. And in an environment where housing has been going down for 4 years in a row, that puts a little bit of pressure on the EWP. But that being said, I think when you look at our performance relative to others, our realizations have held up better than others, and we're out there really trying to take advantage of the moment and pick up market share and really deliver value to our customers. And markets go up and down with housing, and you just got to be able to navigate both the highs and the lows, and that's what we're doing. So we're still feeling very good about the EWP business. The team is doing a great job, service model, product quality. We're going to be rolling out some new products at the Builders Show. So we're excited about the opportunities in that business. Operator: Our next question comes from Mark Weintraub with Seaport Research Partners. Mark Weintraub: Devin, lots of commentary on housing, single-family. Just curious, maybe a bit more in the way of detail what you're seeing in repair and remodel and what type of pull-through maybe you've already started to see and any indications that might suggest and what you're hearing from customers in terms of potential outlook for the year? Presumably, it's mostly important for your lumber business, but if this is important for anything else, maybe share that with us as well. Devin Stockfish: Yes, you're right. It's primarily a lumber play from us, although, I mean, there's still some OSB takeaway out of that market. And increasingly, and still around the margins, but a growing piece, I think there's an opportunity with EWP into that market as well. But I'd say right now, I don't know that we've seen any sort of material pickup in activity on the ground today. Obviously, the weather issue that we just had across the South has not been helpful for construction activity. But I would say, in terms of outlook, our customers in the R&R channel are expecting to see some level of growth year-over-year, probably in the low single digits. But certainly, that's an improvement over what we've seen over the last couple of years. Mark Weintraub: Okay. And I recognize it's a tough question, but what type of single-family starts or housing starts level do you think are required in the different businesses to sort of sustain balance in the markets for the course of the year at this point, keeping -- taking into account some of the mill closures that you've been seeing kind of begin to add up. Devin Stockfish: Yes. I mean I don't think we're really that far off in lumber. We've certainly seen a whole lot of mills closing down over the last several years. It doesn't feel like we're really all that far out of balance from a lumber standpoint. And I think from an OSB standpoint, we're probably not that far off there either. Obviously, one of our competitors announced a pretty large closure that's going to be taking effect in March. So we're probably not that far away in OSB either. EWP is a little different. You just haven't really seen any sort of meaningful curtailments or closures there. So when we think about housing starts, I mean, not that it's not relevant, of course, it is, but it's really what housing starts do we need relative to the supply that's available in the system. And those 2 things do balance out. Sometimes it's a painful period to get there. But what I would say, Mark, is the silver lining here is, at some point, we're going to see an improvement in housing activity. I really do believe that fundamentally. And as the overall supply base has worked its way down to be more appropriate for a 1.3-ish million housing starts scenario, as the housing demand picks up, you do typically have a run on the other side where demand gets a little bit stretched as that -- the overall housing activity picks up. So at some point, we'll hit that, and we should have a nice run in both lumber and OSB. Mark Weintraub: Great. And maybe one -- a little bit off the beaten track, but -- so Potlatch and Rayonier closes today. Have you guys given thought as to kind of any implications and maybe there's not much, but that you think having them as competitor instead of 2 -- just 2 timber REITs out there instead of 3? Any thoughts that you've been having about that? Devin Stockfish: Yes. I mean I can't see any sort of meaningful impact to us. We competed with them individually. We'll compete against them collectively. It's not really going to make a whole lot of difference in the marketplace with our customers. So I don't think it's going to have any sort of meaningful impact to us. Operator: Our next question comes from Kurt Yinger with D.A. Davidson. Kurt Yinger: I wanted to go back to the Investor Day targets. If we were to just kind of hone in on the next 12 or 24 months, can you talk about maybe a few of the main areas that you expect could be kind of more meaningful contributors? And any sense of kind of guideposts and thinking about how much of that $1 billion you might expect over that time frame? David Wold: Yes. You bet, Kurt. I mean, as we think about those targets, really, I'd have you look back at the growth in our Climate Solutions business over the last several years, right? It's not necessarily going to be linear, especially in the early portions of this growth. We got a lot of work done over the course of 2025. Of course, we laid out our targets publicly at the end of the year. But really over the course of 2025, we did a tremendous amount of work laying the groundwork, building out the project plans, identifying resources to go after these initiatives in a thoughtful and detailed aggressive way through 2030. So as we think about the larger buckets, we've already made some progress towards some of those growth areas, thinking about going back to the Climate Solutions space. That's an area that we demonstrated progress on from our 2024 baseline to 2025, growing that from $84 million to $119 million the growth that we've done with the timberlands optimization, that's going to contribute. Some of the other buckets, thinking about TimberStrand, some of the biocarbon initiatives, those are going to be a little bit more chunky as those facilities come online later into it. So again, I think it's not something we can necessarily give you granular guidance, but we're really pleased with the progress that we've made to date. We'll continue to report out on our progress as we progress through 2030. Kurt Yinger: Got it. Okay. That's helpful. And then on the acquisition and divestiture front, I guess, net of the deals that you did in 2025, with what you've added, is that expected to be like a net positive in terms of timberlands profitability in 2026? And then kind of looking at the Virginia transaction specifically, how would you have us think about what that property was doing from kind of an EBITDA or cash flow perspective? David Wold: Yes. Yes, sure, Kurt. I guess, first of all, just on the broader timberlands portfolio optimization, obviously, a lot of that can get lost in the noise of market dynamics with things being a little bit more challenging, particularly with Western log pricing over the past period of time. So it can be a little bit challenging to see that in the results at times. But really, I'd point you back to the materials that we presented at Investor Day. We showed that the portfolio optimization work going back to 2020 is going to drive $60 million on average of incremental cash flow in the timber space. So you got to slice and dice that a little bit to think about the '24 period onward in terms of the growth target, but very pleased at that. And absolutely, the activity that we did over the course of 2025 is going to be net positive to our cash flow generation capabilities. The Virginia properties, in particular, I don't know that we're going to get into specifics on the EBITDA levels there. But any time we're thinking about the candidate for divestitures, we're looking to continue our journey to improve the overall cash flow generation capabilities of the portfolio. So while these were high-quality assets in the broader market, great interest from other parties, they were certainly below average for our portfolio in terms of cash flow per acre, harvest tons per acre without significant integration. So not something that we anticipate having a meaningful impact on our timberlands EBITDA generation. Operator: Our next question comes from Ketan Mamtora with BMO Capital Markets. Ketan Mamtora: Maybe a couple of questions on capital allocation, Devin or David. Leverage climbed to 5x this quarter, and it looks like it could move higher depending on what happens to lumber OSB prices in the coming quarters. Curious kind of where is your comfort level as we move through 2026? I know kind of having an investment-grade rating is very important for Weyerhaeuser. But I'm just curious kind of where is your comfort level so far as net leverage is concerned. David Wold: Yes. Look, Ketan, I would say a couple of things on the leverage topic. As we think about capital allocation, there's a couple of foundational elements. You mentioned the investment-grade credit rating, and that's foundational of holding the base dividend, that is foundational, so yes, we have tracked higher from a leverage perspective. But as you know, again, that 3.5x net leverage target that we have is a mid-cycle number. And so certainly, we would like to see our leverage number lower today. But just as we saw a couple of years ago when markets were really strong and we were hovering around 1x leverage, that's not necessarily something that's going to persist. I think you have to look at the commodity pricing environment and the impact that's having on the EBITDA portion of the net debt-to-EBITDA calculation. And I also think I'd point out a couple of things in terms of context on the work we've done on our balance sheet over the last several years. We paid down a significant amount of debt. If you go back to 2019 and compare our interest expense, we reduced our annual interest expense by $100 million during that time period. We've optimized our portfolio. So notwithstanding the current state with the denominator in that net debt-to-EBITDA calculation, we feel really good about the strength of our balance sheet and the work we've done to strengthen that. So we have a tremendous amount of flexibility as we think about the balance sheet moving forward. Devin Stockfish: And I'd even say, I mean, this is working exactly as we would have expected. When you tell me that -- you would have told me that at peak pricing, we'd be at 1 and at trough pricing, we'd be at 5, and we kind of bounced around in between over the course of the interim. I would say that's pretty much exactly how we would expect this to work. Ketan Mamtora: Got it. Okay. No, that's helpful. And then just one other question. Given sort of the disparity between public and private market values in timberlands, would you be open to doing more divestitures in addition to kind of the one that you are doing in Virginia out if the right opportunity presented? David Wold: Yes, absolutely. I mean, Ketan, we're going to do anything that we think drives long-term shareholder value. I think we've shown we've been open to divesting portions of our portfolio. The activity that we do in our real estate business also capitalizes on the value that we can unlock in our portfolio. So absolutely, we'd be open to anything that's ultimately going to drive value. I think that's something that we've demonstrated. We can be adding value any time we transact on our portfolio, whether that's on the buy or the sell side. So we'll continue to look for opportunities to optimize our portfolio. Ketan Mamtora: In the near term, though, would you say that you would be more of a net seller versus a net buyer or not necessarily? David Wold: Again, I think we're going to look at all the opportunities that are available. So we're going to look to optimize shareholder value for the long term. And so we'll look to be active in that portfolio any time that it makes sense to transact on our portfolio. Operator: Our next question comes from Matthew McKellar with RBC Capital Markets. Matthew McKellar: First, you talked about upside potential in Western sawlog markets if lumber prices pick up. Could you help us just give us a sense of what kind of increase in prices or sawmill demand, however you'd like to frame it, that you'd need to see to create real tension and price momentum there? And then from the supply side, it seems like a bit of a marginal change, but will you expect the expansion of buffer zones around the non-fish-bearing streams in Western Washington later this year to have an impact on log markets there in the West? Devin Stockfish: Yes. On your first question, the markets are fundamentally tension in the West. And what we've seen from a Western log pricing is really just a reflection of really weak lumber pricing. And you'll see periods of time where buyers will purchase logs at prices that put them under water, but they just can't do that for extended periods of time. So you typically see a pretty strong log price reaction as you see lumber prices move up. Now there may be a month or 2-month lag in that catch-up. But if you continue to see lumber prices move up in the West, we've seen a bit of that here recently, you'll see log prices follow along shortly thereafter. With respect to your second question, that relates to some regulatory changes happening in Washington state. Look, as with almost all regulations in Washington or Oregon or really any environment where we operate, we have the scale and expertise to navigate those pretty well. So I wouldn't expect that to have a meaningful impact on us. It may to others, particularly smaller landowners. There were some, I would say, flaws in the rule-making process to bring that forward, which is why there are several lawsuits underway. So it's not even entirely clear to me that those rules will ultimately come to fruition. But if they do, we'll manage through it, and it shouldn't be too impactful to us. Matthew McKellar: Great. That's very helpful. And then just quickly, you mentioned elevated log inventories at mills in the South. Can you maybe just give us a sense of how those inventories would compare to where they'd normally be this time of year? Devin Stockfish: Yes. I mean when we say that, we're talking about if a mill typically carries 7 or 8 days of inventory and maybe they're carrying 8, 9, 10. So you can -- in the South, it's not like in Canada where they're carrying really, really large log decks. You can work through these pretty quickly if you have either a weather event that limits log supply into the system or if you see a pickup in lumber demand and people start running full and picking up overtime shifts. So you can move through that pretty quickly. The impact in the near term is just if you're log decks full, you don't necessarily have to get too aggressive on pricing. You can take a little bit more risk around the margins. But again, that can reverse itself pretty quickly depending on circumstances. Operator: Our next question is from Hong Zhang with JPMorgan. Hong Zhang: I guess 2 questions for me. Number one, how are you thinking about the pace of share buyback activity given the recent rally in the stock? And for my second question, it's encouraging that export shipments are resuming in China. Do you expect export volumes to, I guess, normalize sometime this year? Or is that more of an outer year thing? Devin Stockfish: Yes. Maybe I'll take the export question and David can hit the share repo question. On the export piece, I do expect that to ramp up a bit over the course of the year, but I do not expect it to get back to where it was a handful of years ago. That's just really a reflection of the lower real estate activity that we're seeing in China until that picks up. I don't know that you're necessarily going to see the ramp back up to kind of those more teens -- 200 teens levels of China log demand. But nevertheless, super excited about getting that program ramped up. Any option for log customers is great for us, and that will be helpful for our Western system. David Wold: Yes. And then with respect to share repurchase, look, we've said that's a useful tool in the right circumstance to return cash to shareholders. We have a framework that we've used consistently to evaluate capital allocation decisions. Obviously, the factors that go into that, the math is dynamic, but the process is consistent. We've been very active over the course of 2025 in our share repurchase activity, completed $160 million. That was our highest annual level in a few years, closed out the prior $1 billion authorization, announced the new one. So yes, at recent trading ranges, we continue to view that as a very attractive lever. But of course, we're going to continue to weigh all the opportunities available, not just share repurchase. And so that includes maintaining the focus on ensuring we've got a strong balance sheet, capacity for future growth opportunities. So as always, we'll continue to look to allocate our cash in a way that creates the most value for shareholders. Hong Zhang: And I hope the weather treats you better over there than it's going to treat us over here. Devin Stockfish: Alright. We hope that too. Operator: Our final question is from Michael Roxland with Truist Securities. Niccolo Piccini: This is Nico Piccini on for Mike. Just starting off, the 1Q Timberlands EBITDA guide seems maybe a little light relative to history. I think there's usually a bump up from 4Q to 1Q. We've had some commentary so far, but I guess how does that reconcile with the comments that regional log markets are kind of trending more towards balanced supply/demand even if you have some inventory out of whack? Devin Stockfish: Yes. So the way I would frame that up for you is -- when you look at Q4 and Q1 to date, we've just seen largely because of what's happened in the lumber market, we've seen pretty soft log prices. And so to some degree, last year, we kind of saw that trending that direction. And so we pulled a little bit more volume into the summer months so that we could take advantage of higher pricing. And so what you saw is volume coming off in Q4 as well. As we've trended into Q1, when we entered Q1, and so for January and to date, log prices are still softer than we would like. And so you look at our Q1 volume in Western Timberlands it's down relative to what you'd normally see in Q1. Now we still have comparable volumes across the year. And so we're going to spread that out as the year progresses when we expect to see pricing a little higher. So quarter-to-quarter, you might have these little fluctuations in volume depending on what's going on in the market. But our primary goal, obviously, is to maximize profitability across the year. And so that's really the context around Q1 as we pulled a little bit of volume back, primarily because January and early February, we think pricing is going to improve as we get deeper into the spring and the building season. So we're going to put a little bit more log volume into the market when pricing is better. Niccolo Piccini: Got it. That makes sense. And then just following up, in your base CapEx target of $400 million to $450 million, excluding Monticello, what are some of the key projects there that you're looking to complete in 2026? David Wold: Yes, you bet. So yes, we did guide the $400 million to $450 million. That is in line with the guidance that we provided back in December at our Investor Day. Really thinking about it, it's the typical suite of projects. On the timberland side, that's reforestation, silviculture, roads, bridges, those kind of things. On the wood products side, it's thinking about the projects that we've successfully completed in some of our lumber mills, replicating those elsewhere, really with a focus on reducing cost, improving recovery, improving reliability. So really more of the same in terms of the themes that we've been working on in our CapEx program over the last several years. Niccolo Piccini: Got it. No one particular big project to call out or anything outside Monticello? David Wold: No. That's right. Operator: We have reached the end of the question-and-answer session. I would now like to turn the floor back over to Devin Stockfish for closing comments. Devin Stockfish: All right. Well, thanks, everyone, for joining us this morning, and thank you for your continued interest in Weyerhaeuser. Have a great day. Operator: This concludes today's teleconference. You may disconnect your lines at this time, and we thank you for your participation.
Operator: Welcome to Hemnet's Q4 and Full Year 2025 Conference Call. [Operator Instructions] Now I will hand the conference over to the speakers. Please go ahead. Jonas Gustafsson: Good morning, everyone, and a warm welcome to this 2025 Q4 release call and full year review for Hemnet Group. My name is Jonas Gustafsson and I'm the Group CEO of Hemnet. With me, near my side today at our headquarters in Stockholm, I have our Chief Financial Officer, Anders Ornulf; our Chief Operating Officer, Lisa Farrar; and our Head of Investor Relations, Ludwig Segelmark. Today, we've called for an extended session to cover an update on some important strategic and commercial topics and will, therefore, have a slightly longer presentation than usual. Firstly, we will start with a normal quarterly presentation where we go through the financials from Q4 and the full year of 2025. After that, we will follow up with a deep dive on Hemnet's market position as well as our strategic and commercial focus areas going into the first part of '26. Anders will also quickly break down what this means for our financial reporting going into this new year. As always, there will be opportunities to ask questions at the end of the presentation, and we will combine the Q4 Q&A and the deep dive Q&A into one session. Today's presentation will be moderated by our operator, so please follow the operator's instructions to ask questions through the provided dial-in details. So with that, let's get started, and let's move on to the next slide, please. Despite a very difficult market backdrop, Hemnet demonstrated strong performance and resilience in the fourth quarter. Net sales decreased by 4.4% in Q4 driven by a continued weak market with low published listing volumes. New listings were down with 26.4% in the quarter. Around 5 percentage points of the volume decline during the quarter was attributed to a new business rule introduced in February 2025, impacting the year-on-year comparison. This new business rule is allowing sellers to change agents without buying a new listing. ARPL, average revenue per listing grew by an impressive 29.2% in the fourth quarter driven by a continued increasing demand for Hemnet's value-added services fueled by a continued conversion towards Hemnet premium. EBITDA declined with minus 12.8% to SEK 154 million as the low listing volumes lead to lower net sales and lower fixed cost leverage. For the full year of 2025, the results demonstrated strong resilience with net sales increasing by 9% to SEK 1,526 million and EBITDA increasing by 7% to SEK 768 million, corresponding to an EBITDA margin of 50.3%. This was driven by yet again strong ARPL development of 28% for the full year, and this underscores our ability to maintain strong underlying value creation even in a challenging and unpredictable market. Going into this new year, we have several exciting product launches planned for the first half in 2026. This includes the rollout of Sell First, Pay Later”, which will start on Monday next week in Stockholm. We will talk more about why we're so excited about the new product launch later on in the presentation, but the pilot results have indicated a fantastic opportunity to drive both more and earlier listings to Hemnet. Now let's turn to Page 3 for a quick look at the financial performance. Net sales amounted to SEK 348 million, down by 4.4% compared to the same period last year, driven by the significant decline in listing volumes during the quarter. EBITDA decreased by 12.8% to SEK 154 million. The decrease was driven by the lower listing volumes, which drove lower net sales and reduced fixed cost leverage. The EBITDA margin amounted to 44.2%. As per usual, Anders will break down these profitability dynamics in more detail as we move further on into the presentation. Now let's turn to Page 4 for a look at the property market and the listing volumes. On the left-hand side of this slide, you'll see a combined chart showing published listings per quarter and yearly as well as the year-on-year change between quarters. Published listings decreased by 26% year-on-year in the fourth quarter and by 13% for the full year. The slow market continues by negatively impacted by longer selling times and the average listing duration on Hemnet has increased by 20% year-on-year to 55 days in Q4 compared to 46 days in the same period last year. In addition, a sell first mentality is continuing to impact the value chain and the industry dynamics. The volume decline was partly attributed to the changed business terms in February 2025 for changing agents, which explained approximately 5% of the new listings decline compared to last year. While the overall picture remains bleak, there have been some positive signs of renewed activity during 2025 with rising prices, record villa sales and a supply that started to decrease towards the latter part of this year. With that said, the inflow of new homes remains constrained going into the new year as the market positions itself for a stronger expected market from the second quarter and onwards. Let's move on to the next slide to look a bit closer on the strong ARPL development. ARPL, average revenue per listing grew by 29% in the fourth quarter. The ARPL growth was again mostly driven by a strong demand for value-added services. The conversion rate to higher-tier packages continued to increase during the quarter and is at all-time high levels. Hemnet Premium which was launched in late 2019 is the main driver of our ARPL growth in the fourth quarter. When looking back on its history, it's important to keep in mind, and it's important to remember the Hemnet Premium was initially met with some skepticism from both agents and buyers, and it took more than 2.5 years after the launch before Hemnet Premium was able to reach double-digit conversion. With that in mind, Hemnet Max is well positioned to capture the next level of demand for customers seeking to maximize their chances of a successful sale and become a key growth drivers for many years to come. The initial results and the product performance of Hemnet Max has been stellar. Before moving into the financial section, let's have a look at what has happened during 2025 from an overall Hemnet and from a product perspective. While 2025 was characterized by resilience, it was above all a year in which we geared up for the future. Through an increased pace where AI tools have notably helped us to become more efficient, we entered the new year with a significantly strengthened product portfolio and an organization ready to drive the market forward. In 2025, we made significant progress in developing our consumer-facing proposition and we've taken actions to strengthen our relationship with the industry, and we're well prepared for our large strategic product initiatives being brought to the market in early 2026. With these elements in place, we do look forward to 2026 with great pride and confidence, ready to deliver more value to our users, to our customers and to the real estate agents than ever before. And with that, I will hand over to Anders for the financial update, starting with Page 7. Anders, please take it away. Anders Ornulf: Thank you, Jonas. Let's turn to Page 8 and the financial summary. As Jonas alluded to, we ended the year in a property market that remains challenging, characterized by continued hesitation to list new properties. This resulted in a decline in published listing of 26% for the quarter. However, despite the significant headwind in volumes, our financial model demonstrated resilience. Net sales for the quarter amounted to SEK 348 million, a decrease of only 4.4%. Another noteworthy point is the average listing time, which on a rolling 12-month basis increased from 46 days in '24 to 52 days in Q2 2025 and now 55 days in Q4 2025. The year-on-year effect of the longer listing time is a positive SEK 12 million in revenue for the quarter, and the sequential effect of the 3 additional days from Q3 to Q4 is negative minus SEK 2 million. To smooth out system variation, we recommend tracking ARPL growth on a rolling 12-month basis, as shown on Page 4 of the presentation. The bridge between the volume drop and the revenue performance is once again the ARPL. You can see that it grew by 29% to SEK 10,900, historic high for a single quarter and was driven by continued strong demand for our value-added services, specifically Hemnet Premium. Looking at profitability on the top right, EBITDA for the quarter came in at SEK 154 million. The EBITDA margin was 44.2%, margin contraction compared to last year is primarily a function of lower listing volumes. Since a large portion of our cost base is fixed, lower volumes naturally lead to lower coverage of these fixed costs. I will walk you through the specific cost dynamics in more detail on the following slides. One important component in the margin development is, of course, the compensation to real estate agents. When expressed as a percentage of property seller revenue, this ratio increases year-on-year from 31.5 to 32.3 in Q4 '25 driven by a further improvement in both recommendation rates and actual conversion. Higher commission reflecting a substantially stronger underlying improvement of our Bas products. And as always, the effective commission is a variable component and tends to fluctuate somewhat between quarters, making what's suitable to measure over longer periods. Free cash flow. Free cash flow was SEK 745 million, a 7% increase year-over-year. This robust cash generation underscores both the scalability of our business model and our strong profitability even in a very soft housing market. Our operations continue to convert a high portion of revenues into cash, highlighting the quality of our earnings. We continue to uphold a strong financial position. Net debt leverage ended the quarter at 0.7x. The increase in leverage is primarily an effect of our active capital allocation strategy, combined with the low listing volumes during the period. Notably, during this year, we expanded our share buyback program from SEK 450 million to SEK 600 million following the mandate approved at the AGM 2025. We have continued to return capital to shareholders, while at the same time, maintaining a conservative balance sheet. Importantly, this demonstrates the strength of our position, we're able to execute the capital returns and still retain a very high degree of financial flexibility going forward. Headcount increase of 15 largely reflects the organization has been selectively strengthened, primarily within tech and product as well as new leadership within marketing. However, regarding the total number, it's important to take into account that we had an usually high number of vacant fills at the end of '24, which impacts the year-on-year comparison. With that overview, let's turn to Page 9, the revenues by segment to take a closer look at the Q4 figures. Starting with our largest segment, property sellers revenue amounted to SEK 298 million which again, very modest relative to the drop in listing volumes. Turning to the B2B segment, net sales decreased slightly by 0.8% to SEK 50 million -- SEK 51 million. Within this segment, revenue from real estate agents grew by 3% to SEK 24 million. This growth was driven by strong performance in our Sold by Us product and other value-added services for agents, which effectively offset the impact of fewer published listings. Revenue from property developers decreased by 14%, sector remains under pressure, fewer project starts and the general cautiousness regarding marketing spend from these customers. Finally, revenue from advertisers grew by 4% to SEK 16 million. This is a positive deviation from the trend we've seen in the recent quarters despite the challenging macro environment for display advertising, we managed to grow this line item due to strong sales to banks and other advertisers. Let's go deeper into the profitability dynamics on Slide 10, showing the EBITDA bridge for the fourth quarter. First bar shows the net sales impact, which then, of course, had a negative effect of SEK 16 million. Next, we have compensation to real estate agents, costs decreased by SEK 2.5 million since commission is largely linked to seller revenue, the decrease in seller revenue naturally leads to lower absolute commission payments. Moving to other external expenses. They are flat year-on-year. We have maintained cost discipline with slightly higher costs but licenses were balanced out by lower spend on consultants and marketing compared to the same period last year. Personnel costs increased by SEK 10 million, representing a 17.7% increase in the quarter and is driven mainly by increase in number of FTEs and annual salary inflation. We ended the year again in the headcount with 167 employees. Finally, other costs had a minimal positive impact brings us to Q4 EBITDA of SEK 154 million. Now let's zoom out and look at the full year '25 on Slide 11. While Q4 was impacted by specific volume headwinds, the full year picture demonstrates the robust growth profile of Hemnet over time. For the full year '25, net sales grew by 9.5% to SEK 1.5 billion. This was achieved despite a full year decline in published listing of 13%, driver again is ARPL. Full year ARPL increased by 28% to 8.1 -- SEK 8,200. This consistent ability to grow ARPL faster than volume is, of course, core. EBITDA for the full year increased by 7% to SEK 768 million, corresponding to a margin of 50.3%. The effective commission is a significant component of the P&L, again, and it's increased from 30.4% in full year '24 to 30.7%, driven by the strong conversion to our value-added services and the compensation model launched in July '24. Turning to Slide 12 for the full year revenue breakdown. Property sellers revenue grew by 11% to SEK 1.3 billion. This segment now accounts for 86% of the total revenue in the year. And again, it really underscores the strength of our business model. B2B revenue for the full year was essentially flat, declining 0.7% from lower display sales partly as a result of lower number of published listing in later part of the year. Real estate agents revenue grew by 3%. The highlight here is our Sold by Us product, which grew by more than 2x compared to 2024. This product, as an example, is becoming a big part of the agents marketing mix. But it's also a further proof that we are able to launch new products that create real value for the customers, even if it may take some time before it's fully gained traction. Property Developers revenue was flat year-on-year, which we consider a stable result given the severe headwinds in new construction markets. Advertisers revenue declined by 7% for the full year, reflecting the broader weakness in the digital advertising market and lower traffic resulting from fewer listings. All in all, very encouraging that we are able to maintain revenues in our B2B segment despite the low level of listings, which negatively impact impressions. We have carefully offset -- we have successfully offset this to growth in our Hemnet Premium products, which creates value for the priority customers, real estate agents, property developers and banks. On Slide 13, we see the EBITDA bridge for the full year '25. Starting from SEK 720 million in '24, the primary positive driver was, of course, the net sales growth, which contributed SEK 132 million to EBITDA. Compensation to real estate agents increased by SEK 44 million. The increase is the direct result of the higher revenue from property sellers and the successful launch of the new compensation model, which rewards agents for high recommendation rates of our premium products. Other external expenses labeled C increased by SEK 24 million, reflecting the decision to normalized investment levels in marketing and product development after a more cautious '23, '24. Personnel costs increased by SEK 20 million, driven by mainly the salary inflation in headcount investments I mentioned earlier. All in all, this resulted in an EBITDA growth of SEK 48 million for the year, landing at SEK768 million. Finally, let's turn to Slide 14 to review the cash flow and financial position. On the left, you see our free cash flow on a rolling 12-month basis, generating SEK 745 million of free cash flow over the last year with increase of 7%. I would like to briefly comment on the operating cash flow for the isolated fourth quarter. In addition to the impact on weaker listing volumes, we also saw a more technical effect of negative change in working capital driven by the timing of settlements for our payment service providers. This is a temporary timing effect and does not affect any underlying change in the cash generation. Our strong cash flow allows us to continue returning capital to shareholders. And as you can see in the middle of the chart, we have been very active with the share buybacks. In Q4, we repurchased share for SEK 160 million. Looking at the right-hand chart, our leverage is increasing, but put in perspective very low. Net debt-to-EBITDA ended the year at 0.7 slightly up as I commented earlier, but also remaining well below our financial target of 2. Reflecting our strong financial position and confidence in the future, the Board of Directors has proposed a dividend of SEK 1.90 per share. This represents an increase of 12% compared to last year and corresponds to approximately 1/3 of our earnings per share, in line with our policy. With that, I will hand the call back to Jonas to wrap up the first section. Jonas Gustafsson: Thank you, Anders. And let's move on to the summary slide on Page #16. To summarize the fourth quarter, the full year of 2025 and the news we announced today. First of all, we saw a continued pressure on new listings published in Q4, negatively impacting both net sales and EBITDA in the quarter. A strong ARPL growth of 28% for the full year offset the negative impact from lower listing volumes, leading to a total net sales growth of 9.5% in 2025. Going forward, we have a clear focus on addressing market friction and being a partner throughout the entire property journey. We have everything in place to start rollout Sell First, Pay Later on Monday next week on the 2nd of February. We look forward to 2026 with our focus set on delivering more value to our customers and the Swedish property market than ever before. With that, let's move on to the second part of today's presentation, a deep dive into Hemnet's business update on Slide 17. In this second part of the presentation, we wanted to take the opportunity to do a deep dive on Hemnet's strategic initiatives going into 2026. Some updated related to our financial reporting as well as some additional color to the market dynamics. So let's move on to the agenda on Slide 18. So for today's agenda on the Hemnet business update, firstly, I will go through and discuss Hemnet's current market position and what the Swedish property market looks like today and how it has changed over the last years. Secondly, our Chief Operating Officer, Lisa Farrar, will provide an update on our key product initiatives and commercial road map. Thirdly, Anders, our Chief Financial Officer, will cover how we structure our financial reporting in 2026. Lastly, I will provide a summary and a wrap up before we move into the Q&A session. With that, let's start by looking at Hemnet's market position on Slide 19. To start it off, Hemnet is the #1 property portal in Sweden. Hemnet continues to have a fantastic market position. Over 95% of property sellers in Sweden know our brand and close to 90% consider Hemnet that the first choice when selling a property. If you look at our weekly active users, we've had an average of 2.7 million weekly users in 2025. Despite the soft Swedish property market during especially the second half of the year when market activity and interest went down, we see that our users to a very large extent, continue to come back to our platform on a weekly basis. This is also shown in the reach that we have. When comparing Hemnet with other websites in Sweden, regardless of industry, Hemnet is the third largest commercial website after the 2 largest Swedish tabloids and newspapers being Aftonbladet and Expressen. Hemnet is a strong brand and engagement are also evident from the share of direct traffic that comes to our website. Between 70% and 75% from our traffic comes directly to us, either by typing Hemnet straight into the browser or going straight to our app. The high share of direct traffic shows that Hemnet is top of mind for users, and we have limited dependency on external traffic sources. Lastly, Hemnet has more than 25 years as the #1 property platform in Sweden. Our platform is deeply integrated into the working ways of the entire real estate industry. With that, let's move on to our role in the ecosystem on the next slide, please. The Swedish property market has a long history of being efficient and attractive and Hemnet has played an instrumental role in creating that ecosystem over the past 25 years. The market has been characterized by short sales cycles, a buy before sell mentality, ease of transacting and strong underlying price development. The attractiveness of the market has further been aided by highly professional of well-respected real estate agents coming from a professional educational background. In addition to these dynamics, the market demand is spurred by high-income ownership, limited buy-to-let segment and the dysfunctional rental market. This has led to a highly attractive market over time. Hemnet platform is at the center and the heart of this market and serves as the natural meeting point where agents, where sellers and where buyers meet. As you can see here on the next slide, Hemnet has been able to build an impressive business based on the strong market position. Hemnet has shown strong revenue and EBITDA growth in the past couple of years. The lion's share of the growth development has come through growing ARPL, average revenue per listing over time. This has been achieved through adding and growing new packages and products to our proposition. In late 2019, when Hemnet launched Hemnet Plus and Hemnet Premium, and these packages have grown in popularity steadily every single year and single quarter since then. In late '25, Hemnet Plus, Hemnet Premium and newly launched Hemnet Max together announced accounted for more than 75% of all listings, more than 3x compared to the end of 2020. The product-driven growth paired with price increases and payment alternatives, have been a key driver of financial success and has fueled investments into the platform, which has helped Hemnet maintain its strong position as the largest property platform in Sweden. If we then move on to the next slide, please. Hemnet is the undisputed #1 property platform in Sweden in terms of traffic and reach. Our traffic has been stable over time with the exception of the outlying years during the pandemic. When most digital platforms saw a significant surge in peak in traffic and activity as people spend more time at home and spend more time on digital platforms. When looking at Hemnet's traffic over time, it is important to understand the relationship between market activity and traffic. When market activity goes up, and more properties are listed for sale, so does activity and engagement on the platform. As seen on the graph on the right-hand side, there is a clear correlation between the number of newly published properties on the platform and the user behavior. In 2025, we saw a slight decrease in the average vehicle users, especially during the second half of the year as the number of new listings on the market decreased. Today, between 40% and 50% of Hemnet session come from the Hemnet app on iOS or Android. Hemnet's platform is mobile first, and the user on the app are typically much more sticky and much more engaged than the average browser user. With that, let's move on to the next slide, please, to elaborate a bit on our overarching ambition going forward. Our ambition is simple. We want to create value across the entire property journey. But what does that mean for us in practice. First of all, we want to have all relevant listings. If a property is for sale in Sweden, you should find that property listing on Hemnet. We know our users and provide them with a superior experience. Searching for a property on Hemnet should be a great user experience that is personalized to your needs and to your preferences. We are the #1 partner for agents, property developers and banks. And as a partner, it is clear that Hemnet generates superior value. We have the most comprehensive and valuable data. We can leverage more than 25 years of data on search behavior to further enhance the consumer experience and customer proposition. We are top of mind and have the largest property audience in Sweden, and we can never take our possession for granted. This is all enabled by the strong relationship that we've built with the real estate agent industry over the past 25 years. So let's move on to the next slide to take a closer look at what happened with the market in the past few years. Looking at the data, it's clear that the Swedish property market has gone through a few difficult years since 2022. The post pandemic era has brought changes to the Swedish property market dynamic. As you can see in these 3 graphs below, multiple trends have changed the industry dynamic. First of all, we've seen selling times increasing by almost 3x since 2022, driving a less efficient and less transparent market. Secondly, we have also seen a shift in buy behavior where 2/3 now sell before they buy a new property compared to the inverse ratio in early '22 and the years before. This has impacted the way of working for agent and has been driving a less efficient market. Thirdly, price development has been very weak since the pandemic years compared to historical levels, both real price development and nominal price development. The price development has led to lock-in effects impacting the overall market, especially in the apartment segment, which is a high-volume segment. This new dynamic has led to a more prominent pre-market that is characterized by lower seller intent, longer sales processes and a changed way of working among real estate agents. Let's continue on this topic on Slide 25. The role of the pre-market has become increasingly important over the last years. Lower seller intent, lower sales -- longer sales cycles and a changed way of working from agent has fueled a larger so-called pre-market. The pre-market is commonly defined as the stage of the market where a property is not outright listed for sale, and this part of the sales cycle has become longer and more pronounced. This has become problematic for buyers, for agents and for sellers as the pre-market is characterized by lower efficiency and a high variation when it comes to actual seller intent. Today, large proportion of the so-called Swedish premarket is actually old content with low seller intent. Approximately 50% of pre-market listings in Sweden today are older than 6 months. From a Hemnet perspective, that means that not all of the pre-market is relevant. But there is an active part of the market that Hemnet historically has not addressed in a satisfactory manner. This is now something that we are clearly and actively looking to change and will address with our strategic initiatives that we will elaborate further on in the presentation today. Next slide, please. Hemnet's value proposition has predominantly in the past, focus on the own sales segment. The core strength of Hemnet's model align very well with traditional for-sale segment. When the goal is to sell the property as quickly as possible at the highest price as possible, Hemnet has a very strong and undisputed customer proposition. With Hemnet, you maximize the number of eyes on the listing, increasing the chances of attracting more potential buyers to open house and maximizing the bidding process, which hopefully will lead to a successful sale at the highest possible price. The core model of Hemnet remains strong, which is important as it addresses the needs of the absolute majority of the market but we also need to ensure that we adapt our value proposition to cater for the current market environment that has changed over the last years. With a larger share of sales cycles taking place on the pre-market, we see that some more properties are being sold before reaching Hemnet. Looking at 2025, transactions on Hemnet decreased by approximately 5% compared to the overall market that was stable year-on-year. We're now addressing this. We're now executing on several strategic actions, including strategic partnership and the launch of Sell First, Pay Later, to ensure that we better serve the full market spectrum and have the strongest possible customer proposition in all different types of markets. Let's quickly look at this on Slide 27. We're now moving into execution on significant strategic actions to address the full market. Our key strategic actions in the first half of 2026 are Sell First, Pay Later, which will be rolled out in Stockholm from Monday and onwards. Thereafter, it will follow with a Western Sweden launch, a rest of Sweden launched in March and April. We will speak more about the findings that we've seen from the pilot and why we're so excited about the launch. Secondly, we are going into a number of different strategic partnerships, and this will also start to be rolled out in February. Already today and what we have announced today with more than 60 strategic partnerships in the early days. Leveraging AI and product innovation will ensure that we consistently update and improve our customer experience. And lastly, an increased sales and marketing focus continuing to build on the increased focus that we implemented during 2025, where we need more agents than we've ever done in the past. We work closely with the industry, and we invest in marketing with relevant returns. With that, I wanted to wrap up this initial session and hand over to Lisa to do a deep dive in all these exciting product initiatives and product launches that we have ahead of us. So with that, over to you, Lisa. Lisa Farrar: Thank you, Jonas. Let's move over to Slide 29, please. As Jonas has pointed out in his section, we are now launching 2 key strategic initiatives under the umbrella Hemnet hela vägen” or Hemnet all the way. The first initiative is Sell First, Pay Later. This is a new model where sellers pay only if they successfully sell their property. We're also rolling out strategic partnerships our next step in our 25-year collaboration with the Swedish real estate agent industry. As the pre-market place has become increasingly important, Hemnet is now accelerating our role earlier in the housing journey. By lowering the threshold for early publication and strengthening our collaboration with agent industry, we are reducing fragmentation, improving transparency and creating better conditions for sellers, buyers and agents to fully leverage the value of our platform. Today, we will also elaborate on how we work with AI at Hemnet. As the leading and most trusted property platform in Sweden, Hemnet has a fantastic position to leverage AI to further strengthen our position and significantly elevate our user experience. I will spend some time today describing our general approach to AI, but also disclosed a number of exciting customer-facing AI product features that we are rolling out on the platform as we speak. These 3 areas will be accelerated through our existing marketing and sales engine built over the past 2 years. By continuing to target brand investments and fully leveraging our strength in CRM and digital marketing capabilities, we can drive traffic and engagement efficiently ensuring strong execution of our strategic initiatives without adding material cost. Our sales team remains a strategic pillar of our go-to-market execution and a key competitive advantage through our close collaboration with the real estate agent community. In '26, we will continue to strengthen this proximity by meeting more customers and engaging on the full Hemnet value proposition, including the supply side of the Hemnet platform. Now let's dive into some of the different initiatives on the next slide. With Sell First, Pay Later, we are expanding Hemnet's present throughout the sales journey and driving more volume to the platform by significantly lowering the threshold to list your property on Hemnet. As we announced in the Q4 report, we ran a pilot between the first of October and 31st of December last year across 10 real estate agent offices in Sweden. The data and feedback from the pilot has been very supportive and exceeded our expectations. Volumes in the pilot were significantly stronger compared to the nonpilot population with the pilot offices having almost 40% higher year-on-year listing volume change compared to the nonpilot offices. That means that in a soft market, where listings on Hemnet were down by 26%, the pilot offices increased their number of listings on Hemnet year-on-year with 4%. In addition to the very strong volume effects, we also saw a larger willingness from both agents to recommend and from sellers to choose our value-added services and to use the Hemnet pre-market product. Moreover, when asking the participants in the pilots, more than half of the sellers stated that Sell First, Pay Later played a role in their decision to list on Hemnet, showcasing the strong value proposition of the new model for sellers. I want to point out that the business rules of the pilot differed from those that will apply when the actual rollout and therefore, these results should be treated with some caution. But with that said, we're extremely encouraged by the pilot results, and we look forward to rolling it out in Stockholm County next week. Let's move on to some of the feedback that we have received. The feedback that we have received from both sellers and partners have been very positive throughout the pilot. For sellers, the Sell First, Pay Later model helped lower the barrier to list what has been an uncertain market with longer sales cycles and weaker price development. As seen in one of the seller quotes from the surveys sellers said, no reason not to list on Hemnet when the payment becomes success-based. For agents, removing the upfront risk made it easier for them to pitch Hemnet already in the intake meeting ensuring that the listing received maximum reach during the full sales process. And for buyers, more high-quality listings were made available from committed sellers. And with that, let's move on to some of the technicalities of the new model on the next slide. Sell First, Pay Later will be available to all agents who choose to go with Hemnet all the way and publish a listing on Hemnet within 2 days from the time the listing is published on the agency website. That means that all real estate agents in Sweden will get access to the model, and it will be available regardless of what package you recommend. Sell First, Pay Later will be added as an additional alternative to pay now and pay when listing is removed. It will also be priced at a premium to pay when listing is removed. The way the payment to Hemnet works is that once the listing is sold, the agent is liable to mark the listing as sold and the invoice will be sent to the seller. The seller is liable to pay for the Hemnet listing as long as the property is sold during the time the listing is live on Hemnet or within 6 months of deactivating the listing on Hemnet. And the agent commission is paid once the property has been marked as sold. This model will be rolled out in Stockholm County from the second of February, which is Monday next week, followed by Västra Götaland on the second of March and the rest of Sweden on the 30th of March. In connection with the launch, there will be a grace period when agents will be allowed to publish all the listings on Hemnet, similar to what was done in the pilot. Let's move on to the next slide, please. Let's talk about the strategic partnerships that we announced in the Q4 call and that we are rolling out from February. We're incredibly excited to be able to roll out what is the next step in our 25-year win-win partnership with the Swedish real estate agent industry. With this partnership model, we are taking a more holistic approach to how we interact with the entire industry. Historically, Hemnet has focused a lot on engaging with franchise owners as this is where we have the existing commission model that incentivizes agents to make a tailored recommendation of the best product fit for each property seller. Now we are addressing both the HQs and brand owners as well as the actual agents to a much larger degree. The strategic partnerships at HQ and brand owner level are built around our brand concept Hemnet hela vägen or Hemnet all the way. The changed market dynamics of recent years where behavior has shifted towards selling first and buying later has led to more homes being published late on Hemnet. This means that sellers risk missing out on important product values, including upcoming, which is included in all listing packages and which has recently been enhanced to strengthen the value of early exposure on Hemnet. We are continuing to develop Hemnet to maximize the value for sellers, buyers and agents across the full sales journey. Our data shows that earlier listings on Hemnet drives higher interest and create stronger conditions for a successful sale. These strategic partnerships create a clear win-win for both real estate agent brands and Hemnet. Partners integrate Hemnet across the full sales journey, including the premarket phase, driving earlier and increased supply on the platform. In return, partners gain enhanced brand visibility, increased lead generation, access to under the radar listings and monetary compensation linked to successful use of Hemnet's pre-market offering. The desired outcome is this collaboration around the pre-market with shared incentives to use Hemnet as a marketing channel throughout the entire sales journey. Initial market reception, as Jonas mentioned, has been very strong with agreements signed with more than 60 real estate agent brands across Sweden, including major agencies such as Svensk Fastighetsförmedling, Notar, Erik Olsson and Croisette. This represents 1/4 of the market and 5 of the top 15 brands in Sweden. Additional discussions are ongoing, and we expect to onboard further partners in the coming months. Let's move to the next slide, please. As part of the strategic partnerships, we are introducing performance-based compensation to further incentivize agents to use Hemnet across the full sales journey and fully leverage the value of the platform. Compensation is linked to the share of premarket listings published on Hemnet relative to the total number of premarket listings available on the agent's own website. To qualify, an agency must increase its share of premarket listings on Hemnet compared to its baseline level at the time of entering the partnership. Partners have successfully increased their premarket listing share and exceed defined thresholds are eligible for compensation ranging from 1% to 5% of revenues, net of agent commission. The different tiers and thresholds are illustrated on the right-hand side of the slide. This performance-based model is similarly structured to our existing compensation model, creating a clear win-win for agents, sellers and Hemnet, while supporting growth in both top line and EBITDA. Let's move on to Slide 35 to see some examples of what the strategic partnerships look like in practice. As I outlined, the strategic partnerships include a set of new features and added values for agents. These include enhanced branding on listing pages, increased agent exposure in the My Home tab and the ability to surface under the radar listings on Hemnet. Several of these branding features are already live on the platform with additional functionality and partner onboarding planning for the coming months. With that, let's move to the next slide. As the leading and most trusted property platform in Sweden, Hemnet is uniquely positioned to leverage AI to further strengthen our market leadership and materially enhance the user experience. We operate in one country, one vertical and one market-leading platform with fully rights cleared data, resulting in a level of data quality and depth that is unmatched in Sweden. This allows us to move faster, go deeper and deploy AI in ways that is compliant, scalable and sustainable over time. The combination of historical, behavioral, geographic and transactional data is difficult to replicate and provides Hemnet with a durable competitive advantage. We are currently executing along 3 parallel AI tracks. Each designed to embed AI deeply into the core of our product and operations while leveraging our key strengths. Our first focus is to build a strong and reusable AI foundation. We have completed large-scale semantic tagging of more than 1.4 million listings and historical content. This capability underpins multiple AI-driven features across the platform and provides high operational leverage through a shared foundation. We continue to develop AI-enhanced models across the business, including the property valuations, where AI-driven image recognition feeds directly into our automated valuation models. Internally, we're also increasing efficiency through an AI-enabled operating model. This includes AI-assisted product and technology development as well as conversational analytics directly connected to our data warehouse. The result is shorter lead times, higher output and tangible efficiency gains, allowing us to execute our AI strategy at pace while maintaining disciplined cost control. Our second track focuses on delivering a materially improved user experience. We are using AI to personalize discovery, recommendations and insights enabled by our unique behavioral data and deep understanding of listing contents. We are rolling out conversational search on our platform to complement, not replace our existing search experience. This improves intense understanding and makes discovery more relevant and intuitive. We're also deploying AI-generated summaries that help users quickly understand complex information and make more confident decisions. These summaries are tailored to user intent and behavior while also preserving the full access to the underlying data. Our third track focuses on exploring new AI-driven frontiers and products. We are present with selected AI ecosystems and we'll expand our presence where it is strategically beneficial for Hemnet. From a risk perspective, we view AI-driven discovery as a potential shift in distribution rather than a disintermediation. While traffic from large language models currently accounts for less than 0.1% of our total traffic, we want to ensure that Hemnet is present where users are and where they will be in the future. Our approach is to treat large language models as distribution channels, not platforms. We integrate selectively and under strict data governance and control principles. This ensures that traffic, trust and user relationships remain anchored with Hemnet while still allowing us to benefit from innovation across multiple AI ecosystems. Finally, we continue to roll out consumer-facing products built on increased personalization, using our data to meet user needs with high accuracy, create partner value and unlock new revenue streams for Hemnet. Let's move to the next slide to see some product examples. We're shipping several AI-enabled products to meet emerging user needs and to accelerate how people discover and engage with homes on Hemnet. This week, we launched a conversational search beta that bridges human language and housing data. It improves discovery today while shaping how users will search and interact with Hemnet over time. We have also submitted a Hemnet in ChatGPT app for an integrated experience within ChatGPT. As outlined earlier, we view large language models as distribution channels rather than competitors. By integrating early, we ensure Hemnet is present, where users are beginning to experiment with new ways of discovering properties rather than reacting to distribution shifts after they occur. Go-Live is subject to OpenAI's approval. And as with all LLM integrations, this will be done selectively and on the strict data governance and control, ensuring that traffic, trust and user relationships remain anchored with Hemnet. On Monday, we are rolling out a personalized starting page built on AI. It introduces a personalized searches and recommendations, creating clearer and higher relevancy entry points into property discovery. And next week also marks the Go-Live of All Properties. This feature allows users to explore approximately 1.6 million homes directly in the map view, follow multiple properties and engage more broadly with the housing market beyond listings that are currently for sale. So to summarize the product and commercial update today. We are being more ambitious than ever in our product development. We're moving faster, being bolder, catering for a more dynamic market and deploying products that solve real user pain points. By deepening our connection with customers and leveraging AI at scale, we are strengthening the Hemnet experience today while building the foundation for long-term growth. And with that, I'll hand you over to Anders on Slide 38. Anders Ornulf: Thank you, Lisa. Let's move on to the next slide. So as you know by now, we are rolling out a number of changes to our business this year with the start on Monday next week with the launch of Sell First, Pay Later in Stockholm. These changes come with a few implications for how we structure our financial report in 2026. Revenues from sales with a Sell First, Pay Later option are recognized at a point in time when the invoice is issued i.e., when listed object market sold on Hemnet. The reason for the difference in revenue recognition compared to our existing payment models has to do with factors that need to be met in order for revenue to be recognized under IFRS 15. This means that the launch of SFPL will have a timing impact on reported revenues when launched. How big that timing effect will be is highly dependent on the uptake on SFPL and how that changes over time. In addition to the revenue recognition effect, the rollout of SFPL will also have a short-term cash flow impact, which will impact our working capital. This will be financed through a temporary increase in our existing revolving credit facility. Let's move to the next slide to see an example of what the revenue recognition effect could look like in practice. On this slide, you see an example on how different level of SFPL adoption will impact reported revenues in a highly hypothetical scenario. Please note that this example is based on certain assumptions and should, under no circumstances be seen as guidance from the company. For the sake of simplicity and to be able to understand the timing effect, we have assumed a scenario where 100% of properties on Hemnet is sold within 15 months. In this case, we assume no volume or price upside, which is obviously different from what we will see when we roll this out next week as the price for SFPL will be higher than the current payment options. We believe that it's easy to understand the timing effect in all else being equal scenario, not lending in too many assumptions. In this scenario, a 30% SFPL adoption will negatively impact the amount of recognized revenue in Q1 after launch by minus 11%. Similarly, a 50% SFPL adoption will negatively impact the amount of recognized revenue by 18%. As time goes and more properties are sold, the revenue recognition effect goes away. On average, approximately 50% of Hemnet listings are sold within the first 2 months and 70% are sold within the first 6 months. Very few listings are sold after the first 15 months. Moving on to the next slide, we will look a bit more on how long it takes for properties to be sold on Hemnet. As Jonas pointed out in his section, the steep market downturn in the spring of 2022 had a negative impact on the market as a whole and on how long it takes to sell a property. However, even though sales duration times have increased significantly, there has not been a large movement in how many properties that are eventually getting sold. Historically, between 82% and 92% of listed properties on Hemnet have been sold depending on the state of the market. In a strong market, like we had in '16, '17 or 2021, properties tend to transact very quickly, as you can see in the graph on this page. As stated on the previous slide, in the current market, approximately 50% of the properties are sold in the first 2 months and approximately 70% are sold within the first 6 months. After the first 12 months, roughly 81% are sold and roughly 85% are sold within the first 24 months. After 24 months, 2 years, very few transact. Let's move on to Slide 42. To be able to monitor the performance better going forward, we will update the definition of our ARPL, alternative performance measure, APM. The reason behind this change is to increase transparency and provide a better snapshot of the actual ARPL generated in the quarter. As the sales duration times have increased in the past 3 years, the ARPL metric has become more and more volatile on a quarterly basis. Therefore, we will start in 2026, we will change the ARPL definition from average revenue per published listing to average revenue per paid listing. As you can see in the graphs on the left, this will decrease quarterly volatility in the performance measure, but will have more or less no impact on the LTM numbers. We are confident that this definition change will make it easier for the capital markets to understand our business performance. The 9-quarter historical disclosure as seen in this graph has also been made available over the Q4 release this morning. Let's move to my last slide. We do recognize that the new launches we are doing this year makes it slightly more difficult to track and predict the short-term performance of our business in 2026. Therefore, we want to ensure that we are as transparent as we can when it comes to disclosure. And as a result, we will report preliminary sales figures on a monthly basis in 2026. Please note that our ambition is to only do this during 2026, and then go back to our normal reporting calendar in 2027. This means that starting in early March, Hemnet will report preliminary sales figures for February. The reporting will be issued in the press release 2 times per quarter, but only one time in Q1 as SFPL was not launched in January. Moreover, monthly volumes will continue to be published on the first working day of each month. The monthly volumes will include the breakdown of both paid and published listings from February and onwards. That sums up the changes to our financial reporting. And with that, I will leave it -- over to Jonas to summarize today's session. Jonas Gustafsson: Thanks, Anders, and thanks, Lisa. So we have now covered an update on our very exciting market position, the very exciting opportunities that lie ahead of us and how excited we are to bring our new initiatives and products to our consumers over the coming months. Looking more long term, we do see multiple growth levers for Hemnet. To elaborate a bit further on this, let's move on to Slide 45. We're very confident and eager to deliver strategic actions, but we're equally excited about the growth prospects that lay ahead. Hemnet has a unique market position and a great step of growth levers to pull to continue our success growth journey. We will start looking at value-added services. Value-added services have been the main driver of our ARPL expansion over the last years, and we see room for additional growth in this area. Please keep in mind that Hemnet Plus and Hemnet Premium were introduced back in 2019, and continued expansion of these packages has been the main driver of the 28% year-on-year ARPL expansion that we saw in 2025. 6 years after the launch. We need to enhance our customer proposition and the features that are included in our existing packages to optimize the packages and the overall package composition. During 2025, we launched Hemnet Max that will allow us to continue to grow ARPL over the years to come. Max penetration is still at low levels, but the product performance has been stellar. We see that Hemnet Max gets more engagement, more visitors and has a positive effect on the bidding price to justify a premium price level. Pricing. Pricing represents an important component for our value creation toolbox. We will continue to invest into our proposition to increase exposure on the platform and the value we deliver to sellers, to our agents and to our buyers. Our data shows that the estimated value of 1 additional bid in an auction process is worth around SEK 80,000. And even in a small increase in the number of interested buyers can have a significant impact on the financial outcome for a seller. That is a healthy investment if you compare the SEK 80,000 upside compared to our ARPL. In addition, with our dynamic pricing model, we see significant opportunities to add more granularity and work with data-driven pricing to better reflect market demand. Payments. Payments is the third lever to continue to drive ARPL expansion. With the launch of Sell First, Pay Later, we're taking the next natural step in our customer journey to improve the value proposition for sellers, buyers and agents. By lowering the threshold to list on Hemnet and tying the payment to a successful transaction, we make it easier for sellers to list on Hemnet and increase their chances for a successful sale. Going forward, we will continue to work closely with our real estate agent partners to further enhance our different payment options to ensure that we have a smooth and flexible payment options that are well aligned with traditional payment flows of a property transaction. And there is more to come in this area. Our B2B offering today has been strengthened over the last years despite being highly exposed towards cyclical underlying markets like new property development and more traditional display ads. We've taken significant steps ahead and are now launching a new package tracker towards property developers as well as our bank customers. Going forward, this area offers significant opportunities ahead. Hemnet is a powerhouse in terms of traffic and engagement. At the same time, we are very close to the actual property transaction, meaning while we have high-quality data. If we combine high-quality data with a high quantity of traffic that we do have, you have a currency. That data and that currency is currently undermonetized, and we will capitalize more on this going forward. 2025 was a tough year for the overall market, but we do see positive underlying fundamentals moving into 2026. If we please move to the next slide, please. There are several metrics that point towards an improved 2026 underlying market trajectory with increased levels of supply. Projecting the market development depends on numerous factor and easily turns into active crystal ball gazing. However, there are a number of key indicators that are pointing in the right direction. First of all, ease of credit restrictions will be implemented by 1st of April. Historically, we've seen that these rules and regulations have had a large impact on market activity and Hemnet's listings volumes. We expect that the easing proposed for 1st of April will stimulate mobility and have a positive effect on both prices and activity. Secondly, improved market conditions. Looking at the overall market situation, there are also positive signs in terms of macroeconomics. We see healthy interest rate levels in Sweden paired with an expected uptick in GDP growth. We also expect to see higher disposable incomes on the back of proposed tax release and an expansive budget. Rising price expectations. Signs of optimists are already returning among prospective buyers. 43% of those planning to buy a home believe in rising prices over the coming 6 months according to our Hemnet buyers barometer for January. That represents an increase by 10 percentage points compared to the December levels. We also see that several banks and financial institutes are predicting a stronger property market on the back of the strong price development. After a tough 2025, we look forward to 2026 with confidence and look forward to a year that has [ in store ] for sellers, buyers and agents on the Swedish property market. So let's now move on to the next slide for a brief summary of today's session. To summarize today's session. First of all, Hemnet is the #1 property portal in Sweden with a large and stable audience, reaching almost 3 million active users on a weekly basis. We're highly integrated to the ecosystem with plus 25 years of experience and have a unique set of data. Secondly, Sweden's property market dynamics have changed post-pandemic, which has favored the pre-market. This has been visible through longer sales cycles, Sell Before You Buy dynamics, and a very weak price development. Thirdly, building on our strong core business, we are now implementing significant strategic initiatives to cater for the changed market conditions. Sell First, Pay Later, the pilot has shown very strong results, both in terms of getting earlier listings to Hemnet and more listings on Hemnet, as Lisa elaborated on, given the 40% difference. I'm now very excited to start launching this in Stockholm next week. We've launched strategic partnerships, and we are in the early days but we've seen a strong initial response with more than 60 brands joining in the initial phase, including some of the biggest agent brands in the country. Last but not least, Hemnet has an unmatched position to leverage AI and significantly elevate our user experience. AI has changed the way we operate our business internally and created significant efficiency gains across our organization. We're now moving faster. We are acting more broadly, and we're happy to be able to announce a number of product news, including conversational search, an AI-enabled personalized starting page all properties and the Hemnet ChatGPT app for approval. Finally, before we open up for the Q&A, we wanted to take today's opportunity to invite you all to the Capital Market Day ahead of the summer. If we kindly could move over to Slide 48, please. We're happy to announce that we will arrange a Capital Markets Day in June this year. The exact date is yet to be confirmed and we will be able to share more details within a short period of time. The event will feature a presentation from Hemnet's management team on a number of various topics, including Hemnet's business strategy, our financials, our product and commercial road map but also our AI strategy. So with that, we very much look forward to seeing you all in Stockholm in June. So that was it. Let's now open up for the Q&A. Operator: [Operator Instructions] The next question comes from Thomas Nilsson from Nordea. Thomas Nilsson: I'd like to ask how you intend to price the pay only upon sale offer for Sell First, Pay Later? And exactly how was it priced in the trials you ran with 10 real estate agent firms? And second, what are your expectations in terms of volume in 2 years' time. How large a share of your total volume do you think will be connected with the Sell First, Pay Later payment option? Jonas Gustafsson: So 3 different topics. So on the first one, as we mentioned as part of the presentation, what we communicate now is that the Sell First, Pay Later will be priced at the premium compared to the payment alternative of Pay Later if removed. We are rolling this out on Monday, and we will have various price points. And please keep in mind that if you look at the overall price dynamic of Hemnet, we have more than 70,000 price points per day, but you'll see it on Monday. When it comes to the actual pilot, we elaborated on different price points. And obviously, the outcome of that trial and elaboration both from a qualitative perspective, but also from a quantitative perspective led to the price point that we're now launching. The last question in terms of volume, it's too early to tell. We are excited about the results that we've seen from the pilot, but we don't know exactly in 6 months' time, 12 months' time or in 24 months' time. Operator: The next question comes from Georg Attling from Pareto Securities. Georg Attling: So just the first one on the transactions. You said down 5% on Hemnet versus, say, a flat market. So just wondering if you have any more color on this where you're missing out? Is it ads that only reached the premarket? Is it under the radar listings or even those that actually come all the way to for sale? Jonas Gustafsson: The simple answer is that the exact details we don't know. What we've seen is that number of transactions or number of properties that have been marked as sold and taken down from Hemnet was down with 5% compared to the year before. As you know, Georg, we have -- we've had a strategy in the past where we use 1 source of data to provide our market share, and that comes from the SCB, the Swedish Statistical Bureau. And also for 2025, this will be published in mid-2026. Please keep in mind and also, I mean, if you look at our historical market share development, it's been fluctuating between 90% and 86%, depending on what market we're in. Georg Attling: Yes. That's clear. Second question, you say that 25% of the markets have signed up for these commercial partnerships, 60 agent brands. I mean, to me, that sounds like quite a low number. I understand this is a ramp up, but are there any agent brands that have said no? And what's the pushback in those cases? Jonas Gustafsson: I think -- and I would disagree with you. I'm quite happy with the results that we are already now at a sort of adoption rate of a 1/4 of the total market. And I think, please keep in mind that this is a completely new way of working for Hemnet, but it's also a completely new way of working for the agents. And it takes time to change a way of working. And there is many positive ongoing dialogues, and we haven't received a single no but there's ongoing discussions. And I think many people are waiting to see sort of what this means and how many other that go. But I would disagree with you, Georg, to say that it's quite low, given the fact that we're now sort of in end of January, and we announced this just a few months back, it takes time. And as you could imagine, signing 60 deals takes also quite some time. So it's a quite sort of operational work included into this as well. Georg Attling: Understood. And I'm just thinking of how you view the net effect of this fee sold. I mean you say that 8% to 18% of listings are sold within 2 years. And this is -- I mean, you mentioned the other day that this will be priced at a 7% premium to pay later. So it sounds like this will have a net negative effect on sales. Is that correctly understood? Jonas Gustafsson: I think when it comes to -- I can start and then Anders can jump in. When it comes to the Sell First, Pay Later business case, it's pretty simple and straightforward, I would argue. It's 3 components. I mean the first one is, will we get more volumes? Will we get more listings and implicitly more revenue? Our hypothesis is that we will get that. Secondly, per your point, and as you referred to, there are a share of the listings that will not get sold. So that's a downside compared to where we are today. Thirdly, we have a price component, per your point, and that will have an upside to this. We do like positive business cases at Hemnet. And I think -- I mean, if the first 2 parameters, how large share of volumes we will get an increase of and how large share is on. So those are unclear, but price is something that we can steer on a direct basis. And we always have that tool to play with to ensure this is an attractive and positive business case. Anders Ornulf: I can just add that the price point you referred to is versus the Pay Later option. And we are quite certain we know that we will have customers, property sellers coming from the Pay Now option as well. So you can -- you cannot use that 7% and take that into a model. Also commenting on price, we're launching on Monday. And as Jonas said, it's not a fixed price forever. We will launch in Monday, we will monitor in Stockholm, and we will learn from that. And we will follow conversion uptake and outcomes in real time. So if adjustments are needed, we will make them. And you had a comment on the volumes Jonas, but also there was an upgrade in the conversion. We will see what happens with that as well. It was a positive sign from the pilot, as Lisa stated. So yes, we're in a good shape. Georg Attling: Yes. That's clear. Just final question for me. I mean, when you think of the phasing of this year's price increases, will that look sort of similar to the last few years? We see what you did here in January, of course. But how should we think of price adjustments for the remainder of the year? Anders Ornulf: It's hard to say. Look, over the last year, because it has been very different '22, '23, '24, '25. So you should not take anything into account. We didn't -- we did look at the prices 1st of January and did some adjustment there. We look at it all the time. Now our focus is very much on SFPL but like-for-like pricing is always up for debate and discussion. But yes, that's what the focus is at the time being at least. And then we'll see how the year evolves. Jonas Gustafsson: And I think just to add one final thing there, Georg. I think also what we spoke about when we look at future ARPL growth from a more long-term perspective at Hemnet, payments was one of the options or levers that we mentioned as part of that toolbox. And I mean the most concrete example that we're launching today is obviously Sell First, Pay Later. We do see this as a long-term ARPL growth driver as well. Operator: The next question comes from Eirik Rafdal from DNB Carnegie. The next question comes from Will Packer from BNPP. William Packer: Three, if I may. So firstly, thanks for sharing the update on the progress of the testing. And it sounds pretty encouraging with a kind of healthy rebound in listings. Could you just help me think through where that rebound comes from? I suppose you framed that you haven't really been losing market share to the likes of Booli. So is the right way to think that, that is a phasing of listings that would have come to you eventually, or is there kind of more substantive underlying market share gain, which you're getting back from your peers from the pre inventory? Secondly, could you help us think through the cost outlook for 2026? In the context of the presentation, I think it's very fair to say the revenue visibility is low and perhaps the commission visibility is low in terms of personnel costs, in terms of marketing spend? Is there anything you could share for the year ahead and help us think through the scenarios in which margin expands or contracts, depending on the revenue growth? And then finally, there's been some noise around regulator. So my understanding from the trade press is that you complained regarding the SBAB's involvement with Booli, and how that was distorting the market? What's been the response there? On the other hand, there's been some press speculation that you've had to separate out your partnership from your prelisting product. Is that fair? Or is that accurate? Any visibility on the sort of the regulatory response to those items would be helpful. Jonas Gustafsson: So I think we'll be a bit back and forth between me and Anders on the various topics. So firstly, if we go to the uptake on the pilot, and I think, I mean, it's a mix. What we allowed as part of the pilot and what we also will allow when go live now next week in Stockholm is that we allowed the agents to also take old listings that they have in their premarket inventory. And so that is obviously a sort of a catch-up effect. And I mean eventually, they would most likely have ended up at Hemnet, but it's a phasing effect because we get the listings earlier at Hemnet, which is also -- I mean at the end of the day, that's the strategic ambition that we do have with this product launch, get more listings and get earlier listings on Hemnet. So there is definitely a catch-up effect. Whether that's sort of -- it's difficult to say whether there are listings that would not have ended up at Hemnet. But part of the -- sort of the qualitative assessment, the analysis of the pilot indicates that the threshold is definitely lower to use Hemnet, and that's really what we wanted to achieve. Secondly, there was a question around the cost outlook. So if you could take that, Anders. Anders Ornulf: I can. Regarding the cost development in Q4, yes, thanks for your questions, Will. Fixed OpEx, excluding admin and commission were up 11%, driven by the cost increases I went through in the call earlier. Very much related to personnel, but also marketing and sales. We don't do guidance. You know that, and you comment on that yourself. And looking ahead to 2026, that strategy remains. And we will continue to invest. We believe it makes a significant difference for the long-term position, particularly coming back to sales and marketing efforts and the examples supporting the rollout of SFPL and the new strategic partnerships. I also want to say that one of the reasons we don't guide on cost is we believe that agility is core, but we have to make sure that we have to be prepared and whatever happens with the market or whatnot. So without giving a guidance full year, in '25, we grew by 14%. The year before, we grew by 30%. So as a CFO, I like 2025 more. But as always, with OpEx, we monitor, and we'll see what happens. When it comes to effective commissions, I think you've heard me say this many times before, I hope it increases because then again, we hope to see more recommendation and conversion to especially Max, but it would also be offset 1st of January because of the -- that the admin fee is fixed, right? So we saw that in '25, and we will see that in 2026 as well. That was a bit of color on the OpEx and outlook. Jonas Gustafsson: And if we go to the third question, Will, so we can confirm that we, as Hemnet has turned to the Swedish Competition Authority regarding SBAB and its subsidiary Booli. This concerns a fundamentally important issue of assuring that the state-owned companies comply with their specific competition rules designed to protect the market from competition being restricted by public actors. We note that Booli is a loss-making business that has built its position through extensive state support via SBAB and it's our assessment that these operations are conducted in violation of the specific rules governing anticompetitive activities by state actors. And we've now referred this matter to the Swedish Competition Authority for investigation, and it's up to them to investigate this further, and we will not sort of comment that more in detail. Then there was another topic on your question, William, that I'm -- maybe I misunderstood it, but was that the question? If not, please elaborate a bit further. William Packer: Just maybe just sort of moving on to one other topic I wanted to cover, I think you've covered the rest of the stuff. On Slide 34, you talked about monetary incentives of successful partnerships. Is the right way to think about that if the partnerships really scale that becomes kind of a new cost outflow associated with incentivizing agents to help Hemnet product, which is an additional to the commission, or I misunderstood? Anders Ornulf: No, you haven't misunderstood. It refers to the partnership program. It's a performance-based model where -- when a partner, signed up partner, agrees to commit to Hemnet, if they increase the share of premarket listing on Hemnet above an agreed baseline, we reward them with the share of net revenue. The revenue is, of course, based on the revenue after the ordinary compensation, admin and commission to agent offices. It only pays out for meaningful growth, and it's -- even then the payout is capped at 5%, as you can see on the slide you referred to. It will be included as a separate cost item in interim reports going on, and it will be rolled out gradually as part of the launch, so we will see how it evolves. Jonas Gustafsson: I think just to add there, Anders, I think it's definitely something that will drive revenue and it will drive EBITDA, right? So it is a self-financing approach. Anders Ornulf: Absolutely very similar. The structure, at least, is similar to the one we have already with the real estate agent offices. Operator: The next question comes from Eirik Rafdal from DNB Carnegie. Eirik Rafdal: Yes. I got a couple. We can do them one by one. On the trial, you say 9 out of 10 SFPL sellers choose Bas. Could you share some light on the relative share of Plus, Premium and Max within those 90%, and also how that compares to the Bas in kind of similar regions? I know you said 75% of total, Jonas, but just good to know if that 90% and 75% number is comparable. Jonas Gustafsson: Eirik, good to talk to you. So when it comes to the trial and when it comes to the Bas penetration, you're right, we've seen roughly 9 out of 10 of the packages having a Bas component. And I think -- I mean if you look at, just a step back, I think this has been done in 10 different offices across Sweden. So I think there's not a specific geography that is overrepresented. So that's part of it. What we've seen is that no major differences in terms of sort of variation of the various packages compared to that sort of the underlying or the nonpilot offices. So it is no material differences in that area. Eirik Rafdal: That's very clear. And also kind of on the same slide, you say 6 percentage points higher upcoming listing market share on Hemnet versus the pilot start. Would you be able to share the market share at the start and finish? Jonas Gustafsson: No, we wouldn't be able to do that. But sort of -- we saw a material movement of 6 percentage point market share increase during 3 months and something that we're very happy with. Eirik Rafdal: Perfect. That's very clear. I just wanted to follow up on some of the questions around the relative pricing of SFPL and our understanding based on channel checks, is that around 7% to 8% higher price than Pay Later? And I think you mentioned that as well, Anders, which in turn is 7% to 8% higher than Pay Now, which means that the ultimate difference between Pay Now and Sell First, Pay Later is 15%. Can you confirm this number? And also just on your being on relative pricing, in my opinion, at least, it seems like it's fairly small price to pay to significantly reduce your risk as a seller. Just your thoughts there would be good. Jonas Gustafsson: I think when it comes to -- I mean, it was pretty clear before that we didn't mention the exact price point. But I think what you're sort of getting to the 15% is ballpark right, and then we will have variations, given the fact that we have a quite complex and dynamic pricing model given the fact that we already today have more than 70,000 different price points. So that's one thing. I think please keep in mind that when we're now rolling this out, there's -- we don't know what penetration and uptake it will have. From a strategic perspective, it is important that this should drive more listings and earlier listings to Hemnet. So we want to ensure that we get more volumes on this. But in terms of price, we can steer price. Price is something that we can move every single day, I was about to say, but sort of in real time. And we can change it, and we will make sure this becomes attractive. But we're very eager to also get a broad uptake on this, given the fact that I think this will also have a very positive effect in terms of how satisfied the agents are and also very positive for the seller NPS of Hemnet. Anders Ornulf: And I can also, as a reminder, the price effect will also be very much dependent on the uptake from Pay Now and Pay Later listing is removed, right? So it's not really that easy to just say, 15% or 8%. Definitely correct, so.... Eirik Rafdal: Very fair point. And just one final one, if I may. I know it's been a bit of an investor concern around how you handle content quality for maybe particularly the coming for sale ads, like how would you deal with ads, for instance, like photos or asking price? How will you kind of structure the UX for the buyers? Just any thoughts there would be good. Jonas Gustafsson: I mean I think at the end of the day, we want to have more listings, and we want to have more listings earlier. I think, I mean, Hemnet is today a quality property portal, and we will make sure it remains a quality property portal. Please keep in mind that, I mean, Sweden compared to many of our international -- sort of other geographies outside Sweden, Sweden has a highly functional property market. We have a highly professional, highly educated agents. It is -- if a listing is going to go on Hemnet, it always needs to go through an agent. And I have full trust in the agents' community that they will ensure that we sort of remain the high quality at Hemnet. Sweden is very different compared to other markets. And at the end of the day, I mean, what matters for an agent is to sell the property. That's where they make their money. The quicker they could sell a property, the more property they could sell, the more happy they would be. And using Hemnet and using the Sell First, Pay Later will be a perfect way to get there. Operator: The next question comes from Ed Young from MS. Edward Young: Two questions from me, please. First of all, on Max. Could you talk a little bit about what the plans are there? You said that it's sort of the next leg of driving package improvement, but you've not really touched on what that might include today. And as part of that, could you perhaps comment on whether you expect Sell First, Pay Later initiative to influence the adoption of Max relative to other listing tiers significantly? And then second one, on the pre-listings, you spoke about areas you're actively looking to address. Is that just essentially fresh pre-listings or are there certain segments like the higher volume apartment area that you were talking about sort of segments you're trying to attack. So any color on what it is you're looking for from pre-listings or alternatively what you're not? Maybe, as you said, you've got a big jump on these targets, 30%, 40%, 50%. So I'd be interested to know what you're really trying to focus agents attention on? Jonas Gustafsson: Yes. So in terms of Max, I think digging one step back, Max was launched back in April 2025. So it's been around now for more than -- slightly more than half a year. We've seen quite slow adoption. I think a large part of that has been driven by a very slow and challenging market. I think -- I mean, if we would have launched Hemnet Max during like a peak market like 2020 or 2021, you would have seen a different development. But also keep in mind what we refer to as part of the presentation that Hemnet Plus and Hemnet Premium also had a very slow uptick in the initial phase. In terms of Max, and we're continuously working on -- I would say it's two-folded. I mean, first of all, the product performance that we do see with Hemnet Max, the engagement, the number of listings or number of views per listing and also the speed that we can sell a property when you use Hemnet Max, those results are great. So it's a lot about spreading that goals also in the agent community and ensuring that seller understands that this is, if you pay for a Hemnet Max, it's a product that you get benefits from. We need to be better and we need to communicate that in a clear way. Second to that, I would say that Hemnet Max is still, if it's -- even though it's been around the block for 6 months, it's still a baby. We are continuing to develop the various product features and kicking in an open door, we're running a marketplace here with a tiered product structure. It's all about relative differences both in terms of relative price differences but also in terms of relative feature differences. So the team are testing various things now to see sort of what could catalyst further penetration when it comes to Max. Then in terms of the pilot. It's clear that what we saw is that we said that in Q3, we had roughly 75% of all our packages having a Bas component. And then we said that the pilot had a -- sorry, the Sell First, Pay Later pilot had a Bas conversion of 90%. So there's obviously an impact across the broad regardless if you talk about Hemnet Plus, Hemnet Premium and Hemnet Max. But it's a bit too early to tell. I mean the Sell First, Pay Later pilot was a sample, and we're looking forward to continue to follow this. In terms of the premarket, it's -- I mean, at the end of the day, the ultimate goal, which is embedded into our strategic ambition, is to get the properties that sell in Sweden that they should be on Hemnet. That obviously means that the sort of the higher the seller intent is the more attractive it is from our perspective. So we want to focus on ensuring that we get the premarket listings where there's an intent to sell. That's our primary goal with this. But we also want to have the broad volume. Operator: The next question comes from Marcus Diebel from JPM. Marcus Diebel: Just 1 more question on the pricing of Sell First, Pay Later, again. Obviously, you talked about it in detail, you said clearly you can't give any more sort of data on pricing, we're going to see this very soon. But more conceptually, what has driven the decision to really price this as a premium? Is it not now the time to really get the listing sped relatively quickly, have a very strong sort of like current developments, why do you feel that this should, at this point, still deserve a premium? Second question will be on your comment on rolling out an app within ChatGPT. If you can just comment a bit more what has driven this? Why do you feel this is the right move to do. And also if you could talk about the terms here? Is it just a partnership? Or how free, or so free or how should we think about it? Jonas Gustafsson: Marcus. So in terms of the price point for Sell First, Pay Later, I think that we've elaborated on the more sort of financial aspects of it more from a strategic level. I think that -- I mean, it's so clear to us that this comes with a fantastic customer value. The results from the pilot, both from a quality but also from a quantity perspective comes out very, very clear. This is something that the consumers are willing to pay for. This is a threshold reduction parameter, and it is a component that sort of reduces the barriers to use Hemnet to a large extent. And we've done a comprehensive pricing work looking at all those various parameters. And I think it's very clear to me that given the pilot test that we ran, that this is a fantastic customer value and a fantastic proposition towards the consumer. Then if I sort of -- if we move over to the ChatGPT question, we have Lisa here who's the expert. So I'll hand over to Lisa to elaborate a bit on that. Lisa Farrar: Thanks, Jonas. Marcus, I would describe our app within the ChatGPT app as a move to learn, both for us but also for our users. We want to be where our buyers and sellers are going to be both now but also in the future. So this is an early stage way for us to integrate with new technology, a new ecosystem, and learn from that. In this app, you will still be circled back to Hemnet, so we're not losing our users. We're just seeing it as a distribution channel. And I would say this is the first move to learn and go from there. Marcus Diebel: Yes. Anything if you can just comment a bit more about the sort of like terms. I mean -- do you feel that this will be exclusive? Do you see others will follow and also sort of like how the dialogue with OpenAI has been, if you can share anything more would be very helpful. Jonas Gustafsson: I mean, I think it's difficult for us to comment any on our competitors if they would follow. I think we stand very strong in our foundation with more than 25 years of experience and more than 1.4 million homes of user tagging, which makes us feel that we have a benefit in also the AI world. In terms of the exact sort of details in the discussions with OpenAI, there's -- I mean, we don't want to comment on discussions in terms of details with our partners at this stage. Operator: The next question comes from Nikola Kalanoski from ABG Sundal Collier. Nikola Kalanoski: So firstly, on the SFPL model. When these pilot offices tested the new model, they were, in essence, I guess, you could say, given a super power compared to some of the other offices in terms of being better able to win listings, if you will. As an agency, you're a little bit more attractive, of course, if you can offer this. Has this discrepancy, do you recon, helped drive new strategic partnership signings with more agencies and offices being eager to take part? And do you expect that this will drive additional signings going forward? Jonas Gustafsson: Nikola, I mean, so just to clarify the background and the circumstances. I mean, this SFPL product will be available to all agents regardless if you have a strategic partnership or not. So this goes out to the full market, right? This is not part of the strategic partnership just to make that clear. However, if you look at -- you referred to it as a super power and just looking at the results, I think that, that's a fair analogy. I think -- I mean, obviously, they had a benefit being part of the pilot during this 3-month period of time. And we know for a fact that day 1 number of sort of competitive discussions with their competitors just because of the fact that they have this tool or the super power, as you referred to it, I think that given the fact that we will open up for the full market, you will still have a super power towards the consumers if you're actively using Sell First, Pay Later. So I think this is something that will drive and accelerate the development of Sell First, Pay Later. Nikola Kalanoski: Yes. That's very good. And I guess this is just technicality then, but I think in your slides you referred to a disclaimer that says that the business rules of SFPL differed for -- from that of the pilot versus the actual role. Are there any big differences here that we should take into consideration qualitatively? Jonas Gustafsson: I think when it comes to -- I mean, we elaborated -- I mean there was a question before, I think -- we had a question before around how we price the SFPL. I mean, one thing that was an important part of the pilot was obviously to test different price points. And the price point that we now landed on and that we will go broad with starting off on Monday, it was not the same across all offices. Obviously, it was for 1 or 2 offices in that range, but we test the different price points. So that's one difference. Also, I mean, what we allowed was that as part of the -- as part of the pilot, we also allow them to take old listings. Now when we go live, we will have a grace period of 30 days. And so that's the initial hypothesis when we rolled this out. So there are some differences. And that's why we don't want you to just take the number of 1 by 1, but this should give you a good indication. We're very happy with the results. Nikola Kalanoski: Yes. That's very good. And just a final one for me. And I believe there was a question before on the cost base, but this is more specifically with respect to the ChatGPT integration. Does this change in any way your cost structure? Or is there any meaningful costs associated with doing this integration? Lisa Farrar: No, nothing there to add to our cost base today. Nikola Kalanoski: Yes. Perfect. That's all for me. Operator: The next question comes from Annabel Hames from Deutsche Bank. Annabel Hames: Just 1 for me. And is there a cost with monitoring the Sell First, Pay Later to ensure that it's not being abused? Anders Ornulf: No, no, it's not. We have many things in place, all from technical to agreements with the customers. So we sit very well on that front. Operator: [Operator Instructions] There are no more questions at this time. So I hand the conference back to the speakers for any closing comments. Jonas Gustafsson: So first of all, many thanks, everyone, for tuning in today for a bit of an extended session. And thanks, everyone, for joining the call. A lot of great questions that are, as always, truly appreciated from our side. So with that, that is all from us. Make sure to have a good day, and thank you.
Operator: Hello, and welcome to the LyondellBasell Teleconference. At the request of LyondellBasell, this conference is being recorded for instant replay purposes. [Operator Instructions] I would now like to turn the call over to Mr. David Kinney, Head of Investor Relations. Sir, you may begin. David Kinney: Thank you, operator. Before we begin the discussion, I would like to point out that a slide presentation accompanies today's call and is available on our website at investors.lyondellbasell.com. Today, we will be discussing our business results while making reference to some forward-looking statements and non-GAAP financial measures. We believe the forward-looking statements are based upon reasonable assumptions and the alternative measures are useful to investors. Nonetheless, the forward-looking statements are subject to significant risk and uncertainty. We encourage you to learn more about the factors that could lead our actual results to differ by reviewing the cautionary statements in the presentation slides and our regulatory filings, which are also available on our Investor Relations website. Comments made on this call will be in regard to our underlying business results using non-GAAP financial measures, such as EBITDA and earnings per share, excluding identified items. Additional documents on our Investor website provide reconciliations of non-GAAP financial measures to GAAP financial measures, together with other disclosures, including the earnings release and our business results discussion. A recording of this call will be available by telephone beginning at 1 p.m. Eastern Time today until March 2 by calling (877) 660-6853 in the United States and (201) 612-7415 outside the United States. The access code for both numbers is 13746215. Joining today's call will be Peter Vanacker, LyondellBasell's Chief Executive Officer; our CFO, Augustine Izquierdo; Kim Foley, our Executive Vice President of Global Olefins and Polyolefins, Aaron Ledet, our EVP of Intermediates and Derivatives; and Torkel Rhenman, our EVP of Advanced Polymer Solutions. During today's call, we will focus on fourth quarter and full year 2025 results and progress on our strategic initiatives. We will also discuss current market dynamics and our near-term outlook. With that being said, I would now like to turn the call over to Peter. Peter Z. Vanacker: Thank you, Dave, and welcome to all of you. We appreciate you joining us today as we discuss our fourth quarter and full year 2025 results. I am proud of our people and how they continue to navigate cycle in 2025, while maintaining focus on our long-term strategy, despite some of the most challenging market conditions I have seen in my career. . The team delivered exceptional results in our cash improvement plan, while keeping safe and reliable operations at the center of everything we do. So with that in mind, let's begin, as we always do with our safety results on Slide 3. LyondellBasell delivered exceptional safety performance in 2025. Our total recordable incident rate reached a historic low, slightly surpassing even our record-setting performance in 2022, making 2025 the safest year in our company's history. These results are especially meaningful given the significant volume of maintenance and turnaround activity we executed across our sites in 2025 in Europe and U.S. Despite this elevated activity, our teams demonstrated operational excellence and an unwavering commitment to safety, even under challenging conditions. Safety remains our top priority. This consistent industry-leading safety performance reflects the discipline and care our employees and contractors bring to every aspect of our operations. I want to thank everyone across the organization for their dedication in keeping our colleagues and communities safe. Now let's turn to Slide 4. As we navigate one-off, if not the longest long term in our industry, LyondellBasell continues to execute on our 3-pillar strategy in a way that creates and protects value even when this means adjusting the timing for implementing our plans. In our first strategic pillar, we continue to grow and upgrade the core. In 2025, we prioritized safe and reliable operations. We advanced our portfolio transformation with material progress on the divestment of 4 European assets which is on track for completion in the second quarter of 2026. We also moved forward on strengthening our cost advantage position in the Middle East, with a new allocation for cost-advantaged feedstocks in Saudi Arabia. In our second pillar, we're building a profitable circle and low carbon solutions business. Construction on MoReTec-1 is progressing well and is on track for a 2027 startup. We're also advocating for supportive policy frameworks which will enable the successful and profitable transformation of our industry while we executed on low-cost and no-cost energy efficiency initiatives across our sites. In our third pillar, we're stepping up performance and culture. Our team is laser-focused on value and cash generation. I'm pleased to report that the value enhancement program exceeded our original target and achieved $1.1 billion of recurring annual EBITDA in 2025. This program has been a critical enabler of our cash improvement and cost discipline efforts, helping offset inflation, improve reliability and fund profitable growth. Building on this momentum, we are extending the value enhancement program and targeting $1.5 billion of recurring annual EBITDA by 2028. Importantly, these recurring earnings are based on mid-cycle margins and operating rates. We expect the benefits of the value enhancement program would become more prominent once volumes and margins recover from this prolonged downturn. Given the current market environment, we have focused our investments on the immediately profitable projects aligned with our long-term commitments, and we are reviewing the timing of achieving certain 2030 sustainability goals. We have also materially reduced our capital expenditure plans for circular solutions and prioritized markets that provides supportive regulation and resilient proven demand such as Europe. We will update the market on our progress over the coming months, including the April publication of our 2025 sustainability reports. Even as we accelerate select initiatives and adapt the timing of others, our strategic priorities remain intact. Our disciplined execution positions us to capture substantial value once the cycle turns, and we remain confident in our ability to deliver sustainable growth for our stakeholders. Let's turn to Slide 5 and take a moment to reflect on where LYB in the industry or in the current cycle. 2025 was another exceptionally challenging year with industry margins remaining deeply depressed across all of our core businesses. Industry margins were approximately 45% below historical averages, even worse than the already difficult conditions we saw in 2024. In North America, Polyolefins margins reached their lowest levels in more than a decade. This margin erosion has weighed heavily on LYB and the entire sector. Several factors are pressuring margins. These include global trade disruptions, low demand for durable goods, a lower oil-to-gas ratio, ongoing lower capacity additions and in Europe, increased competition from imports and structurally higher energy costs. Even under these conditions, LyondellBasell continues to generate positive free cash flow at the bottom of the cycle. While the environment remains tough, the market is responding with an increasing rate of capacity rationalization, which is accelerating the rebalancing of supply and demand. Once margins begin to normalize, LYB is well positioned to capture significant upside supported by our low-cost positions, world-class technologies and a disciplined approach to generating value and cash. Let's now turn to Slide 6 to discuss our 2025 full year highlights. Despite this backdrop of weak margins, our teams remained disciplined and focused on the actions within our control. We generated $2.3 billion of cash from operations during the year. This performance reflects strong working capital discipline, focused cost management and our ability to operate safely and reliably through a prolonged industry downturn. Our excellent cash conversion ratio of 95% demonstrates the resilience of our operating model and the additional focus provided by the cash improvement plan, even in an environment of compressed spreads. Full year earnings were $1.70 per diluted share and EBITDA totaled $2.5 billion. Throughout the year, we remain focused on maintaining financial flexibility, prioritizing safe and reliable operations and low-cost investments in VEP projects while preserving the ability to pursue selective investments in high-value growth once cash flows improve. Now we will continue to maintain strong capital discipline to ensure we are making the right decisions for the long-term strength of our company and all stakeholders. Now with that, I'll turn it over to Augustin to walk through our 2025 achievements in the cash improvement plan. Agustin Izquierdo: Absolutely, Peter, and good morning again, everyone. Let's continue with Slide 7. Our disciplined execution throughout 2025 enabled us to surpass our initial targets for the cash improvement plan. We set a goal to conserve $600 million of cash relative to our 2025 plan, and we exceeded that goal by roughly $200 million to achieve $800 million. This outperformance was driven by a $400 million reduction in working capital relative to our 2025 plan. We also reduced our global workforce by 7% or approximately 1,350 employees to the lowest levels the company has seen since 2018. Capital spending remained disciplined as we took advantage of opportunities to realign project schedules across the portfolio. While we achieved our capital reduction goals on an accrued basis, cash realization lagged due to the timing of payments. Our teams executed on these priorities, while maintaining focus on safe and reliable operations, reinforcing the culture of value creation we have been building over the past several years. Looking ahead, we expect to deliver an additional $500 million of incremental cash in 2026 relative to 2025 actuals. This increases the cumulative target for our cash improvement plan from $1.1 billion to $1.3 billion through the end of 2026. We are not considering any potential benefits from our European asset sale in these numbers. This higher target reflects not only the strong progress we delivered in 2025, but also cost efficiencies we expect to achieve in 2026 and the lower capital expenditure plans, which we have already announced. These efforts strengthen our ability to generate cash through the bottom of the cycle, while protecting our financial flexibility and liquidity. Moving on to Slide 8, I will review the details of our capital allocation. Maintaining an investment-grade balance sheet remains foundational to our capital allocation strategy. During 2025, we generated $2.3 billion from operating activities, supported by strong working capital execution, which released over $1 billion in working capital during the fourth quarter alone. This strong performance enabled us to sustain excellent cash conversion, even at the bottom of the cycle. We also took proactive steps to preserve liquidity, including issuing $1.5 billion in bonds to help address 2026 and 2027 maturities. As a result, we ended the year with $3.4 billion of cash and short-term investments and $8.1 billion of available liquidity. Throughout the year, we prioritized safe and reliable operations while advancing strategic growth projects like MoReTec-1 and low to no cost projects in the value enhancement program while appropriately realigning other growth investments in response to current market conditions. As markets recover, we will be ready to advance an attractive portfolio of opportunities, including Flex-2 to balance olefin production, MoReTec-2 to expand our circularity capabilities at the former Houston refinery site and cost advantaged investments in the Middle East. In addition, the positive impact from completed VEP projects is expected to grow when sector margins and operating rates recover, and we continue to provide cash returns to shareholders, returning $2 billion in the form of dividends and share repurchases during 2025. Our capital allocation strategy aims to preserve flexibility while positioning LyondellBasell to unlock value as industry conditions improve. On Slide 9, we highlight the cash performance from our business during 2025. One of the strongest indicators of our resilience is our ability to consistently generate cash from operations, even at the bottom of the cycle. In 2025, LyondellBasell delivered $2.3 billion of cash from operating activities. Our cash conversion ratio remained exceptionally strong at 95%, well above our long-term target of 80%. We achieved this level of conversion through strong cost control across all segments, tightly managing receivables and inventories, while facing maintenance where appropriate to help ensure that earnings efficiently translated into cash even with lower operating rates. This consistent cash performance positions us well to fund essential investments in maintenance and advanced critical projects, while remaining ready to accelerate strategic value creation once margin begins to recover. Now let's turn to Slide 10 for an overview of our fourth quarter segment results. In total, our business delivered $417 million of EBITDA during the fourth quarter. Across most segments, we saw the typical year and seasonal pressure on volumes, coupled with elevated costs for feedstocks and energy. Maintenance downtime contributed to lower operating rates in both our U.S. and European operations. Oxyfuels performance softened sequentially as margins trended downward from unusually strong levels toward the end of the third quarter, once industry outages eased and gasoline blend stock premiums normalized to typical winter levels. The fourth quarter included identified items of $61 million net of tax, primarily associated with closure costs for the Dutch joint venture and the APS Specialty Powders business. Across the portfolio, noncash LIFO inventory valuation charges reduced fourth quarter results. These charges were partially offset by a reduction in bonus compensation accruals that benefited fourth quarter results. The net amount was quarterly impact of $52 million. As a reminder, our fourth quarter LIFO changes reflect movements in inventory valuation over the full year and are not necessarily linked to fourth quarter valuations. Before we review our segment level results in detail, let me discuss our capital expenditure plans for 2026. As we've previously announced, we are deferring some growth investments until later in the decade given the difficult operating environment. For 2026, we expect our CapEx will be approximately $1.2 billion. Our 2026 capital plan includes approximately $400 million for profitable growth and $800 million of sustaining investments. The reduced capital plan prioritizes safe and reliable operations and the ongoing construction of MoReTec-1. We expect our 2026 effective tax rate will be approximately 10% with a cash tax rate approximately 10 percentage points higher than the effective tax rate. We have provided additional 2026 modeling information in the appendix to this slide deck describing the expected impacts from major maintenance and other useful financial metrics. With that overview, I will turn the call over to Kim. Kimberly Foley: Thank you, Augustin. Let's move to Slide 11 and discuss the performance of the Olefins and Polyolefins Americas segment. Fourth quarter EBITDA for the segment was $164 million, down from the prior quarter. The sequential decline was primarily driven by higher feedstock costs and lower polyethylene margins as well as planned and unplanned maintenance across several sites. . In olefins, ethylene margins weakened as ethane and natural gas prices increased coupled with lower ethylene and propylene prices. In polyethylene planned and unplanned maintenance across several facilities and seasonally lower domestic demand contributed to lower volumes and pressured margins sequentially. Industry inventories fell roughly 3 days or 500 million pounds as customers continue to draw down stocks ahead of year-end. Polypropylene continues to face challenges with subdued demand and weak margins. During the quarter, we successfully completed the turnaround at our Matagorda polyethylene plant and implemented reliability improvements at our Hyperzone plant. These actions strengthened our asset performance and position us to capture value as demand returns. Our fourth quarter operating rate for the segment was approximately 75%, with our crackers operating at approximately 90%. During the first quarter, we expect tight year-end inventories reduced supply due to winter storm Fern and stronger seasonal demand will all be supportive of our polyethylene price increase initiatives in the market. We expect to operate our O&P Americas assets at an average rate of approximately 85% in line with demand. Now let's turn to Slide 12 and review the performance of our Olefins and Polyolefins Europe, Asia and International segment. Fourth quarter EBITDA was a loss of $61 million. Seasonally lower prices and higher levels of planned and unplanned maintenance pressured profitability. In Olefins, volumes were significantly impacted by weaker demand, year-end inventory control measures and maintenance events at several of our sites. Polyolefins markets in Europe continue to face soft demand driven by increased competition from low-cost imports and ongoing destocking across the value chain. As a result, polyolefin margins remain under significant pressure and volumes were seasonally lowered. In the fourth quarter, we proactively aligned our inventories with market demand through targeted rate reductions. These actions helped reduce our working capital and generated positive cash flow from this segment even in a highly challenging environment. Our teams executed safely and deliberately to provide a reliable supply of products for our customers while supporting our balance sheet. We continue to make steady progress on the planned divestiture of our 4 European assets. Regulatory reviews, work council consultations and transition plans are all advancing as expected, and we remain on track to complete the transaction in the second quarter of 2026. This is a significant milestone in reshaping the regional footprint of our global O&P portfolio. As we move into 2026, our O&P EAI segment has no major turnaround scheduled for the coming year and expect improved volumes with lower maintenance activities. We expect to operate our European assets at a rate of 75% during the first quarter. With that, I will turn it over to Aaron. Thank you, Kim. Aaron Ledet: Please turn to Slide 13 as we take a look at our Intermediates & Derivatives segment. Fourth quarter EBITDA was $205 million. The typical seasonal decline in Oxyfuels margins was delayed due to planned and unplanned industry outages that tightened supply early in the quarter and supported stronger blend premiums. Additionally, propylene glycol demand improved due to aircraft deicing demand, while acetyls results were negatively impacted by the turnaround. . During the quarter, the team completed the turnaround at our La Porte acetyls unit. This turnaround included key initiatives to begin converting our vinyl acetate monomer production to an innovative LYB catalyst system that improves margins and helps reduce our reliance on costly precious metal catalysts. The turnaround was completed on time, but we kept the asset down longer to help manage inventory levels. We began the start-up process in early January, and the asset has come back down due to cold weather. We expect the January downtime to impact first quarter EBITDA by approximately $20 million as seen in the modeling information in the appendix to our slides. To align with maintenance and softer year-end demand, we operated our IND assets at a rate of approximately 75% during the fourth quarter. As we began the first quarter, we expect to see positive trends in our [ PO&D ] business with additional glycol sales into the DIC market and capacity rationalizations in both Europe and the United States, improving LYB's market share. Acetyls volumes are expected to improve following the fourth quarter report turnaround and oxyfuels profitability should exhibit typical seasonal margin improvements towards the end of the quarter. Our plan is to operate our assets at approximately 85% during the quarter. With that, I will now turn the call over to Torkel. Torkel Rhenman: Thank you, Aaron. Now let's review the results of our Advanced Polymer Solutions segment on Slide 14. Fourth quarter EBITDA was $38 million. EPS volumes were lower due to typical fourth quarter seasonal demand patterns, including softer automotive production across all regions. Even with the softer backdrop, year-over-year APS delivered 55% higher EBITDA, along with substantial improvement in cash generation, reflecting meaningful progress in our commercial execution and cost discipline. I'm extremely proud of the progress the APS team is achieving in our transformation. Throughout 2025, we delivered substantial operational and financial improvements drove exceptional fixed cost discipline and strengthened customer centricity despite a challenging market. Looking ahead, we expect seasonal demand improvement across our key markets, and we will continue to regain market share with our renewed focus on customer centricity, reliable service and differentiated solutions. With that, I will return the call to Peter. Peter Z. Vanacker: Thanks, Torkel. I agree with you. The APS team is doing excellent work in managing their business turnarounds, despite all the market challenges. To close out on the segments, let's turn to Slide 15 and discuss the results for our technology business on behalf of Jim Seward. During the fourth quarter, the segment delivered solid results. Catalyst demand strengthened across key regions and revenue increased as a higher number of previously sold licenses, reached revenue recognition milestones. Together, these factors contributed to segment EBITDA of $80 million in the quarter. Looking ahead, we expect first quarter results for the Technology segment to trend lower, potentially approaching levels seen in the second quarter of 2025. While we anticipate a typical seasonal uplift in catalyst sales, licensing revenue is expected to decline as fewer revenue milestones are expected in the quarter. The substantially lower demand for licenses is an indication of the ongoing trends of reduced global investments in petrochemical capacity additions at the bottom of the cycle. Now let's turn to Slide 16 for our near-term market outlook. Following pronounced fourth quarter seasonality, we expect modest improvements as we move through the first quarter, and we're likely to consume some working capital as normal. In North America, we expect typical seasonal demand recovery. Additionally, our polyethylene price increase initiatives are supported by low industry inventories, while exports continue to play an essential role in balancing markets. In Europe, demand should also seasonally improve, although the impact of imports into the region continue to pressure pricing. Supportive regulatory frameworks for circularity along with the continued asset rationalizations in the region remain a helpful tailwind over the medium term. In Asia, near-term capacity additions continue to weigh on margins, while medium-term rationalization announcements are an encouraging trends that should eventually help to balance global supply. In the packaging sector, demand remained stable and driven by essentials. Consumer continue to be value focused, and we're seeing a sustained shift towards private label brands across both North America and Europe. In Building and Construction, sentiment remains cautious. Low interest rates should provide some support, but we expect the environment to remain soft in the near term. In the automotive sector, North America continues to reflect challenged affordability dynamics even as interest rates decline, while Europe is showing signs of stabilization. For oxyfuels, geopolitical uncertainty is expected to keep markets volatile. We continue to monitor supply developments closely. Overall, while macro conditions remain mixed, we expect modest sequential improvements from the seasonal lows of the fourth quarter. Our teams remain focused on execution, cost discipline and value-driven growth as markets gradually strengthen. Even in this challenging environment, I'm confident that LYB continues to be well positioned, and I'm proud of how our team continues to execute with discipline. Now with that, we're pleased to take your questions. Operator: [Operator Instructions] Our first question comes from the line of David Begleiter with Deutsche Bank. David Begleiter: Peter, just on the dividend, your yield is twice that of your closest peer, you trade at a full turn multiple discount on EBITDA to that peer. So investors aren't really giving you a credit for the higher yield. But why not just cut dividend, invest that cash into your project pipeline because investors do pay for growth and move on from there? Peter Z. Vanacker: Thanks, David. Of course, I mean that's the core question, very good question, I mean to start with. What you have seen what we have accomplished during the year 2025, yes, they're very difficult market environments, but the team delivered cash from ops of $2.3 billion in such a market environment. We overperformed on our cash improvement plan, $800 million. I give you a couple of data points. We're running the entire company at the end of 2025 with 18,700 people. That's a very lean organization that we have, and that's 1,350 people less than at the end of 2024. It doesn't mean, I mean that we don't continue to work on that as we announced also that we will continue to focus on our cash improvement plan during 2026, with a target of an additional $500 million. Of course, all that in the context of navigating the cycle. Needless to say, we've said it multiple times that our investment-grade balance sheet is the foundation of our capital allocation strategy. And of course, when we are focusing on our cash improvement plan, we will continue to prioritize, I mean, safe and reliable operations. I said it in the prepared remarks, this has been the safest year 2025, I mean, at LyondellBasell. So it's a clear evidence that we prioritize safe and reliable operations, continue to work also on our value enhancement program, but we focus on projects that have a no cost or low cost and immediate return on investments. It's clear that at the bottom of the cycle, we are evaluating the balance between cash returns to shareholders and growth investments, as you alluded to, and that in the context of a lower cash generation and, of course, also considering the metrics that are required for an investment-grade balance sheet. You know that we have delayed, I mean, certain growth investments, Flex 2, MoReTec-2, some other smaller growth initiatives. We continue to work on the projects that we have in Saudi Arabia, where we continue to get, I mean, quite a lot of support from the local authorities. And definitely also, the last thing that I want to say to that is we have, of course, regular robust conversations on our capital allocation strategy with our Board and decisions on whether we recalibrate the dividend to maintain our investment-grade metrics, they are decided by our Board, and they are regularly being reviewed during our scheduled Board meetings and the next one will take place in February Operator: Our next question comes from the line of Patrick Cunningham with Citi. Unknown Analyst: This is Alex on for Patrick. I had a question on your CapEx guide for $26. You're guiding about $1.2 billion. Now historically, Lyondell was around somewhere between $2 billion. So I'm just wondering if the reduced CapEx guide is a function of just recent asset sales or if there's a change in your maintenance CapEx or if the new $800 million on maintenance is the normal baseline for Lyondell? If you could help us understand your CapEx outlook for '26 and maybe the years beyond that, that would be helpful. Peter Z. Vanacker: Yes. Let me start with your question, Patrick. Thank you for your question. Indeed, I mean, $1.2 billion in 2026 is the CapEx that we have communicated that we are planning. And out of that, I mean, $0.8 billion in maintenance. Let me put that a little bit into the context. We've been investing in our company in growth, in reliability, in productivity, also through our value enhancement program, but also big investments like our PO/TBA facility that ran above nameplate capacity, as you know, very successfully above depreciation during the last years. So we have invested in growth. Also last year, Cash CapEx, $1.9 billion, accrued CapEx, $1.7 billion is well above, I mean, our depreciation level. So also here, in 2025, I mean, we have continued to invest in growth, reliability, safety and productivity. So in that context, when we revisited our plan for 2026, we came to the conclusion that in 2026, we can actually postpone a couple of turnarounds because of all the work that we have done already in '24 and '25. We could, of course, also limit the maintenance CapEx [ safety ] and maintenance CapEx for '26, I mean to that $800 million. And then the delta is a couple of the growth projects. But of course, important in that is our continued progress that we have on the MRT-1 investment in Cologne. Anything you want to add, Augustine. Agustin Izquierdo: Peter, that was a very comprehensive answer. I would say just, Alex, that the other point is also a fairly light year in terms of turnaround. We only have the turnaround on the Midwest land. Then we have also a smaller one for IND. And as Peter alluded, we have been very diligent on managing our maintenance CapEx. And this time, that's why we can achieve now this $800 million for maintenance CapEx, and as Pete mentioned, $400 million for growth projects. Peter Z. Vanacker: Just to be clear, I mean, normally, I mean, we have turnarounds, I'd say, in the environment of 3 to 4 per year. So we only will have, I mean, 2 in 2026. It doesn't mean that you can take, I mean $800 million as safety and maintenance CapEx and extrapolate for the foreseeable future. You know that we have $1.2 billion in the past in safety and maintenance CapEx. Once we have fully executed our European assessments, we expect that number to go down to something around, let's say, $1.1 billion. But you can always steer it a little bit, I mean, from 1 year to the other, just like we do in the cash improvement plan then for 2026 with $800 million Operator: Our next question comes from the line of Frank Mitsch with Fermium Research. Frank Mitsch: So you shut down the Houston refinery a year ago. And some may argue that things have changed with respect to the outlook in the midterm, given the events at the beginning of this year, in terms of Venezuela. And as you know, that Houston refinery was perfect for running [ Ven ] crude. I'm curious as to what your thoughts are. Obviously, this was something that you were looking at possibly doing with MoReTec, et cetera. But given that it's only been shut down a year, what might be the possibility that Lyondell would look to monetize that asset should some of the refiners look at, hey, the Ven crude becomes more plentiful down the line , that asset could be rather valuable. What are your thoughts there? Peter Z. Vanacker: A good question. I mean on the refinery in the context of what happened in Venezuela. I mean our plan with the refinery continues to be, as we explained before. Of course, we look at in the context of the cash improvement plan. You know that we have delayed, I mean, the investment in MRT-2. One thing that I want to highlight as well, remember, I mean, when we decided to shut down the refinery, we avoided CapEx of, I would easily say, I mean, $1.5 billion because we hadn't done a turnaround anymore on the refinery since, what, about 8 years in total. So in order to continue to run the refinery at that time, we would have taken the decision, of course, to do the turnaround, which would have been quite costly. Of course, I mean, the [ Holt ] refinery is not the only one in the United States that can take that kind of crude quality from Venezuela. There is quite a lot of refineries that can take that crude. So our plan, I mean, continues to be, as we have explained, I mean, transform, I mean, the refinery in the context, of course, from a time line perspective of the cash improvement plan. And as such, I mean we continue to remain very open in what we can do, I mean with the existing assets that we have there. Operator: Our next question comes from the line of Jeff Secoskus with JPMorgan. Unknown Analyst: The balance sheet was managed very, very well at the end of 2025 with your receivables and inventories really coming down. Do those need to be built back up in 2026? And what do you think your working capital benefit or use will be in 2026? Peter Z. Vanacker: Jeff, good question. I'm going to start with some comments and then hand over to Augustin. I heard you saying that was very well managed at the end of 2025. Thank you for your comments on that. But of course, I would like to point out that we managed it very well also during the last, I mean, 4 years. . If you look at our cash conversion since 2022, we have been consistently above 90%. And yes, I mean, 95% in 2025. I think that's fantastic work. You see the discipline in our organization, fantastic execution by our people. And it was not just, I mean, in Q4, again, in the cash improvement plan I alluded to that already before, partly because of our portfolio management partly before -- because of further streamlining our organizations we reduced, I mean, our headcount by 1,350, which is quite substantially if you take that from a 20,000 number approximately. It's quite an accomplishment that has been delivered by our people. Working capital also over revenue. If you look at it, I mean, and you exclude, I mean, the revenue of the refinery that we had historically, so apples-to-apples, I mean [indiscernible] trade working capital, running the entire company at somewhere between -- over the year between 12% and 13%, which also in my history, having worked in different companies is extremely low, especially if you also consider that we don't do any factoring. So with that, Augustin? Agustin Izquierdo: Yes. Thank you, Peter, for the answer. Jeff, so you're absolutely right. Actually, the working capital level on an absolute value is the lowest we've had since 2020. And again, I commend the teams really for the excellent work they did on managing working capital, especially here in the second half and most importantly during Q4. To your point, yes, we will have to rebuild some working capital as we go into 2026. . But this has all been factored now into our cash improvement plan and allows us -- we have enough offsets and initiatives in place to allow us to deliver the $1.3 billion cumulative in '25 and '26. But yes, you should see some moderate build as we go through the year in working capital terms. Peter Z. Vanacker: It would not be surprised, Jeff, I mean, just like what we said on the cash improvement plan, $600 million target for 2025, and we over-delivered that $800 million. That means that the entire team is, of course, very, very much focused in also finding ways and how can we overdeliver the $500 million in 2026. That's the way how we work. . Operator: Our next question comes from the line of Vincent Andrews with Morgan Stanley. Vincent Andrews: Just wondering if you could give us your assessment of the oxyfuels market for 2026. I know '25 had some peculiarities with another competitor asset startup or refinery startup as well as maybe some volatility negative in the oil market. But how would you assess your opportunity there in '26 versus 2025. Peter Z. Vanacker: Two points, and I will hand over. I mean, to Aaron. I mean, first point, you're right. I mean, Vincent, was quite volatile in 2026. But the second point I also want to make is that, if you look at average margins and you compare them historically, they were slightly above and you saw that in the one slide that we showed. So with that, Aaron? Aaron Ledet: Yes. Thanks, Peter, and thanks, Vincent, for the question. I think the short summary is that we are expecting Oxyfuels to normalize following a pretty volatile 2025 to your earlier comment, with typical seasonal improvements during the summertime. We're watching crude along the comments that you made as well, just all the geopolitical unrest that we've seen here in the first quarter. We've seen a lot of volatility in crude itself, whether it's Brent or WTI is up $8 a barrel over the month. So obviously, that's going to impact our profitability looking forward. We did start the year with pretty low inventories consistent across all of our businesses and with some of the freeze outages here in the U.S. Gulf Coast, it created a little bit of upward price movement, but demand does remain seasonally low here in the first quarter. Operator: Our next question comes from the line of Matthew Blair with TPH. Matthew Blair: Great. Could you talk a little bit more about the polypropylene market. is it safe to say that polypropylene is actually weaker than polyethylene due to higher exposure to areas like autos and construction. And over the next couple of years, are you more optimistic on recovery in polyethylene or polypropylene? Peter Z. Vanacker: Very good, Matthew, good question. I mean clearly, I mean, polypropylene, if you look at the different sectors and applications at polypropylene go in, which is, let's say, also for propylene oxide, a bit the same. It's more, I mean, dependent on demand in durable goods and how demand and durable goods is actually behaving if it is growing or not. Now let me go back a little bit in history. Everybody knows that in 2021, the demand for durable goods after the pandemic 2020 was exceptionally high. And since then, it has been quite weak, which is a quite long period that demand for durable goods has been weak. In addition to that, I mean, everybody sees and knows that the inflation rates are coming down, interest rates little by little, but they are coming down. Yes, consumer confidence is not yet up to the level that we would like to see. But if that leads, I mean, to consumer confidence also moving up, then one may expect that both for polypropylene and propylene oxide that demand would also recover. With that, let me hand over to Kim. Kimberly Foley: Okay. Yes. Peter has alluded to the demand side of the equation. I'll just make a couple of comments about the supply side. We've mentioned in other calls, and I'm sure you've heard from others, the polypropylene cost curve globally is pretty flat. So most players don't export. I say most. For example, North America doesn't export polypropylene, but the Middle East and China because China is so heavily oversupplied in polypropylene, they are exporting. And what you are seeing in the margin charts in the slides that we showed today is just that. We believe polypropylene is at the bottom based on the combination of oversupply and the demand factors that Peter alluded to. So as Peter alluded, as demand would come back. And as people are rationalizing, it could have to your question about which may bounce more, it may bounce higher initially. Peter Z. Vanacker: And you see quite some activities also going on in consolidation, rationalization, not just I mean of crackers, but of course, also linked to that, I mean, polypropylene. And I would even say probably more heavy weighted I mean to polypropylene today than it is to polyethylene. . Kimberly Foley: Agreed. Operator: Our next question comes from the line of Kevin McCarthy with Vertical Research Partners. Kevin McCarthy: I'd appreciate your updated thoughts on the U.S. Gulf Coast market for polyethylene. So maybe for Kim, I love your thoughts on kind of the contract pricing opportunity as you see it. I know some of the consultants are inclined to give pretty good credit for price realizations. Maybe you could talk through what you would anticipate on a gross basis and also net of any changes in annual contract discounts this time of year. February pricing that may be on the table? And then maybe on the other side of the coin, ethane feed has been quite volatile, so on the back of natural gas. So would love your thoughts on how you see that flowing through on a unit margin basis. Kimberly Foley: Okay. Kevin, a lot of moving parts in that question. And let me just kind of talk through how I think about it. So if you think about the ACC data that many of us look at on the inventory side, second quarter of '25 probably was one of the high points with the 44 days right after liberation. You saw the industry kind of lower inventories in third quarter to [ 43.5 ]. Now while we don't have December data yet. November data shows for the fourth quarter down to [ 40 ]. So big pool in the fourth quarter. I would anticipate December probably even took that lower. So you're coming into the year on very, very low inventories in the industry. Number two, you had higher pricing in the fourth quarter. So on the upstream side, you had ethane that was higher, you had natural gas that was higher. So people were not making the profitability that they wanted to in the fourth quarter. Now here comes winter storm Fern, and you've seen the variability in ethane and natural gas price, and you've seen industry producers like ourselves proactively take down derivative units through the storm. Now that enabled an ease or seamless restart, but nonetheless, it took even more capacity off short term. So inventory or available inventory is very scarce. You also see export pricing increasing as we enter into the January time frame. And you're now starting to see downstream converters announcing price increases. So I think when you put all those factors together, the price initiatives that are out in the market today are very supported. Peter Z. Vanacker: Yes. Good answer, Kim. I mean, so you can clearly hear I mean that we are seeing lots of indicators that are supporting, I mean, our announced price increases, and we expect that integrated margins as a consequence, should go up. I mean demand has been very robust. Operator: Our next question comes from the line of Aleksey Yefremov with KeyBanc Capital Markets. Aleksey Yefremov: You have a good window into China and the local policy. What's your latest thinking in terms of anti-involution policies, what we would have -- any more specific news maybe in the next few quarters there? Has your thinking changed at all over the last 3 months? Peter Z. Vanacker: Thank you, Aleksey. It's a good question. I mean on China, mean a couple of points that I want to make. I mean, we've seen, I mean, in China that there has been also some price increases on a modest level, but there has been some price increases in January. And that probably also has to do, I mean, with the fact, I mean, there was some inventory depletion and growth, I mean, continue to be at around a 4% level for polyolefins. . When we look at the anti-involution, with our people that we have on the ground and all the relationships that we have in our technology business unit, there is a lot of movement. There is a lot of discussion. And we're waiting to see, of course, what the decision will be. But we believe, I mean, that because of all the discussions that are happening that there is a very diligent and very serious evaluation that is going on by the NDRC. So we expect that something will come out. Will it be in Q2 remains to be seen. But I mean, there is lots of pressure, I mean, behind it. And we hear, I mean, for example, criteria for asset rationalization, not at 300 kt for a cracker but 500 kt these kind of discussions. Another thing I want to point to is you see some other policies that are being put in place, like we heard, I mean, from a new naphtha consumption tax that is being put in place not small. I mean, for emerging domestic transactions, [ $300 per tonne ]. Yes, refundable, but it would have to be paid, first of all, upfront, which means, I mean, cash flow and especially, if you have nonintegrated players, nonintegrated ethylene cracker capacity in China is about [ 11 million tonnes ]. Remember that. So that's not -- it's not small. They would have to then pay upfront, I mean that new naphtha consumption tax. So what I want to say is there is a lot happening, I mean, in China that all points in the same direction. And that is making sure that there is also a rationalization going on in that market. I've had another look, I mean, also at the numbers that we presented on a global basis in terms of capacity rationalization. Remember the slide that we showed during the third quarter earnings results. At that time, we talked about a little bit more than [ 21 million tonnes ] of ethylene capacity rationalization, and that did not include the anti-involution. When we look at the further announcements, here and there, news on the ground, we're now looking more at a bit more than 23 million [ tonnes ] of capacity rationalization, again, ethylene capacity rationalization and still that does not include I mean, the anti-involution. Operator: Our next question comes from the line of Mike Sison with Wells Fargo. Michael Sison: In OP Americas, how much of that capacity do you export? And export margins have been noticeably kind of [ zippo ] or very low relative to domestic. What do you think needs to happen to get that part of those margins up over time? And should you reduce your exposure to export given it seems like it's more structurally impaired than the domestic profitability? Peter Z. Vanacker: Mike, historically, I mean, we always had, I mean, lesser exports. I mean, because your question mainly goes, I assume into polyethylene. We always have lesser exports because of the portfolio of products, I mean that we have that are more differentiated. So we are selling more in the domestic market as a consequence and therefore, lesser dependent on polyethylene exports. With that, Kim, anything you want to add? Kimberly Foley: Yes. I would just say, in general, I think we've typically said to the investment world that we're 10% to 15% lower than the industry on exports. So if you look at LIBs exports in '24 and '25, we were 34% and 38% versus an industry number of closer to like 48%. The other thing I would say is you asked kind of about pricing and how to make that a better margin. I think '25 is a very difficult year to look at export pricing and actually, I would even say domestic regional pricing. There were so many changes and thoughts around tariffs and supply chains were constantly changing. I think an upside to '26 is that tariffs normalize, supply chains will normalize and everybody will have an opportunity to have the best netback to their individual regions. Operator: Our next question comes from the line of Josh Spector with UBS. Joshua Spector: Just a quick one. I was wondering on the Olefins EAI, I know there are a number of shutdowns and outages, some outside of your control from a supplier perspective. How much of a detriment was that in the fourth quarter? And how much of that do you expect to come back in the first quarter? Kimberly Foley: So the olefins impact for EAI in the fourth quarter was $35 million. Operator: Our next question comes from the line of Hassan Ahmed with Alembic Global. Hassan Ahmed: Peter, I just wanted to get a little more granular about a couple of comments you made earlier about rationalizations. You talked about that [ 20 million tonne ] figure of rationalizations that you guys highlighted in your Q3 presentation going up to 23 million. And obviously, that's not including the Chinese anti-involution potential. I mean as I sort of sit there and run the numbers and try to sort of identify announced rationalizations where an actual facility, name facility, has been identified. The number comes up closer to around 10 million. And I know that obviously, the Koreans are talking about 2.5 million to 3.5 million. But again, some of the facilities have not been identified. So I guess, long-winded way of asking you, how comfortable are you with that [ 23 million tonne ] figure, clearly with some of the facilities not having been identified as yet. Peter Z. Vanacker: It's a good question, Hassan, and thanks for asking that question. I mean, first of all, I am comparing my baseline is 2020. Just to be clear on that, if -- to your questions on South Korea, I have nothing included in those numbers on closures to date since 2020 or announced closures. But it is, in my number as an anticipated closure of around, I mean, 3.7 million tonnes of ethylene in capacity. So the vast majority clearly continues to be in Europe, where we see closures to date of around 5 million tonnes announced closures on top of the 5 million tons of 2 million tonnes, and I have not included yet any anticipated closures on -- in the European region. But if you ask me, I think we're going to see more. I think we have not seen everything there may be more, I mean, to follow. There has been some closures, I mean, of course, also in China that maybe not a lot of people talk about since 2020, which adds up, I mean, to around 5 million tons. And there have been some closures in the meantime smaller number that have been announced. And as I said, I mean, anti-involution is not included in that. And then, of course, in Southeast Asia, there have been closures announced by our peers like in Singapore. So you need to add them up as well. It's about 3 million tonnes in Southeast Asia closures to date and then another 1 million tonnes of announced closures and then I haven't talked about Japan, but also in Japan, you already have closures that have been executed to date and then you also have announced closures. So in total, that adds up to about we've anticipated another 1.5 million tons. So I hope that helps you, Hassan. Operator: Thank you. Ladies and gentlemen that concludes our question-and-answer session. I'll turn the floor back to Mr. Vanacker for any final comments. Peter Z. Vanacker: Thank you again for all your excellent questions. And as I said in my prepared remarks, this is one of the most challenging and longest downturns in our industry. but we see clear evidence of reduced rates of capacity additions and rationalization of all their assets being implemented globally that should help, I mean, to accelerate recovery. Our LYB team has over delivered on our promises to control the controllables by outperforming in safety, operational excellence, our cash improvement plan and our value enhancement program during 2025. And that resulted in the fourth consecutive year delivering an industry-leading cash conversion that exceeded 90%. I want to thank, I mean, the global LYB team for delivering value and maximizing cash conversion during these challenging times while operating safely and reliably. This performance has convinced us to target another $500 million cash improvement in 2026 compared to 2025 and continue to progress on our value enhancement program by raising the bar to $1.5 billion of recurring annual EBITDA by 2028. We remain committed to our long-term strategy but have focused our investments on projects that are immediately profitable. Another way to look at this prolonged downturn is as follows: I mean, the longer we are at the bottom of the cycle, the closer we get back to an up cycle and LYB will be ready to capture value accordingly. I wish you all a great weekend, stay well and stay safe. Thank you. Operator: Thank you. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.
Operator: Good morning. My name is Katie, and I will be your conference facilitator today. Welcome, everyone, to Chevron's Fourth Quarter 2025 Earnings Conference Call. At this time, participants are in a listen-only mode. After the speakers' remarks, there will be a question and answer session and instructions will be given at that time. As a reminder, this conference call is being recorded. I will now turn the conference call over to the Head of Investor Relations of Chevron, Mr. Jake Spiering. Please go ahead. Jake Spiering: Thank you, Katie. Welcome to Chevron's Fourth Quarter 2025 Earnings Conference Call and Webcast. I'm Jake Spiering, Head of Investor Relations. Our Chairman and CEO, Mike Wirth, and our CFO, Eimear Bonner, are on the call with me today. We will refer to the slides and prepared remarks that are available on Chevron's website. Before we begin, please be reminded that this presentation contains estimates, projections, and other forward-looking statements. A reconciliation of non-GAAP measures can be found in the appendix to this presentation. Please review the cautionary statement and additional information presented on slide two. Now, I will turn it over to Mike. Michael K. Wirth: Thank you, Jake. 2025 was a year of execution. We set records, started up major projects, and strengthened our portfolio. Production reached record levels globally, and in the US, supported by key milestones and strategic actions. Including completion of the Future Growth Project at Tengiz, 260,000 barrels of oil per day. Start-up of Valleymore and Whale and the ramp-up of Anchor in the Gulf of America. Advancing toward our goal of 300,000 barrels of oil equivalent per day in 2026. Achieving 1,000,000 barrels of oil equivalent per day in the Permian, and shifting focus to free cash flow growth. And closing the Hess acquisition. Creating a premier upstream portfolio with the highest cash margins in the industry. Additionally, in the downstream, we delivered the highest US refinery throughput in two decades reflecting recent expansion projects and higher efficiency. This performance drove strong results. Including industry-leading free cash flow growth, excluding asset sales, adjusted free cash flow was up over 35% year over year even with oil prices down nearly 15%. And for the fourth consecutive year, we returned a record cash to shareholders. Delivering on our consistent approach to superior shareholder returns. Chevron has been in Venezuela for over a century. And we remain committed to leveraging our deep expertise and long-standing partnerships for the benefit of our shareholders, and the people of Venezuela. Since 2022, in full compliance with US laws and regulations, we've worked with our Venezuelan partners to increase production in our ventures there by over 200,000 barrels per day through a venture-funded model to recover outstanding debt. We see the potential to further grow production volumes by up to 50% over the next eighteen to twenty-four months. We're reliably delivering Venezuelan crude to the market including our own refining system. There is significant potential in our assets, and in the country. We're optimistic the future holds a more competitive and robust pathway to deliver value to Venezuela, the United States, and Chevron. We've been a pivotal part of Venezuela's past. We're committed to the present, and we look forward to a continued partnership into the future. Our advantaged assets in the Eastern Mediterranean continue to grow. And we're advancing multiple high-return projects to bring world-class gas to regional markets. Leviathan recently reached FID to further expand production capacity. Combined with a near-term expansion, gross capacity is anticipated to reach roughly 2,100,000,000 cubic feet per day at the end of the decade. Contributing to a doubling of current earnings and free cash flow. At Tamar, the optimization project start-up is in progress, increasing gross capacity to approximately 1,600,000,000 cubic feet per day. An Effort ID has now entered feed. Working toward developing a competitive investment in Cyprus. We expect these projects to build on the existing assets' top quartile reliability and unit development costs further expanding our differentiated position. Before concluding, I want to provide a brief update on TCO. Earlier this month, TCO experienced a temporary issue on the power distribution system. Production was safely put in recycle mode while the team identified the root cause. Early production has now resumed. We expect the majority of the plant capacity to be online within the coming week and unconstrained production levels within February. Our full-year 2026 guidance of $6,000,000,000 of Chevron share free cash flow from TCO at $70 Brent is unchanged. I want to reiterate our message from Investor Day. Chevron is bigger, stronger, and more resilient than ever. We're entering 2026 from a position of strength, and will continue building on our momentum in the years ahead. Now, to Eimear to discuss the financials. Eimear Bonner: Thanks, Mike. Chevron reported fourth-quarter earnings of $2,800,000,000 or $1.39 per share. Adjusted earnings were $3,000,000,000 or $1.52 per share. Included in the quarter were pension curtailment costs of $128,000,000 and negative foreign currency effects of $130,000,000. Cash flow from operations was $10,800,000,000 for the quarter, and included a $1,700,000,000 from a drawdown in working capital. In line with historical trends, we expect to build in working capital in 2026. Organic CapEx was $5,100,000,000 for the quarter, and full-year organic CapEx was in line with guidance. Inorganic CapEx related mostly to lease acquisitions and new energies investments. We repurchased shares at the high end of our fourth-quarter guidance range at $3,000,000,000. Our balance sheet remains strong ending the year with a net debt coverage ratio of 1x. Compared to last quarter, adjusted earnings were lower by roughly $600,000,000. Adjusted Upstream earnings decreased primarily due to lowered liquids prices. Adjusted Downstream earnings were lower largely due to lower Chemicals earnings, and Refining volumes. Adjusted free cash flow was $20,000,000,000 for the year, and included the first loan repayment from TCO and $1,800,000,000 in sales. Share repurchases combined with the Hess shares acquired at a discount were over $14,000,000,000. Looking ahead, we expect continued growth in cash flow driven by low-risk production growth ongoing cost savings and continued capital discipline. 2025 marked the highest full-year worldwide in US production in Chevron's history. Excluding impacts of the Hess acquisition, net oil equivalent production growth at the top end of our 2025 guidance range of 6% to 8%. Production of TCO, the Permian, and the Gulf of America was in line with or better than previous guidance. Due to strong performance and disciplined execution. We expect volume growth to continue in 2026. As we see the benefits of project ramp-ups, a full year of Hess assets, and continued efficiency in our Shield portfolio. A full year of Permian above 1,000,000 barrels of oil per day and back in production underpins the expected growth in Sheel and Tite. Recent and upcoming project start-ups in Guyana, the Gulf of America, and the Eastern Mediterranean are anticipated to increase offshore production by approximately 200,000 barrels of oil equivalent per day. We expect TCO to grow 30,000 barrels of oil equivalent per day delivering near its original plan as the 2026 maintenance schedule has been optimized. In total, growth in these high-margin assets is anticipated to contribute to a 7% to 10% increase in production year over year, excluding the impact of asset sales. Last year, we launched our structural cost reduction program as part of our continued commitment to cost discipline. Execution has exceeded expectations, $1,500,000,000 delivered in 2025, and $2,000,000,000 captured in the annual run rate. These results reflect a broad organization-wide effort to operate more efficiently. Challenging high and more work gets done, streamlining processes, integrating advanced technology, and leveraging our scale across the supply chain. We've restructured our operating model to be leaner and faster, with a more intense focus on benchmarking and prioritization. And we're not done. We expect this momentum to continue as we aim to deliver on our expanded target of $3,000,000,000 to $4,000,000,000 by 2026. With more than 60% of savings coming from durable efficiency gains. As Mike referenced, entering 2026 a position of strength. Our diversified portfolio has a dividend and CapEx breakeven below $50 Brent, and a deep opportunity queue with lower execution risk. Capital discipline remains at the core of our strategy, as we focus on only the highest value opportunities. Our balance sheet is in excellent shape, with significant debt capacity that provides additional resilience and flexibility. This disciplined approach allows us to manage through cycles, invest for the future, and consistently reward shareholders. Over the last four years, we've returned more than $100,000,000,000 in dividends and buybacks. As we showed you at our Investor Day, our track record of growing the dividend is unmatched across decades. Today, we announced a 4% increase in the quarterly dividend, in line with our top financial priority. I'll now hand it off to Jake. Jake Spiering: That concludes our prepared remarks. Additional guidance can be found in the appendix to this presentation. As well as the slides and other information posted on chevron.com. We are now ready to take your questions. We ask that you limit yourself to just one question. We will do our best to get all of your questions answered. Katie, can you please open the lines? Operator: Thank you. If you have a question at this time, please press 1 on your touch-tone telephone. To allow for If your question has been answered or you wish to remove yourself from the queue, please press 2. If you are listening on a speakerphone, we ask you please lift your handset before asking your question to provide optimum sound quality. We'll take our first question from Arun Jayaram with JPMorgan. Arun Jayaram: Good morning, Mike. I was wondering if you could elaborate on a few of the moving pieces around TCO volumes in 2026. Including the optimized maintenance schedule, and perhaps, Mike, you could just discuss the issue on the power distribution system and where you stand with some of the debottlenecking activities that could potentially result in an increase in your productive capacity at TCO? Michael K. Wirth: Sure. Let me start with the power issue since that's been the most recent information there. The team proactively suspended production at the facility when an issue was identified in the power system. I'm really proud of the organization for taking that step being willing to reduce production when they identified a condition that created a risk and focusing on the safety of people, assets, the environment. They acted with urgency to get the facility into a safe posture. Immediately, began working on root cause identification and very quickly began implementing solutions to get production back online. Production has been resumed at the Korolev field. A number of the assets or power distribution assets have been taken out of service, have been brought back into service. We've actually got power now to one of the pressure boost facilities. And are in the process of beginning to ramp things back up to higher rates, through the processing plants as I outlined in my opening comments. Also, you know, in the news, just to close the loop on it, you know, we have two morning births back in service at CPC. We've been working for the last thirty plus days, maybe thirty to forty-five days, through a single mooring berth. So back into, you know, start-up mode on TCO, and as I indicated, full field production capacity is not far away. When you look at the full-year guide where we said we expect to be near our original production expectations, two things I would point to. One is a maintenance optimization, which is timing of activity. And optimizing downtime. And so as we've looked at the schedule for this year, we've got a more optimal plan that will accomplish the maintenance objectives and reduce the amount of planned downtime that goes with those. And then the second thing gets to your question about debottlenecking. At our investor day, we shared some history at TCO. That demonstrated over our years there in multiple projects, we've been able to steadily improve plant capacity beyond nameplate. We're working on that again now with the new project. And in fact, one of the pit stop turnarounds that we took late in 2025 was to address to retray a column or a portion of a column and address some issues that have been identified that we believe will allow us to push some more throughput through the plant. We've actually not run that at full capacity long enough to be able to speak to exactly what the impact of that is because of some of these other constraints that I just mentioned. But as we're back up and running, we'll certainly have a chance to test that. And I would expect, that and other steps that we take will lead to gradual debottlenecking, and we'll look to try to creep capacity further upward. And we'll advise you as we've got, you know, run time and confidence that we can demonstrate that we'll let you know what that looks like. Thanks, Arun. Operator: We'll take our next question from Neil Mehta with Goldman Sachs. Neil Mehta: Morning, Mike and team, and thanks for the comments. Just Mike, if you could unpack Venezuela a little bit more, specifically, your just thoughts on the conditions of the assets on the ground and how much running room there is in terms of the resource there. You know, how big could this be in the context of Chevron's portfolio? And I think Mike, you alluded to the fact that might be thinking about this more in a self-funding model type of way. So anything you can unpack there too be great. Michael K. Wirth: Yeah, Neil, maybe I'll put a little bit of a context around this just because I had different discussions with people over the years, and I'd like to get everything kinda level set on it since it's been more front and center recently than it has been historically. First of all, our operations there through the last month and all the things that have happened on the ground have continued uninterrupted. Our people are safe. We continue to work closely with our partners in Venezuela to get crude to the market. So we've not been impacted by any shipping issues or anything else. Have been in the media. We're actually in four different joint ventures with Petabesa, three of which are producing assets. Since 2022 when there were some changes in the licenses out of OPEC under the Biden administration, we've grown production by over 200,000 barrels a day. Gross production now is up around 250,000 barrels a day. And as Mark mentioned during the White House meeting, there's the potential for up to an incremental 50% production growth over the next eighteen to twenty-four months as we get some additional authorizations from the US government. The activity on the ground right now is entirely funded through the cash within those ventures. And so the current license agreement requires us to pay certain tax and royalties that we're legally obligated to pay. It enables repayment of debts that, that we have you know, still have debt balances that were owed, and we've been gradually working those down. And then the additional cash goes back into the operations for normal operating costs. That has funded, things like well work workovers, basic maintenance on pump and pipelines and compressor stations and the like. Which have allowed us to improve production. As we have and would continue to, as I indicated, up to maybe 50% additional growth. So that's the current state of things. As I think everybody on the call knows, the resource potential in Venezuela is large. It's well established, and there's a lot of running room ahead. I can speak to the state of our assets, and we have worked hard to keep them safe and reliable and maintain them during this period of time. I think as you look at the performance out of other assets that we're not involved in, you can see that that may not be the case across the rest of the industry in the country as, you know, the production has kinda steadily eroded over, you know, the last decade or so. And so I think the opportunity to do some of the things we've done in some of these other operations is probably there. I think it's a little early to say what our longer-term outlook is Neil. You know, should expect us to remain focused on value and capital discipline. It's a large resource that has the opportunity to become a more sizable part of our portfolio in the future. But we also need to see stability in the country, we need to have confidence in the fiscal regime. There was a hydrocarbon law that was passed just yesterday. They were in the process of reviewing to understand how that applies. And so there'd be a number of signposts that we'll be watching, you know, and, you know, as I try to remind people always, like anywhere that we invest, fiscal terms, stability, regulatory predictability are important. And so it'll have to compete in our portfolio versus attractive investments in many other parts of the world. The right changes, we certainly could see our operations and footprint expand in Venezuela. And, you know, we're working with the US government and the Venezuelan government to try to create circumstances that would enable that. Jake Spiering: Thank you, Neil. Operator: We'll take our next question from Doug Leggate with Wolfe Research. Doug Leggate: Good morning, everybody. Mike, I wonder if I could just quickly take you back to Tengiz. And it's I guess it's really more of a macro question because I think you're aware that Kazakhstan seemingly has some fairly substantial compensation cuts planned in the summertime. And I don't know how much of that was supposed to be Tenge's. I think it was a previous question from one of the guys asking about maintenance, but now that you've had this unplanned downtime, I'm wondering does that kind of meet the compensation if you had any contribution to that? In other words, we should not expect any further cuts later in the year. I don't know if you can speak to that both on a macro and a Chevron specific level, please. Michael K. Wirth: Yeah, Doug. I really can't. You know, that's a matter for the Republic and obviously OPEC plus as they engage in their discussions, which we're not privy to. I'll point out that historically, because the TCO barrel is a pretty attractive barrel from a fiscal standpoint to the republic, that, what we've seen historically is if there are restrictions on production in the country, you know, those tend to affect the barrels that are less fiscally attractive to the government, and TCO doesn't have a history of being, you know, impacted to a great degree by that. And so you know, I would point to that. I know history is not always a prediction of the future, but that's how things have historically worked. And I just don't know what agreements or understandings there are within the country relative to OPEC. Thanks, Doug. Operator: We'll take our next question from Ryan Todd with Piper Sandler. Ryan Todd: Great, thanks. Maybe on the Eastern Med, you've made a lot of progress in the Eastern Mediterranean over the last six months. Can you walk through kind of the drivers of the progress in the region, keys to Aphrodite development, getting that to FID, and then maybe additional opportunities in the region, including places like Egypt where we've seen some headlines, involving yourselves of late. Michael K. Wirth: Yeah. Thanks, Ryan. We continue to be very excited about the resource potential in the Eastern Mediterranean. You know, I used to get some questions back during, you know, the last year or so when there was a lot of, kinda geopolitical, uncertainty in the region. But you know, this is a tremendous resource. All credit to Noble Energy for the way they developed both tomorrow and Leviathan. And, you know, across our core assets, on a gross basis, we've got over 40 TCF of resource. This is comparable to our assets in Australia, have been the focus of investors for a long time. But this is similar scale. In the near term, we're focused on safely bringing online projects at both tomorrow and later this year. Tomorrow, we'll add about 500,000,000 cubic feet a day of capacity. Leviathan, about 200. And then the Leviathan expansion, just took FID on, will take gross production there to 2.1 BCF by the end of the decade. So steady growth, combined those projects should increase production about 25% and double earnings and cash flow by 2030. And then as you mentioned, Aphrodite just entered FEED. We're working towards a competitive project in Cyprus. This is one that's been, kind of on the drawing board for quite some time, and we've reached, I think, a good understanding with Cyprus on the development concept there. And so all of these, you know, lead to our confidence in the region. Last thing is we've got at least one exploration well I know that is going to go down offshore Egypt. We've got a large position in a number of blocks offshore Egypt further to the West in areas that are relatively underexplored and have been under some military exclusions. Historically, working petroleum systems onshore, and, you know, we've got reasons to believe they could extend offshore. So we're gonna be testing that. We shot seismic and gonna be getting some wells down. So an important part of our portfolio, good things underway now, and I think you know, the running room on this one continues well into the future. Jake Spiering: Thank you, Ryan. Operator: We'll go next to Devin McDermott with Morgan Stanley. Devin McDermott: Hey, good morning. Thanks for taking my question. Eimear, you had some helpful comments and details in the slides on the cost reduction progress so far. And if we look at what's on deck for 2026, what's ahead still, I think some of the remaining improvement is really driven by some of the fairly material organizational changes that Chevron implemented last fall. And now that you're a few months into this new operating model, was wondering if you could talk about some of the early results that you're seeing so far, both on cost and operations? So any positive surprises or conversely, kind of lessons learned or areas that are still a work in progress. Eimear Bonner: Okay. Thanks, Devin. Yeah. We've hit the ground running, and we went live with the new organization in October. And, the new operating model is live and well, and, you know, we're seeing that reflected in the early results that we've shown you today in the prepared comments. So we've saved $1,500,000,000 thus far on the cost reduction program. So some of that's coming from divestments. Some of that's coming from efficiencies and technology, and so you see the early results of the organizational impacts in the results already. The run rate's greater than $2,000,000,000. You know, at the end of the year. So, we are expecting the organizational efficiencies to add to the results that we're seeing thus far. So we're very confident in the target that we've set and delivering that over the course of this year. And just a reminder, that's three to four billion dollars. Look. In terms of the lessons learned, what I'd say is we're seeing results everywhere. Every team as part of this program has been benchmarking, has been looking for areas of improvement. So we've got a lot of programs that are looking at improving our competitiveness across every metric. Some of the examples that I would call out, production chemicals, now that we have our shale and tight portfolio and assets altogether in one business, we've been able to look at that from an operational efficiency perspective not only the optimized operationally, know, the chemical treatments, but also the cost, and the dose. So that would be an operational lessons learned, word of the scale, and the design of the new organization makes that easier to do, and the results speak for themselves. Another area, maybe in the technology space, you know, we've talked about this for a number of years, but AI, is really starting to take off in terms of being used in every part of the business. And in the new organization, our supply chain team is set up a little bit differently, and they've really been using AI in a neat way to glean more intelligence around how to approach certain negotiations, and so that would be an example as well. So all in all, we're on track to deliver the 3 to 4,000,000,000 I'm very confident in that. This is overall OpEx reduction while we significantly grow. So we'll keep you updated on the progress. Thanks for the question. Operator: Thank you. We'll take our next question from Sam Margolin with Wells Fargo. Sam Margolin: Hi, good morning. Thanks for taking the question. Maybe revisiting the Permian you know, I think it was, like, the '23 where you called out that productivity well, productivity in the Permian on the operated side was inflecting higher and you know, now two years later, seems like we're really seeing it flow through in capital efficiency. And so the question is, like, when you get this kind of momentum in short cycle capital efficiency, you know, does what does it do to your decision-making process? Not you know, I wanna spin you around on Permian Plateau, but just given the cost and productivity structure of your operation there, feels like it's getting incrementally capital efficient to accelerate. So just in the context of what you're seeing performance-wise, you know, how do you feel about the Permian strategy? Eimear Bonner: Hey, Sam. I'll take this one. Yeah. Well, what we're seeing is exactly what we set out to achieve, and that was to hold Permian at a million barrels a day. We've seen that for three quarters and optimize on cash generation. And we're already seeing cash efficiency improve. We're at $3,500,000,000 of CapEx, already, and that was something that we thought that it was gonna take us some time, but the team has just done a terrific job. Every aspect of the factory there has seen efficiency and improvement. And now, you know, we're taking that further given that our shale and tight portfolio is together as part of the new organization in one business. And so we'll see we'll see in that capital efficiency extend to the back end extend to, the DJ, and extend to Argentina. You know, one data point I'd give you just to illustrate it clearly is drilling rig efficiency. And since 2022, you know, we've more than doubled our drilling efficiency from that point. And so we're drilling, the development areas for much less. In terms of our decision-making, right now, I know change to our decision-making. I mean, Permian plays a role in our portfolio. We're focused on growing cash flow. Not growing production. And, you know, the capital efficiency, enables that. So, I just finished by emphasizing, you know, all of these actions are improving returns. Jake Spiering: Thank you, Sam. Operator: We'll take our next question from Paul Cheng with Scotiabank. Paul Cheng: May can you discuss how you see the opportunity set in two of the OPEC countries Libya, and Iraq, where a lot of your competitors seems to be believe that the opportunity sets have margin improved and making wave. We haven't heard from Chevron. And also that comparing to your peers, your LNG size or portfolio size is much smaller. And how that fit into your long term? Do you have a different view comparing your peer, on the LNG business? Thank you. Michael K. Wirth: Hey, Paul. Couple of questions there, I guess. First of all, you might have seen we recently signed an MOU in Libya. You know, we're a little bit underweight, relatively speaking, Middle East. Versus some other parts of the world, and that's been intentional. The types of contracts and the terms have been on offer in The Middle East broadly speaking, for the last decade or more, have not been very competitive versus some of our alternatives. And so you've had a lot of service type contracts. And, you know, in a world of limited human resources and limited capital resources, we need to deploy these to what we believe are the highest return opportunities. And it's been tough for a lot of those to compete within our portfolio. So we've not gone into Iraq. You know, it's been a decade or more than since we've last really had any kind of a serious look at Libya. Those things are changing. And I think in part, you know, when we saw President Trump make a visit through the region earlier this year, we saw a notable uptick in inbound inquiries and a desire to engage not just in those two countries, but in any number of other countries that would like to see American companies invest in their economies. And so, you know, we you know, the resource potential in some of these countries is undeniable. They're two of the largest resource holders. In the world. And so we're engaged in discussions in both of those countries. They've been reported in the media. To look at everything from existing producing fields and coming into those to operate and grow. Also looking at exploration opportunities as well. Improvements in fiscal terms have been critical. Pairing discovery resources with exploration opportunities to make things more attractive. And so we need to see compelling value opportunities there if we're going to invest. We intend to stay disciplined on capital and seek the highest returns. My quick response in LNG, Paul, I think I've spoken to this before is you know, we're a global player. We need to be in projects that compete. And, a lot of things that we've passed on around the world similarly, to my comments about, some of these Middle East opportunities. They also don't deliver the returns that we're looking for. And so got some US offtake where we don't need to put capital to work because we have a large gas position. We got strong, you know, credit position, and we can get attractive throughput rates and let somebody else deploy the capital into those so we'll have some LNG offtake from US. And, you know, we'll continue to look at opportunities. We're not opposed to adding, but it's got to deliver competitive returns. Thanks for the question, Paul. Operator: We'll take our next question from Stephen Richardson with Evercore ISI. Stephen Richardson: Hi. Thank you. I was wondering if we could maybe just dovetail on those the comments just there on changing fiscal terms internationally and the opportunity. Just feels like you've positioned the company arguably really well to win in a low commodity price environment. And with a ton of leverage to the upside as your sensitivities suggest. So that's it, but the opportunity set just keeps on getting bigger. I mean, we're just talking about Venezuela. Talking about some of these opportunities in The Middle East. You've got a revamped exploration program. So can you just follow-up on that in terms of how do we think about maintaining that leverage to the upside while developing some of these future opportunities? And how do you instill that discipline in the organization, if you could? Michael K. Wirth: Yeah. Steve, I mean, we've steadily worked to high grade our portfolio. We've looked to add very strong and competitive assets to our business. And we have divested ourselves of positions that are not bad assets but they fit better for somebody else than they do for us. And so in doing so, I think we've strengthened the company. You've seen our breakeven has come down. You see that, you know, we've we're able to operate at lower cost because we're actually in fewer positions that have more scale. They've got longevity, so we can apply technology to these assets. And, and I think you can expect us to continue to do so. We want to grow, you know, gradually over time. The demand for our products isn't growing at an enormous rate. You know, demand for us is growing arguably 1% a year, give or take. Gas is growing a bit more strongly than that. And so, you know, we've got a volumetric growth a little bit above that. Last year, this year. We got some acquisitions and project start-ups. But over time, we've got to grow cash flow. And that's the focus. We got to drive breakevens down because we're in a commodity business. We can never forget about that. We've got to apply base business excellence to everything that we do. So we got to drive value out of these assets. We got to work them better. I'll give you and Eimear talked earlier about bringing all of our shale businesses together. As you look now at what we're doing with, the Permian, the DJ, the Bakken, and Argentina, all as part of one organization. And I see people, practices, technology, standards being shared across those businesses, we're steadily driving the kind of improvement that Eimear was addressing in her response to Sam across that entire portfolio. And so we've consciously positioned the company as you say. To have the resilience that I talked about. I said we're bigger, better, and more resilient than ever. That means we can ride through the cycles in even better position than we could in the past. And we've got you know, a balance sheet that provides ballast if you get into a long cycle. And, you know, we've got this track record of continually raising the dividend, steadily buying shares back through the cycle, and being able to reinvest in the business to strengthen it over time. And that's the playbook going forward. Jake Spiering: Thank you, Steve. Operator: We'll take our next question from Biraj Borkhataria with RBC. Biraj Borkhataria: Hi, thanks for taking my question. Just a follow-up on portfolio. Been touched on a couple of times, but we've seen a bunch of headlines on you maybe looking to sign deals in various countries. I was just wondering is this a concerted step up in your efforts or is this largely initiated by resource-rich countries and reverse inquiry some perspective there would be helpful. And one of the things just to note on is your portfolio has become more concentrated over time. Which is good and bad depending on the situation. So I was just wondering if that part of your thinking is looking to diversify and how you're thinking about the portfolio there. Thank you. Michael K. Wirth: Yeah, Biraj. So look, business development is part and parcel of what we do every day, week, month, and year. There are times you're in a pretty sparse environment in terms of opportunity, and there's times when it's more target-rich. What I would say is and this tends to kinda work on a long cycle sometimes. What we see today are more attractive opportunities, frankly. Than I think we've seen in the past. And I spoke to The Middle East, so I won't repeat that. But you know, we do see a lot of interest in that part of the world and it's reflected in these more competitive fiscal terms. And so I don't think we've necessarily changed our appetite or our level of diligence and activity in the BD environment. We just see a more attractive suite of opportunities out there. We'll continue to be very selective and pick and choose. I hear your comment about portfolio high grading and concentration, if you will, at the core, you know, we run big things big. We like long large positions that have lots of running room. We like to apply technology and base business excellence to drive value through those assets. When you're in a position with a lot of smaller assets spread all over the world, your safety exposure, you've got a lot more surface area on safety, environmental issues, compliance issues. You just go down the list. So you deploy a lot of your great people to manage those things across assets that can be small and out there kind of in the tail of a portfolio having large positions where you can put your best people to work on assets that really matter is something that I believe is important. And so I recognize you could get too concentrated. I don't believe that we are. And as I mentioned earlier, we're a little underweight in The Middle East, which is an area we wouldn't mind having some more exposure if we can find it in a competitive financial standpoint. Jake Spiering: Thank you, Biraj. Operator: We'll take our next question from Manav Gupta with UBS. Manav Gupta: Good afternoon. You have a very strong refining portfolio, and there are two tailwinds we see to that refining portfolio. One is your competitor closing capacity in California, leaving you with one of the biggest footprints out there. Above mid-cycle margins. And second is the possibility of using some of those Venezuela and heavy sour barrels in your refining systems, the Gulf Coast and other places. Can you talk a little bit about those two possible tailwinds to your refining margins? Thank you. Michael K. Wirth: Yeah, Manav. Thanks for bringing up something near and dear to my heart, the downstream business where I spent a lot of my career. First off, on where you ended on Venezuelan crude, we've been bringing about 50,000 barrels a day, give or take, into our Pascagoula, Mississippi refinery on the Gulf Coast. We can take another 100 barrels a day into our system, both at Pascagoula and on the West Coast where we've got coking capacity at El Segundo. So I think you should expect to see us assuming it competes, against alternatives, to be running more Venezuelan crude in our system. Over time. In California, it's an interesting situation. We have a very strong downstream position there. We've got scale. We've got complexity in terms of conversion capacity. We've got flexible crude sourcing, advanced logistics, a very strong retail brand to integrate the business. And so we're as competitive as anybody, and I would argue advantage really versus the rest of the competitors in California. You're seeing some refineries close. That is going to take capacity out of the system. And, already, you know, we've got a market there that is geographically and logistically isolated. So isolated by specification as well. And as a result, California pays higher fuel prices than the rest of the country. By simple market forces being at work there. We've seen decades of what, in my opinion, has been, you know, poor energy policy making that has made it more difficult to invest. The irony is we have places in the world like Venezuela that are trying to become more attractive to investments as, places like California enact policies to become less attractive to investment. All of that is unfortunate as someone who spent a lot of time in that state, but it highlights the need, for policy that enables investments and, and for, competitive terms and regulatory environment. And so we'll see how things play out in California over time. Jake Spiering: Thank you, Manav. Operator: We'll take our next question from Alastair Syme with Citi. Alastair Syme: Thanks very much. Reserve replacement this year obviously benefits from Hess, but you'd also take on the new production. And, you know, that means reserve life has dropped again. And it's now a lot lower than it was five to six years ago. You know, the question is how do you think about the suitability of this metric to your business and really as a guide for investors in your business? Thank you. Eimear Bonner: Hey, Alastair. I'll take this one. Yes. I mean, triple R, our reserve replacement ratio, in a business that has depletion is an important metric. It's not the only metric that we look at when we think about the depth of our inventory or the quality of the portfolio. And last year, in addition to the triple R that was associated with the inorganic growth you know, with closing Hess and bringing Guyana and back into the portfolio. They're also, you know, some of that did come from organic ads as well, so extensions, discoveries, and project sanctions. So it's a blend it's a blend of both. Look. With triple R, it can be lumpy. So some years, you know, you can get a kind of a flurry of things happening at one time. So what we look at is we look at the one year, but we also look at the longer-term trends as well. We look at the competitive, metrics too. And, you know, when we take all of that into consideration, we had a great year in 2025 on triple R, and we lead the peer group in both five and ten year. Thanks for the question. Operator: Thank you. We'll take our next question from Jean Ann Salisbury with Bank of America. Jean Ann Salisbury: Hi, good morning. You all had said at the Investor Day that you had started to test the chemical surfactants in other basins outside of the Permian. Have you gotten any early results back from the DJ or Bakken? And anticipate that it's going to work as well there? Eimear Bonner: Yeah. Thanks. I'll take this one. So we've been primarily focused on, Permian, and in fact, we've increased the treatments from about 40% of the new wells being treated at the first half of 2025 to, almost 85% will be treated this year, and we're striving to 100% in 2027. So it has been more of a focus, in the Permian, and, I just point out we're testing our proprietary chemical technology, but we're also testing the combination of that with other commercially available chemicals. So cocktails as such, we're trying out different things depending on the development area. We showed in Investor Day some of our results. What I'd say is we're now realizing 20% improvement in ten-month cumulative recovery on the new wells. So we have even more information than what we shared and said. So we're really excited and we expect that's at least a 10% recovery uplift when we think about it over the full life of the well. What we've also learned is we can apply these technologies not only to the new wells, but the existing wells. And what we've seen in almost 300 of the treatments that we've done in existing wells that we've declined by five to 8%. So all in all, very encouraging. The programs to scale and other parts are underway, though. We don't have results that we can share with you today. We did do some treatments in Bakken in the fourth quarter. We expect to see some of that soon. We have pilots underway in the DJ as well. And so we'll share the results. I mean, we publish the results. They're verifiable. We give you the paper references, so that you can see for yourself. But we will share all of that in due course. But we're really excited. And what I would also say, this is one technology program amongst a set of programs that's really focusing on doubling shale and type recovery. We've got a stimulation program that it's very deep. We've also got, an effort to leverage the unmatched data position we have around our shale and tight wells using AI to clean insights into how to design wells, develop wells, and increase recovery. So very comprehensive. We anticipate we'll have some results for you this year, but right now, we're just focused on getting the treatments out to those other shale and tight basins. Jake Spiering: Thank you, Jean Ann. Operator: We'll take our next question from Betty Jiang with Barclays. Betty Jiang: Good morning. This is a good follow-up to Jean's question. Wanna ask about the Bakken specifically since you've been there for a couple of quarters now. How is it performing relative to your expectations with the cross-learning between the two teams? And how do you think about the Bakken position overall today? Michael K. Wirth: Yeah. Thanks. Thanks, Betty. Look, we're pleased with the Bakken. We're applying best practices as Eimear mentioned, from other parts of our portfolio. We're looking at things that Hess had been doing in the Bakken to apply those in the DJ, the Permian, or in Argentina. We've already optimized our development program to reduce capital spending better utilize existing infrastructure, maximize value. We've moved from four rigs to three with a similar drilling output. We've optimized the workover fleet, renegotiated some of the key supplier contracts, working on advanced chemicals with some optimism. We're implementing long lateral development in 60% of the wells this year and up to 90% in 2027. So driving value there, we're gonna you know, Hess had a target, and we will hold that to, you know, level it out around 200,000 barrels a day plus or minus and really focus on cash flow. So similar to the way you've heard us talk about the DJ and the Permian, we think we can drive a lot of asset productivity efficiency technology and free cash flow growth in this asset as well. Operator: Thank you. We'll take our next question from Geoff Jay with Daniel Energy Partners. Geoff Jay: Hi, guys. I was just really struck by the margin improvement sequentially in US upstream. And I know there's a lot of moving parts, but it looks like realizations were down over $3 on a BOE basis, but, you know, costs you know, the margin was actually up. And I guess I'm wondering if there's a way you can help me understand how much of that are those structural cost savings or and optimization efforts you guys are doing and kind of what the pathway for that looks like going forward over the next year or so. Michael K. Wirth: Yeah, Geoff. I'd point to a couple of things. Number one, you know, we've been bringing on new production in the Gulf of America. These are high-margin barrels. And so when you bring that into the mix, you start to see the margin expand. Number two, as we've moved to plateau in the Permian, and I also mentioned the DJ in the Bakken. That's 1,600,000 barrels a day. As you start to drive efficiency and productivity and technology across that kind of a production base, you can see a real impact of that. The third contributor then are some of these structural reductions that we're making. In our organization, in a more efficient support of people, to these businesses, consolidating all of our shale assets into one organization. So I'd say there are multiple levers there. But your broader point is one, that I think is important. I mentioned earlier that, you know, we're in a relatively low grow it's a growth business. No doubt about it. But the band for energy globally grows gradually. We need to focus not only on growing volumes in order to meet that demand, we've got to continually work on expanding margins. And that's your value chain optimization. That's through all these other things that I just talked about. And so margin expansion is something that in my background in the downstream, we worked hard to expand margins through things we can control. You can do that in the upstream too. I've got we've got people focused on that. And we're seeing the results as you point out. Jake Spiering: Thanks, Geoff. Operator: Thank you. We'll take our next question from Bob Brackett with Bernstein Research. Bob Brackett: Good morning. A follow-up around Venezuela. You mentioned bringing Venezuela heavy into Gulf Coast refineries and having some capacity on the West Coast. Do you have a sense of how much heavy from Venezuela could be absorbed by The US without impacting heavy light dips or without backing up Canadian heavy? Michael K. Wirth: You know, Bob, good analysts do great work on that. Markets are wonderful things. And what's gonna happen as you bring more of these barrels in, as you say, you're gonna kinda back out what's currently feeding the system. They're gonna redistribute around the world and kind of a new equilibrium will establish. And light heavies will reflect that. Flows will reflect that. I don't have a simple rule of thumb I can give you or a kind of a simple way to describe that. I'm pretty sure you can get down into the details and model that better than I'm gonna be able to describe it to you. But you're right. It's gonna shift these things around. Eimear Bonner: Thank you. We'll take our next question from Phillip Jungwirth with BMO. Phillip Jungwirth: Thanks. Good morning. On chemicals, you made no secret about wanting to get bigger in this area. Obviously, you need a willing buyer and seller price that works, plus it's tough to do deals at the bottom of the cycle. But the question is, how do you view the benefits to Chevron of owning more of CPChem? Are there things you could do differently whether versus the current JV structure, whether it's operational or strategic? And are there other avenues to get larger in pet chems beyond this? Michael K. Wirth: Yeah. So look, CPChem is a well-run company. And wanna give them full credit. And it's been a well-run company for a long time. We've been very pleased with our investment in that company. We've been pleased with our relationship with our partner and it's been a good vehicle for us. We think the long-term outlook for chemicals is positive. We're in a tough part of the cycle right now. But with the growing middle class and the growing global population, the products CPChem needs are increasingly going to be in demand around the world. We got a couple of projects underway that will be highly competitive when they come on next year. We'll see how this cycle plays out. I think it's still got some time to go. We would like more exposure to the sector. But, you know, as you say, you gotta have two people that want to do a deal. Are there other ways we could do things, you Yes. We can look at things. I'd remind you, we also have a very large aromatics position in North Asia at GS Caltex. One of the largest aromatics plants on the earth. And so we'll look for the right ways to increase our exposure to petrochemicals. Over time. Jake Spiering: Thank you. Thank you, Phil. Operator: Thank you. We'll take our next question from Paul Sankey with Sankey Research. Paul Sankey: Morning, Mike, good to hear that you're not modeling the heavy lights spread constantly. Mike, if I could ask you a couple of specifics. On Kazakhstan, which you've already referenced, but was the power outage what caused that? Was that just an upset? And secondly, the specifics of the loading was that owing to military activity, I guess? Michael K. Wirth: Yes. So look, the investigation is ongoing on the power outage and I don't want to speculate on it. The team is gathering new information each day. We've got our subject matter experts from in-country, from outside the country. We've got OEMs from all the various vendors that we work with. Involved in this, and they're making good progress. But I'm not gonna comment on it at all. I think it's a mechanical issue, I can say vast. But beyond that, I don't want to say anything more. It's not a sabotage or cyber or anything like that. On the loading birth, it's been well publicized. You know, one there's three offshore single point moorings at the Nova Resisk Terminal or offshore at Nova Resisk. One of those was out for maintenance. Two were in service. One of those two was hit by a submarine drone back in December as part of the military activity in the Black Sea. So that's what took CPC down to one loading berth. It is you know, we're back up to two loading births now, and there's a third one that is slated for some big maintenance work, and we'll be back later this year. Historically, the Caspian pipeline and that terminal have been very, very reliable. And I think if you look at it in the fullness of time, the uptime and the reliability record has been very good. Notwithstanding that, when it's you know, when you're pinched back like that, it's frustrating, and a lot of people have been working very hard at TCO and all the shareholders at CPC to address these issues. Jake Spiering: Thank you, Paul. Operator: Thank you. We will take our final question from Jason Gabelman with TD Cowen. Jason Gabelman: Yes. Hey, thanks for taking my question. I wanted to ask about the balance sheet as it relates to M and A. In the past, funded acquisitions primarily through shares, and there are some assets on the market in Kazakhstan that can make sense to acquire though it seems like maybe that acquisition would need to be funded by cash instead of stock. So with that in mind and maybe in a broader sense, how do you view using cash to fund acquisitions, you know, not of the Hess size, but of some of a smaller size like Reggie and Noble. Versus using equity given the current balance sheet. And kind of related to that, I noted that, on the front of the earnings release, you put debt to cash flow instead of, net debt to cap. It looks like that's maybe a preferred debt metric. Is that so? And if so, why the change? Thanks. Michael K. Wirth: Yeah. Jason, let me talk about transactions, and I'll let Eimear talk about ratios and metrics. When we do a deal, you're negotiating with a counterparty. And the consideration is part of the negotiation. And there are times when your counterparty prefers cash. There's times when they prefer equity. There's times when they may want a mix. And so that's a matter of negotiation. On large-scale M and A in our sector, where you're gonna have a long time between deal signing and close. I e, a deal we just closed after a pretty long cycle. Using equity hedges commodity price risk on both sides of the transaction. And if you enter into a deal on one commodity price environment and you close it in another and you've got a lot of cash in the deal, you can find out that you know, you find yourself where one party feels like the deal got a lot better for them and the other feels like it got a lot worse. And so, equity and transactions like that tend to be preferred by both counterparties because the way to hedge out some of the commodity price risk. Smaller deals that close faster and are of a different nature, you can find cash is preferable. And so we'll work with whatever consideration makes sense in a negotiation. We're flexible, and, you know, we've bought things with cash over the last many years, and we've done equity deals. So it really depends on circumstances. Eimear, do you want to talk about metrics, debtors? There's a number of metrics out there to look at the debt. Ratios. And so what we've done here is we've just moved towards what our rating agencies look at and what, many of you look at in terms of. So we're just trying to be consistent. I mean, we still look at net debt ratio, but overall, the message is our balance sheet is in really good shape, and we're in a position of strength. Thanks for the question. I would like to thank everyone for your time today. We appreciate your interest in Chevron and your participation on today's call. Please stay safe and healthy. Katie, back to you. Operator: Thank you. This concludes Chevron's Fourth Quarter 2025 Earnings Conference Call. You may now disconnect.
Operator: Welcome to Franklin Resources Earnings Conference Call for the Quarter Ended 12/31/2025. My name is Rob, and I'll be your call operator today. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Selene Oh of Investor Relations for Franklin Resources. You may begin. Good morning, and thank you for joining us today to discuss your quarterly results. Selene Oh: Statements made on this conference call regarding Franklin Resources, Inc., which are not historical facts, are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements involve a number of known and unknown risks, uncertainties, and other important factors that could cause actual results to differ materially from any future results expressed or implied by such forward-looking statements. These and other risks, uncertainties, and other important factors are described in more detail in Franklin's recent filings with the Securities and Exchange Commission, including in the risk factors and the MD&A sections of Franklin's most recent Form 10-K and 10-Q filings. Now I'd like to turn the call over to Jenny Johnson, our Chief Executive Officer. Jenny Johnson: Welcome, everyone, and thank you for joining us today as we review Franklin Templeton's first fiscal quarter results. I'm joined today by Matt Nichols, our Co-President and CFO, and Daniel Gambach, our Co-President and Chief Commercial Officer. We'll answer your questions momentarily, but before we do that, I'd like to review some key themes. We are operating in a period of continued transition for investors, marked by significant market turbulence globally resulting from heightened geopolitical trade policy and consequently economic uncertainty. Markets are adjusting to a more persistently volatile environment, shifting capital flows, and a growing need for resilience in portfolios. Across regions and client segments, investors are focused on the same fundamental questions: how to generate durable returns, how to manage risk through uncertainty, and how to position portfolios for long-term outcomes rather than short-term noise. That environment is reshaping what clients expect from asset managers. Over the past few months, I've traveled overseas across Europe, the Middle East, and Asia. In my conversations with clients, it's clear they are no longer looking for individual products in isolation. They're looking for partners who can help them construct portfolios across public and private markets, deliver personalization at scale, and navigate complexity with discipline and insight. Franklin Templeton is well-positioned for this moment. Over years of deliberate planning combined with the strength of a global brand, we have earned the trust of investors around the world. At Franklin Templeton, we bring together specialized investment expertise across public markets, private markets, and digital assets, supported by a global platform with reach in more than 150 countries. Clients are increasingly engaging with us across multiple asset classes, reflecting a shift toward integrated solutions and long-term strategic relationships. This alignment between client needs and capabilities is driving growth. Our diversified platform, continued innovation, and focus on scale and efficiency position us to capture opportunities across market cycles and deliver long-term value for our clients and shareholders. Now turning to our results for the quarter, which marked another important step forward with tangible progress across the firm. We continue to deepen client partnerships, broaden our investment in solutions capabilities, and strengthen our global platform. Key priorities that remain central to our strategy. Our first fiscal quarter continued the momentum we built last year with strong client activity across Franklin Templeton's diversified global platform with positive net flows in both public and private markets. We had record long-term inflows of $118.6 billion, up 40% from the prior quarter and 22% from the prior year quarter. Long-term net inflows were $28 billion with record AUM and positive net flows across equity, multi-asset, alternative strategies as well as ETFs, retail SMAs, and Canvas. Excluding Western Asset Management's long-term net inflows totaled $34.6 billion, nearly double the prior year quarter, extending our track record to a ninth consecutive quarter of positive flows on a comparable basis. Assets under management ended the quarter at $1.68 trillion. AUM increased from the prior quarter due to long-term net inflows and the acquisition of Apira, partially offset by the impact of net market change distributions and other. Excluding Western Asset, long-term net inflows were $34.6 billion compared to $17.9 billion in the prior year quarter, with nine consecutive quarters of positive net flows. We continue to see strong momentum across our platform with record AUM in three of our four asset classes. Public markets remain a key strength, an important source of growth. Equity, multi-asset, and alternatives generated positive net flows totaling $30.4 billion for the quarter and excluding Western Asset, fixed income delivered its eighth consecutive quarter of positive net flows. Equity net inflows were $19.8 billion for the quarter, including reinvested distributions of $24.6 billion. We saw positive net flows across large-cap value and core, all-cap growth, and value sector international equity, equity income, and infrastructure strategies. Fixed income net outflows were $2.4 billion. Excluding Western Asset, fixed income net inflows were $2.6 billion driven by Franklin Templeton fixed income. Positive momentum continued in multi-sector municipal, highly customized, stable value, government, and emerging market strategies. Our institutional pipeline of won but unfunded mandates remains strong at $20.4 billion, underscoring sustained demand for our investment capabilities. The pipeline remains diversified by asset class, and across our specialist investment teams. Trade and private markets, Franklin Templeton is a leading manager of alternative assets with $274 billion in alternative AUM. Alternatives fundraising has been a key contributor to our growth, with $10.8 billion raised during the quarter, including $9.5 billion in private market assets. Fundraising was diversified across our alternative specialist investment managers, reflecting client demand in secondary private equity, alternative credit, real estate, and venture capital from institutions as well as from the wealth channel. Aggregate realizations and distributions were $4.8 billion. Lexington Co-Investment Partners VI, one of the largest dedicated global co-investment funds, closed in October with $4.6 billion in committed capital. Today, Lexington's AUM stands at $83 billion, up 46% since its acquisition in 2022. In addition, we continue to expand our private credit platform with the October 1 closing of the Apira Asset Management acquisition. This strategic acquisition enhances our direct lending capabilities in Europe, growing lower middle market. In January, BSP Real Estate Opportunistic Debt Fund II closed with $10 billion of investable capital, including related vehicles and anticipated leverage across $3 billion of equity commitments. Franklin Templeton's US and European alternative credit businesses are now aligned under an updated Benefit Street Partners brand with $95 billion in private credit AUM at quarter end. Clarion Partners continues to be well-positioned with a large diversified portfolio and positive returns despite a challenging capital raising environment. Capital flows remained well below averages largely due to clients seeking more liquidity in private equity overall. Recent M&A activity in the industry underscores the importance of alternative assets, reinforcing the strategic rationale behind our acquisitions and investments, and further highlights our ability to grow our alternative asset platform at scale. Franklin Templeton Private Markets, our alternatives wealth management offering, continues to gain traction and generated over $1 billion in sales for the quarter, underscoring the strength of our global distribution partnerships and client reach. Lexington Partners, Benefit Street Partners, and Clarion Partners each have scaled perpetual funds totaling $700 million in AUM. These are semi-liquid perpetual vehicles open to ongoing subscriptions, giving investors efficient access to long-term private market exposure. Taken together, these capabilities are driving increased client adoption and strengthening our position as demand for private market solutions continues to grow globally. As investors continue to seek enhanced diversification and differentiated sources of return, private assets have taken on a more prominent role within traditional mutual fund structures. We've been incorporating private assets into traditional mutual funds for over a decade. Today, we manage approximately 60 products representing about $160 billion in traditional mutual fund assets that have exposure to private markets. Liquidity is closely and continuously monitored to ensure these products remain aligned with our traditional fund objectives. Multi-asset AUM is nearly $200 billion and had net inflows of $4 billion during the quarter, the eighteenth consecutive quarter of positive net flows led by Franklin Income Investors, Franklin Templeton Investment Solutions, and Canvas. These flows underscore clients' increasing preference for outcome-oriented diversified solutions across public and private asset classes, an area that Franklin Templeton continues to focus on and evolve through innovation. Clients are increasingly turning to Franklin Templeton for a broad and differentiated set of investment vehicles, and we're seeing that demand translate into sustained growth across our platform, with record AUM across ETFs, retail SMAs, Canvas, and investment solutions. Our ETF platform continues to grow at a faster rate than the industry and reached a new high with $58 billion in AUM and generated $7.5 billion in net flows, marking its seventeenth consecutive positive quarter. The net flows were inclusive of $3.5 billion in mutual fund conversions. Our focus on active ETFs produced strong results this quarter. Active ETF net flows were $5.5 billion or approximately 70% of total net flows. Today, we have 15 ETFs that exceed $1 billion in AUM. The industry conversation continues to shift toward delivering personalization at scale, and we see this as a durable long-term opportunity. Advancements in technology are allowing features of separately managed accounts, such as tax-loss harvesting, which were historically underutilized, to be implemented efficiently and consistently across a broad client base. We are well-positioned in retail SMAs with our breadth of capabilities, along with our custom indexing technology, Canvas. As a leader in retail SMAs, AUM increased to $171 billion with $2.4 billion in net inflows driven by Putnam Franklin fixed income and Canvas. Canvas generated $1.4 billion in net flows and reached $18 billion in AUM, reflecting strong client interest in personalization and tax efficiency. Canvas has been net flow positive since its acquisition in 2022. We are also seeing increased demand for multi-asset model solutions, including portfolios that combine both public and private asset classes. This trend is extending into retirement channels where investors are increasingly seeking diversification, income, and risk management through more holistic portfolio construction. Investment solutions leverage our capabilities across public and private asset classes to pursue strategic partnerships. This quarter, Investment Solutions enterprise AUM surpassed $100 billion. Digital assets also continue to play an important role in modernizing financial infrastructure, and Franklin Templeton remains at the forefront. Earlier this month, the state of Wyoming debuted the nation's first state-issued stable token with Franklin Templeton-managed reserves, further demonstrating our leadership in blockchain-enabled investment solutions. Our digital asset AUM is $1.8 billion, inclusive of approximately $900 million in tokenized funds and approximately $800 million in crypto ETFs. Turning to artificial intelligence, we've made significant progress in advancing our AI efforts. Yesterday, we announced the launch of Intelligence Hub, a modular AI-driven distribution platform powered by Microsoft Azure. Building on the advanced financial AI initiatives announced in April 2024, Intelligence Hub delivers our vision for US distribution by modernizing core activities, improving sales effectiveness, and enhancing the client experience. One of Franklin Templeton's strengths is our global presence, and international markets are an integral part of our growth strategy. We currently operate in over 30 countries, and our international business continues to expand with positive net flows for the quarter with strength in EMEA. Now in terms of investment performance, over half of our mutual fund and ETF AUM is outperforming its peer medium across the three, five, and ten-year periods. Similarly, over half of strategy composite AUM is outperforming its benchmarks over the same time periods. Compared to the prior quarter, mutual fund investment performance increased in the five and ten-year periods and declined modestly in the one and three-year periods due to select U.S. equity strategies. On the strategy composite side, investment performance improved in the ten-year period, was stable in the three-year period, and declined in the one and five-year periods. The one-year decline was primarily driven by the liquidity strategies. Overall, long-term performance remains competitive and continues to support both organic growth and client retention. Turning briefly to financial results, adjusted operating income was $437.3 million, reflecting lower performance fees and the annual deferred compensation acceleration for retirement-eligible employees, partially offset by the impact of higher average AUM and realization of cost savings initiatives. We remain disciplined in managing expenses while continuing to invest strategically in areas of growth and innovation for the benefit of all stakeholders. We are confident that our diversified business model, global scale, and client-first culture positions us well to capture the long-term trends reshaping our industry across public and private markets. Finally, in December, Franklin Templeton was once again recognized by Pensions and Investments as one of the best places to work in money management. I'm proud to lead such a talented and dedicated team, and I want to thank our employees for their continued hard work and commitment to serving our clients. Now let's open up the calls to your questions. Operator? Operator: Thank you. If you'd like to ask a question, please press 1 on your telephone keypad. The confirmation tone will indicate your line is in the question queue. If anyone should require operator assistance, please press 0. We request that you limit yourself to one question to allow as many additional participants on the call as possible. Thank you. And the first question is coming from the line of Bill Katz with TD Cowen. Please proceed. Bill Katz: Thank you very much for taking the question and all the update. Thank you for the extra disclosure in the supplement around expenses. I think that was quite welcomed, for sure. Maybe on that, just a two-part question. To the extent that the market were to be a bit under pressure as the year goes by, how much flex do you have to sort of bring that number down? And then secondarily, I think in there, you sort of affirmed you're going to get to $200 million of cost savings. Could you speak to maybe the residual amount yet to be realized and the timeline against that? Thank you. Matt Nicholls: Yeah. Hi, Bill. Good morning. It's Matt. So as outlined on that page, thanks for highlighting it in the investor deck, at flat markets, as we mentioned the assumptions and excluding performance fee comp, we do expect expenses to be in line with 2025. This is inclusive, again, as we also outlined on that slide, about key investments that are essentially offset by the expense savings. From a modeling perspective, if you take the guidance, which I can give on the second quarter and then you add that to the first quarter, take those take that sort of combined number for expenses and then take the last two quarters and divide it roughly evenly between the last two, that'll get you where we believe we'll be at this point in time. It may be that the expense saves shift a little bit between the third and the fourth quarters, but that's how we expect things to play out in terms of our cost savings. And that is, of course, as I've mentioned in the past, in conjunction with margin expansion, in particular, going into the third and fourth quarter. So I think for the second quarter, you won't see much of margin expansion. You'll see that going into the third and fourth quarters where we expect to be again, given current markets, given current AUM levels, we expect our margin to be getting into the high 20s at that point from where we are today. Jenny Johnson: Thank you. Operator: The next question is from the line of Craig Siegenthaler with Bank of America. Please proceed with your question. Craig Siegenthaler: Thank you. Good morning, everyone. My first question is on the M&A activity. I know you've been very active, and I wanted to see if you had an update on potential contingent consideration liabilities because I see there's only about $20 million in the new 10-Q that you put out today. But I actually thought it was larger than that. So is that really it? And or could there be more, especially with the deal you just closed last quarter? Matt Nicholls: No. That's the contingent consideration around specific transactions that we've done. So it's really virtually nothing at this stage. What that doesn't include is some compensation related to transactions, but that's all that compensation line and all included in our guidance. So and some of that, you can see in the GAAP versus non-GAAP disclosures for specifics. But for transaction-related consideration, it's a very low number that's left, and that's probability-weighted, Craig. So yeah. Got it. Nothing additional to report there. Craig Siegenthaler: Okay. Thanks, Matthew. And it's just one question. Right? Matt Nicholls: Yes. Well, I think you had you want to ask something else about M&A. I think Jenny, do you want to cover the M&A question? Jenny Johnson: Yeah. Yeah. I'll be that. Great. Matt Nicholls: Yeah. Do you want to just Jenny Johnson: Sorry, Craig. Are you asking about what kind of our view is on M&A? Or what's your question on that? Craig Siegenthaler: Actually, I did in the first part, but, you know, if you want to kind of update us in your M&A priorities, product gaps, kind of where you're looking, where you kind of strategic benefits, that'd be helpful too. Jenny Johnson: Yeah. Sure. So it hasn't really changed. I mean, you know, what we've always said is we do M&A for strategic purposes, and they're usually around whether we need to fill out an obvious product gap. Today, honestly, we are pretty full. I mean, the one area that we had said was infrastructure. You need a lot of scale for infrastructure. And we feel like we've filled that, at least for now, with the partnerships that we've done with the three infrastructure managers. And we're focused on the wealth channel there. Any kind of M&A we do going forward is going to really be in three areas. It will be like what we did with the Apira, which is to fill in a specific bolt-on area, either geographically or capabilities to our alternatives manager. So in that case, they gave us European direct lending, which we are able to combine with Alcentra's direct lending group. And I think we're now at $10 billion in European direct lending there. So that's kind of a bolt-on both geographically and capability. And then the second area would be if it somehow furthers distribution. So we've done either investments or actual M&A that help us like the Putnam deal where we also brought with it some sort of distribution capability. And then the third area is really in high net worth. We've said we want to grow we want to double the size of fiduciary in our five-year plan, and that can be both that will be both organic as well as inorganic. So those are the kind of three areas that we're focused on. Matt Nicholls: And I'll just add something to this, Craig, that you know, it's almost reiterating what we said in the past, but what we've done in 60% of our operating income that's been added over the last several years through M&A. And I think the know, we're a bit of a modest company at the end of the day, but the timing of our private markets acquisitions was quite good. And as you know, we've been growing the multiple down very substantially in terms of those transactions. So we're very comfortable with M&A. And as Jenny mentioned, we've got some things that we're reviewing. We're kind of in the strategic flow. It would probably be an understatement. But right now, the return on M&A is very important to us. We have high bars and obviously given where our equity is trading. You know, the bar is even higher for M&A. So first thing we look at is, you know, the return on buying back our shares relative to what we could get from M&A or providing more seed capital and these other things around capital management. Operator: Thank you. The next question is the line of Brennan Hawken with BMO Capital Markets. Please proceed with your question. Brennan Hawken: Good morning. Thanks for taking my question. Matt, I didn't don't think I heard it in the prepared remarks. So I figured I'd drill in. Would you have any expectations for EFR, either both in the coming quarter and then if you have a view maybe for the balance of the year. I know you've got Lexington the Lexington Flagler is expected to start. I'm guessing that'll help. Matt Nicholls: Yeah. I'd say that for the next quarter, we expect EFR to be stable, where it is today. And then in the following two quarters, there could be some, you know, upside to that based on fundraising around alternative assets as you've, as you've just highlighted. Brennan Hawken: Great. Thanks for taking my question. Operator: Next question is from the line of Alex Blostein with Goldman Sachs. Please proceed with your question. Alex Blostein: Hey, good morning, everyone. Thank you for the questions. Well, Matt, I was hoping you could expand the margin discussion a little bit longer term. Franklin's done a really nice job integrating a number of assets over the years. Good to see the expense flex come through. But when you think about the operating margins for the firm as a whole, kind of running in the mid-twenties, to your point, maybe entering high twenties towards the end of the year. Where do you see the profitability over time? Many of your peers are well in the thirties, kind of mid-thirties, percent range. So, no one would you know about the business. Knowing what else might be on the come with respect to integration. Of some of your managers. How should TheStreet think about profitability over kind of a multiyear basis, and what's kind of the goalpost there? And maybe just a clarification. I know you said high twenties margin exiting 2026. Is that with market, or is that also assuming flat markets? Matt Nicholls: The latter one is flat markets. So it's part of our guidance from where we are today. In terms of the first question, you know, we put out there a five-year plan where and we've got four years well, three point seven five years to go of that plan. And we said we'd be in excess of 30% by the time that's finished. The reality is we are well on our way to 30% margin, all else remaining equal, going into '27, let's say, fiscal twenty twenty seven. So sometime in 2027, we'll be there. And then if all else remain equal around the market, as we've said, you know, there isn't any other reason why we couldn't be somewhere between 30-35% if we achieve all the goals that we put into our strategic plan that we've highlighted to all of you and as we highlighted where we're at against that. End of last year. So yeah, that's where we're at on the margin. As I mentioned, where we should end this year, all else remain equal, in the high 20 nines going into 2027 fiscal at some point would be 38. And then if the market stays where it is today, we should go in excess of that in future years where we thought we'd be more like 30%. So we have some upside there. Remember as well, we do have the highly episodic situation around Western where we've been providing support to the Western expense structure since August 2024, which has had an impact on our overall margins of probably several points. So we'd already be in the high twenties, or 30% now. Excluding that, but we've done the right thing in our opinion by providing that support. And it definition, also supports future growth opportunities that we've highlighted in our five-year plan. Alex Blostein: Yep. All makes sense. Thanks so much. Operator: The next question is from the line of Glenn Schorr with Evercore. Please proceed with your question. Glenn Schorr: Thank you very much. Jenny, it felt like you had strong conviction in how you talked about you said something like no longer people are no longer looking for products in isolation. Curious how much you were leaning towards the institutional versus the wealth side and more importantly, how you're organizing around that? Have you deliberate Is it your own models? Is it getting on other people's models? And is it also bigger strategic, broader relationships with LPs? I'm just curious to flush that out a little bit. Thank you. Jenny Johnson: Yeah. No. Great question. So that comment is both a wealth comment as well as an institutional comment. So you talk to any of the big wealth platforms, and what they're basically saying is, there's more demand from their clients to offer truly what used to be just available to high net worth people. So it's financial planning, tax efficiency, education, education of the heirs. And so what their message is look. We're going to consolidate to fewer managers we're going to look at the ones that have scale, that have breadth of capabilities, and can offer these additional services to us. And part of that and so I'm talking first on the wealth side. And part of that on the wealth side is if you have traditional and private show me that you can support us on the education of the sale of our private. That's why we have 100 people whose sole job is to support our market leaders out there as they meet financial adviser by financial adviser from an education standpoint. And so really focusing on streamlining on the wealth channel. We're having the same discussions on the institutional side where the conversations are around, okay. Show me your broad breadth of capabilities. I want to be able to second some of my more junior folks. Show me how you can build a program around that that goes cross market, so fixed income equity secondary private credit. Like, we want that education across. And that you will support those types of programs. And again, they're consolidating the number of managers. And you have to remember, you have a blow up with one manager, it taints your firm's reputation. There's as much due diligence on a multitrillion dollar manager as there is on a single $20 billion manager. And so the amount of time that they have to do and do due diligence on the managers making them want to consolidate, just use larger managers and expect more from the managers. So that's both, like I said, institutional retail. We've seen it on the insurance side. Where as they're looking, you have this trend towards leveraging sub-advisors. They want broad breadth of capabilities there. So we're seeing it on as you talk to retirement managers, me the breadth of capabilities that you have and show me how you can help support the business. So I would say this trend has been going on for the last few years. And it continues. We feel really well positioned for it. Glenn Schorr: Thanks so much, Jenny. Daniel Gambach: I wanted to add a comment into Glenn's comment on actually our success, especially on the wealth space. Which you mentioned, we have over 100 our specialists that complement the field and the wealth people on the ground. And the success that we've seen, actually over the past year alone, we've increased substantially the amount of AUM that we fundraise in the wealth space. And we expect that that's going to be, you know, between 15-20% in 2026. But also importantly, 40% is coming outside The US. So it's also growing outside The US, both in Europe and Asia. And the other part that is important is over the past two years alone, we built seven perpetual funds that are close to $5 billion in fundraising and the fundraising is just going up every quarter. So this quarter is 50% higher than the quarter before, and the momentum continues because we continue to sign up new wealth groups. And to your question, Glenn, we're also starting to build those model portfolios of perpetual funds that will continue to accelerate the growth on the wealth. So that's an area of focus, and I think that's an area of a lot of success from frankly. So I just wanted to add that to the conversation. Jenny Johnson: Well and you just reminded me, Daniel. Glenn, you asked the question about do we also try to get in other people's models? Yes, the answer is we do. If other people have OCIO and they're open architecture, and we are, in that case, in other people's models. So our goal is to meet the client and however the however we can meet the client, whether it's whatever vehicle or vehicle agnostic, I think that you would see that all of our flagship products are being sold in multiple vehicles. So some form of ETF mutual fund, CIT, SMA, We're adding tax efficiency to our active SMAs. And so having that flexibility is really important as they select you as one of their core providers. Operator: Our next question comes from the line of Dan Fannon with Jefferies. Please proceed with your question. Dan Fannon: So Matt, wanted to follow-up on some of your comments around long-term margins and the expenses. So just thinking about expense growth beyond this year, are you can you give us a sense of how you're thinking about that? And do you anticipate in those longer-term targets for margins additional cost savings and or cost programs that will help you get there. Matt Nicholls: I mean, it's possible that we're deep in on AI. We're deep in on how to maximize our presence that we have. In India or in Poland, for example, where we've got very large operational capabilities and great talent in these places. We're working on meaningful integration across the firm to maximize and capitalize on what we've and what we've, what we've got here. Every time when we progress down one of those paths, we find other places that can frankly absorb areas that we need to invest, at least absorb. What we're demonstrating this year is a meaningful increase in margin or else remaining equal and an acceleration of our plan to get to 30% plus. And, you know, we're doing that through very disciplined expense management whilst continuing to invest the business at the same time as the market going up. So we've got meaningful investments for growth. We've got the market that's meaningfully up. Yet our expenses are staying flat to last year. I think going into 2027, obviously, look, we're not we're only a quarter through 2026 fiscal. But I feel, I feel confident that going into 2027, that, a lot of the other initiatives we have going on will help to continue to absorb the additional expenses that are required to grow and invest in our business. But, obviously, we can't comment on, you know, reliably on fiscal twenty twenty seven when we're not even through '26. But I hope through these comments when you look at how we've performed from the expense perspective, '25 versus '24 and now what we're guiding in '26 versus '25 that, you know, we've mostly achieved what we said we're gonna achieve even with upward momentum in the market. So I do think we've got some room in the numbers, in terms of further cost saves going into fiscal twenty seven based on everything that we know. But right now, we're focused on delivering on fiscal twenty six as we've highlighted. Jenny Johnson: And I'm just going to add, Matt. Like, when we think about where is there upside opportunity and margin, I'm going to throw it into kind of three categories in the shorter term. But sort of a '27 on. One is streamlining the products. We've done a lot around, I think almost a third of our product we've looked at and either repositioned merged a few cases closed, and in some when I think about repositioning, it's like turning them into ETFs. We did big ETFs conversion where we think they'll get more upside potential. So as we determine that, there's opportunity there. The second is it always takes a lot longer. And you think about all the acquisitions that we've done, kind of say, I think, 11 acquisitions in the last five or six years, but the reality of Legg Mason was like an acquisition of five companies or six companies, not one company, because they were all on their own systems. They had own versions of CRM, different CRM systems. That is still ongoing. And those and some of that's built into the projections that we have. But some of it, you continue to uncover more opportunities there as you integrate. And it takes multiple years to do the full integration. And so that's still working. And then finally, like AI and technology, I think we think blockchain is going to be a great efficiency adder as it as it's adopted out there. But like AI, just you may have seen that we announced this intelligence hub. It's one area that we're working on AI to make our distribution people more effective. What we saw is the time to finalize call lists dropped 90% when we rolled this out. Now what is that? It's you know, it went from three to four hours to fifteen minutes. And the prepping for meetings dropped you know, from six hours to two hours or something per week. Those are small little incremental cost savings or hope more importantly, what it's done is actually added 9% to 10% increase in the number of meetings that our distribution team has. So hopefully, that translates into more sales. But think about that as you're rolling it out. We've already talked in the past about AI and the improvement in our RFPs. We're doing a lot of work on our investment side. It will either translate into growth opportunities or it will translate into cost savings. But honestly, it's a bit hard today to build that into direct cost savings opportunities that expand into margin. But those are big opportunities, we think, going forward. And we are very focused, we think, on the AI side. We're actually the leaders in that space. So I just want to add that to kind of Matt's comments. Matt Nicholls: And then finally, Jenny, thank you for that. And then finally, most of the stated growth areas that you can see as demonstrated by our positive flows in them scaling. They're scaling up. And in particular, ETFs, Canvas, and Solutions, for example, each of those three areas for us obviously, they're lower fee. And when they're smaller AUM and when you're growing, overall is a business, you have a lower margin. As a result of that of that investing to grow the business to a scaled position. What's happening now in terms of ETFs Canvas, and solutions in particular, notwithstanding that the lower fee rate associated with those vehicles, those businesses, let's call it. They're getting to the point now where the size of them and certainly going into later into 2627, all else remaining equal, we expect the scale of scaling of those businesses to create higher margins overall. So you have a lower fee rate. I know everybody's very focused on the fee rate. But at a certain point, when you get above a certain AUM, expenses are very managed and you've done all the investments. You've got the team you need, and then you could be two, three times as size of AUM and therefore have a much higher margin. Similarly, in our alts areas, we continue to grow significantly across all three of our three, four of our primary alternative assets businesses. We're getting more margin from that. I mean, the $10 billion that Jenny talked about earlier on, the $9.5 billion of fundraising doesn't include, for example, Lexington Fund 11. So it's important to note that. Operator: Our next question comes from the line of Ken Worthington with JPMorgan. Please proceed with your question. Ken Worthington: I guess pressing AI further, Jenny, you've been in the press talking about the impact that AI has on asset management. Suggesting that it could drive, if not accelerate, more consolidation in the asset management industry. So maybe one, how does AI drive consolidation? And then two, from Franklin's perspective, how would AI sort of alter your ability and willingness to do the M&A transactions and fill in the gaps that you mentioned sort of earlier in the call? Jenny Johnson: Yeah. So a couple things. So one of my comments on M&A consolidation has been really what I said is look. If you haven't if you're a traditional manager and you haven't already purchased scale in alternative managers, it's going to be really difficult to compete going forward, especially because one, that comment on distributors trying to consolidate, so they're demanding more from you. Two is, as Matt pointed out, we were fortunate that we were very early in these acquisitions. Traditional alternatives managers have gotten incredibly expensive since we did our acquisition of BSP and Clarion. And it will be very, very difficult to be able for a traditional manager to be able to go and acquire. Number two, this convergence particularly in fixed income, you're going to see, but across the board with products that are that contain both private and public in them, you don't have that under the same roof, we don't think you're going to get the same kind of just synergies that you get from learning and managing and research. We have over 50 products between Western ClearBridge and Western and, frankly, Franklin's been doing private markets in their traditional mutual funds for over a decade. So over 50 products actually have privates in them today. So we already have that in our mutual funds. So one is in the alternative space. The second is AI. AI the amount of data required to truly train a model is really significant. And if you're a smaller manager, one is you won't be able to buy you won't be able to buy the kind of data. We spent hundreds of millions of dollars on data. And so to be able to scale that data, plus the data you generate internally across all of your different capabilities is really important in training models. And it's just going to be hard to compete on training those models if you don't have a scale. So that's where why my comment was, think that's going to drive some consolidation because I think over time, we're already seeing it. Now look. Anytime you have technology breakthroughs, first thing people do is just make more efficient what they do today. That's why we give you quotes like, hey. We're more efficient on the call. Because it's hard to measure the actual value-added output because that doesn't happen right away. It doesn't happen until you start to put in the hands of your people so that they can build those ideas. I wanted to say it's like, you know, when the iPhone came out, we all looked at it as this is a pretty cool camera. And, you know, and flashlight and whatever. It was unleashing the hands of the public that came up with all these credit applications. Applications. As you start to train your workforce on how to leverage Agenic AI, which we were very early adopters of broadly rolling out ChatGPT, and we do training on how to create a genetic AI. We do hackathons with our investment teams. And it's a cross-functional hackathons. We put people together that are across various sins to say, go build a Genic AI. And they're doing things that are built one on top of the other, and then we take them and we test them across others. So to me, the ability to do that and compete is going to be very difficult. If you are small, and in particular, if you are singly focused on, you know, kind of one area of the capital stack. Ken Worthington: Got it. Okay. Thank you. That's very helpful. Operator: Our next question comes from the line of Michael Cyprys with Morgan Stanley. Please proceed with your question. Michael Cyprys: Morning. Thanks for taking the question. Just wanted to come back to your commentary Jenny on blockchain and tokenization. Just curious if you could talk about your objectives for that over the next couple of years. What steps are you looking to take here in '26 to enhance your positioning? To help improve adoption, for example, of your existing tokenized funds? And then to your point on efficiency, I guess, how do you see blockchain contributing to improve efficiency at Franklin? How much lower cost is it to operate tokenized funds versus your traditional funds in rails? Jenny Johnson: Sure. So I'll tell you, like, this is just an incredibly efficient technology. And my the best example to give you an idea of how it become how I think it's from a cost savings standpoint, how significant it is I'll start there. And then kind of what the opportunities and the hurdles are to more broad adoption. So the first thing is, when the SEC approved our money market fund, they had this parallel process. It was something like we did over a six-month period between our old agency system and our blockchain system. And we were one of the few firms that were still running that the transferring C systems in-house. So we got to see that comparison. And we did about 50,000 transactions that cost us about a dollar 50 per transaction. Cost us a dollar 13 to run it. Total. To run those 50,000 transactions on the Stellar blockchain. We picked the right chain. There's a lot that goes into that. But it showed us the dramatic difference in cost. And today, if you open an old money market fund, you need $500 open up because below that, we probably lose money and the other shareholders subsidize you. In the case of blockchain, you could open a Benji. You downloaded the Benji app and open a money market fund, you would you would you only need $20. So we could probably go less than that. So it's cost savings. The second thing is there's a huge amount of cost in financial services that's just reconciling data between your own systems and then reconciling with your counterparty. All that goes away when you have a single source of truth that is updated immediately. So those that's you're going to have cost savings, which is why I believe it will fundamentally replace all of the rails. There's a lot of toll takers in the system today. That will slow that down as much as they can because it threatens their business model. But you know, water runs downhill no matter how many obstacles you put in it. It will it will become very significant. So why the slow adoption? You cannot hold a tokenized product without having what's called a wallet. Okay? Now it's a blockchain wallet. It's merely an encryption key that's your own personal one, but you can't hold any of those. And in The US in particular where you had you didn't have regulatory clarity until the Genius Act came in, there was no point in any of these big wealth advisors on the traditional side to even think about it because it was kind of like the third rail from a regulatory. I can tell you this year, I feel like is completely changed. You now have the large crypto exchanges interested in trying to offer traditional types of funds, ETFs and others that would be tokenized. And you have the big traditional managers who are saying, can you please educate us on how we access this space? How do we build a wallet? What's required there. And so I think you're going to start to see much greater convergence between TradFi and DeFi. We our tokenized money market fund, what we see is if anybody's been involved in securities lending, you know that people will move who they they'll borrow where they can get the highest collateral return even if it's a basis point. Why would you keep their $300 billion in stablecoins? Why would you park your money in a stablecoin that doesn't give you yield when you could move into a Benjie money market fund earn that yield, and when you want to do a payment transactions convert into a stablecoin. We think by the March, we will have the ability for somebody who has a stablecoin. We're Benjie has been integrated with multiple different stablecoins, where on these crypto platforms, we now a partnership with Binance. We have with OKX and Kraken and others where you'll be able to convert from your stable coin into our money market fund. And on a Saturday, convert out if you want to leverage it for payment and earn that yield. And, again, because it's on blockchain, we actually pay you that yield in your account every day. If you're a corporate treasurer, and you can get use of those funds every day versus accruing and waiting for that capital to be paid to you at the end of the month on a money market fund. That's going to be a benefit. And so that's we think there's an opportunity. But Benjie is just the beginning of where we think this goes. Michael Cyprys: Great. Thanks so much. Operator: Our next question is from the line of Patrick Davitt with Autonomous Research. Please proceed with your question. Patrick Davitt: Hi. Good morning, everyone. Following up on the expense guide, I don't think you've ever talked about the scale of the third-party performance-related expenses you're excluding. So could you give how much that runs each year? And then I think, Matt, you hinted you have a detailed rundown of next quarter expenses you can give. Thank you. Matt Nicholls: Thanks, Patrick. That should be the third-party piece should be relatively small. I'll check with the team quickly just in case. But that larger performance fee that we had to run through G&A last quarter was associated with a large performance fee we got from BSP and it was for previous employees. So, but I'll get what that number could be going forward. In terms of but it'll definitely be smaller. In terms of the third quarter or sorry, second quarter guide, I already mentioned EFR we expect it to be in line with this quarter. And as I mentioned, the last two quarters, we had some upside potential in EFR related to potential fundraisings in alternative assets. Comp and benefits, we expect to be around $860 million. This includes $30 million of calendar year resets, you know, for 401k payroll. Salary increases, and so on. It also assumes $50 million of performance fees. And a 55% performance fee compensation ratio on that. IS and T, we expect to be $155 million consistent with last quarter. Occupancy, $70 million, again, consistent with last quarter and as we've guided in the past. G&A, $190 million to $195 million again, in line with the previous quarter. This assumes a little bit higher fundraising expenses and a little bit higher professional fees. And then the tax rate, we guided last time for year 26-28%. We're keeping that guide, but we're now on the lower end of the guide or low to mid let's say, in that guide. So we're bringing the guide down on taxes for the year from the higher end, which I think I said last quarter to the lower to mid part of that guide. And then really importantly, I want to reiterate the '26 because I know you'll be calculating back what should how do we to the flat expense guide or remaining equal and excluding performance fees and the other assumptions we put in the deck, how do we get to that guide? I would add the quarter I just gave you to the first quarter and then look at the last two quarters. And just spread the expense savings over those two quarters. We recognize about 20% of the 200 in the first quarter. And we expect to spread the rest of it out over the next three, but there'd be larger amounts of it in the last two quarters. And, again, we expect to end the year in a very similar expense position as we were to twenty five. Notwithstanding all the investments that we've talked about, making in the company and at a higher margin, as I mentioned when I answered Alex's question. Operator: Thank you. Our next question comes from the line Ben Budish with Barclays. Ben Budish: I was wondering if you could maybe talk a little bit about the equity flows in the quarter. I know calendar Q3 is typically seasonally stronger. And obviously, there's been a trend of improvement over the last couple of years. But this quarter looked particularly strong. Anything unusual or one time you'd call out or was it more, you know, broad-based and, you know, I know it's still a bit earlier in the fiscal year, but you know, any thoughts on how the rest of the year may shake out, would be helpful. Thank you. Jenny Johnson: I'll start, and then I know Daniel will want to jump in. I mean, obviously, it's a quarter that you have a strong reinvested dividends. So that is part of the flows, which is important. But I have to tell you, I mean, Putnam continues to have excellent performance and continues to have very, very strong flows. And honestly, that has even continued into January. I don't want to steal the thunder here, and January hasn't closed yet, but we actually are looking like we will be positive net flows inclusive of Western, which has been a long time since that in January. Now again, I caveat that since it hasn't actually closed today. But part of that has just been the strike in Putnam. Daniel, do you want to add? Daniel Gambach: I think you got it. I will say it's a combination of platinum, clearly, large-cap value, on research. Also, on emerging markets, we got some institutional flows from our temples and emerging markets capability. Which is very, very encouraging. And I will also say our ETF franchise had excellent results. Especially on the active ETFs, which is also a combination of the results from our Boston affiliate, but also a couple of ClearBridge funds did also very well on that. And the momentum continues to be we own ETFs. We had a great quarter. 75% of the quarter was on active ETFs. So it continues to actually show that that's where the industry is going, and we have a very ambitious plan to continue that growth. Ben Budish: Alright. Thank you very much. Operator: Next question is from the line of Bill Katz with TD Cowen. Please proceed with your questions. Bill Katz: Great. Thanks for taking the extra question. Just a couple of cleanups for me. One, can you just remind us what the variable expenses against net asset value were happening by the incremental margin on market action. Number two, maybe just on the WAMCO side, I haven't asked about this in a while, but it seems like volumes there are stabilizing. How are conversations progressing with the investment community given that some, but not all the overhang with the regulatory investigation is sort of winding down? And then finally, was wondering if you could talk a little bit about broadly, you mentioned that Lexington was not in this most recent quarter. How do we think about maybe the pace of opportunity on Lexington and maybe broadly where you see the big opportunities for growth in fiscal twenty six? Thank you. Jenny Johnson: Great. So I'll take the Western and Alts, and then I'll turn it back to Matt on the variable expense there. So just one on Western. I mean it helped a lot, obviously, The DOJ came out and said that they're not going to pursue criminal charges and it'll be resolved through disposition and acknowledged. I think this was also important that the additional time needed was not due to Western. So I think that gave clients a little bit of a breather of an uncertainty. And you have the benefit. The investment team is incredibly stable. They have very, very good performance. We've been integrating the corporate functions. We've been integrating the institutional sales and the client service that's going very well. And so I think that with clients that is that essentially calm them a bit. I mean, we did while there's still an outflows, it did have, I think, was $6.6 billion in gross sales. In the last quarter. So there's obviously clients that are still allocating to Western. With respect to Alts, as Matt said, so we had a very strong quarter. Our target for the year is 25% to 30%. We're going to it's still early, so we're going to maintain that target. But obviously, at $95 billion coming into the private markets, and that is across all private credit secondaries, real estate and venture. So it's nice and diverse. A little over half of it is in the private credit area. None of it was Lexington's flagship fund 11. Lexington did have it was a combination of its co-invest flex middle market. There were over 33 vehicles that had inflows in our private markets this quarter. So tells you it's really broadly distributed, which for us is exciting. Lex flagship Fund 10 are active or 11, they're actively fundraising in the market right now. Their target is to be about where they were on their last fund. They would expect to first close this year, but it'll depend. Secondary continues to be just a great space to be. Last year was a record number in secondaries transactions. Lexington is considered one of the trustiest trusted and long-term partners with experience, and they're not affiliated to any single PE firm. So that also gives them an advantage. So they're having very good strong conversations. But we're pleased to see the extent of inflows and growth even without the Lexington flagship fund. So Matt, and I'll turn it over to you again for the last part of that. Matt Nicholls: Sure. Thanks, Jenny. So Bill, on the variable question, about 30 between 35-40% of our expenses are variable. And I'm sorry I didn't address the I remembered you asked that this question at the end of your previous question. Where you said if the market goes down, do we have flexibility now? Expense base? The answer is yes. We always have variability in our expense base in the event the market goes down. So that's the answer to that. And then to answer another expense question Patrick had. Patrick, just to make sure I fully answer your question. As it relates to the geography of performance fee-related compensation, first of all, we would always, guide to apply 55% to the number of performance fee overall. So 55% is the correct application whether it's in our computation line or the G&A line. And we do, as I mentioned, in the answer to the question initially, we expect that number to be quite low in the GNA segment. The G&A segment is just literally for former employees that where we have to where we're paying a, you know, a portion of the company out that they owed. But that's de minimis at this point. It was just larger that one quarter. I think it was $24 million to be specific. Last quarter and was because it was a large older fund that had a number of folks that are no longer they're retired from the company that had interest in the performance piece. Patrick Davitt: Thank you. This concludes today's Q&A session. Operator: I'd now like to hand the call back over to Jenny Johnson, Franklin's President and CEO for final comments. Jenny Johnson: Great. Well, I'd like to thank everybody for participating in today's call. And more importantly, once again, we'd like to thank our employees for their hard work and dedication delivering this strong quarter. And we look forward to speaking with all of you again next quarter. Thanks, everybody. Operator: Thank you. This concludes today's conference call. You may now disconnect.
Operator: Greetings, and welcome to the WisdomTree Q4 2025 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce Jessica Zaloom, Head of Corporate Communications. Please go ahead. Jessica Zaloom: Good morning. Before we begin, I would like to reference our legal disclaimer available in today's presentation. This presentation may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 including, but not limited to, statements about our ability to achieve our financial and business plans, goals and objectives and drive stockholder value. A number of factors could cause actual results to differ materially from the results discussed in forward-looking statements, including, but not limited to, the risks set forth in this presentation and the Risk Factors section of the WisdomTree annual report on Form 10-K for the year ended December 31, 2024, and in subsequent reports filed with our furnished to the Securities and Exchange Commission. WisdomTree assumes no duty and does not undertake to update any forward-looking statements. Now it is my pleasure to turn the call over to WisdomTree CFO, Bryan Edmiston. Bryan Edmiston: Thank you, Jessica, and good morning, everyone. I'll begin by covering our fourth quarter results along with updates to our forward-looking guidance for 2026, before turning the call over to Jarrett and Jono for additional updates on our business. Our assets under management ended the year at $144.5 billion, a record, up 5% from the third quarter and over 30% year-over-year. While we experienced modest outflows in the fourth quarter, we generated $8.5 billion of inflows for the year, representing an 8% organic growth rate. Our AUM also benefited from positive market movement and the Ceres acquisition, which closed on October 1. This acquisition marked an important step in our expansion into private assets and further diversified our AUM mix through exposure to U.S. farmland, one of the largest and least penetrated real asset classes. We are now managing almost $2 billion in farmland based strategies and the transaction has expanded both our annual revenue capture and operating margins by more than 200 basis points. Looking more broadly at our AUM performance. Growth was broad-based and well diversified across regions and asset classes. Our European listed products delivered a very strong year with AUM increasing from $30.7 billion to a record $53.3 billion supported by more than $6 billion of net inflows and a favorable market environment. European inflows were led by $4.3 billion into our UCITS franchise, spearheaded by the successful launch of our European defense ETF earlier this year, while our commodity products generated approximately $1 billion of inflows. In the U.S., AUM increased to a record $88.5 billion, with $1.4 billion of net inflows for the year, driven primarily by our U.S. equity offerings alongside favorable market conditions. Our digital assets platform continued to gain traction, with AUM reaching approximately $770 million at year-end. Growth was led by strong inflows into our digital money market fund largely through WisdomTree Connect, reflecting continued progress across our digital platform. Overall, record AUM, strong organic growth Disciplined execution and thoughtful capital deployment drove approximately 300 basis points of operating margin expansion during the year. Taken together, we believe these results position us well to build on our momentum and continue delivering sustainable growth and long-term shareholder value. Global AUM today stands at $160.8 billion, up $16 billion or 11% from year-end driven by favorable market conditions and almost $2 billion of net inflows, a very strong start to the year. Next slide. Adjusted revenues were $147.4 million during the quarter, an increase of 17% from the third quarter and up approximately 33% versus the prior year quarter, driven by higher average AUM. Ceres contributed $12 million of revenues this quarter, of which $7.1 million was derived from performance fees. These performance fees were driven by price appreciation on farmland under management along with favorable developments related to the solar portfolio. Our other revenue continues to grow, recognizing $12.7 million this quarter as compared to $11 million in the prior quarter. This increase was largely driven by higher European listed AUM as approximately 70% of these revenues are asset based. While difficult to forecast, we would suggest the magnitude of other revenue generated in this most recent quarter serves as a fair approximation of what we could expect going forward, assuming current European AUM levels. Further increases in our European listed AUM should drive this revenue higher. On a year-over-year basis, our adjusted revenues have grown 15.4% while our adjusted operating margin has expanded almost 300 basis points, finishing the year at 36.5%. Adjusted net income for the quarter was $41.2 million or $0.29 per share. Adjusted net income excludes amortization of intangible assets related to the Ceres acquisition, the remeasurement of the Ceres earn-out and other items. Next slide. Now a few comments on our 2026 guidance. We are forecasting our compensation to revenue ratio to range from 26% to 28%, representing a 2 percentage point downward shift from our prior year guidance. This update takes into consideration planned hires as well as compensation adjustments and the annualization of hires made during 2025 and further demonstrates the operating leverage in our business model as we continue to scale. The range reflects variability in incentive compensation, driven by factors including the magnitude of our flows, revenue, operating income and margin targets and our share price performance in relation to our peers. As a reminder, compensation expense is seasonally higher in the first quarter as we recognized payroll taxes, benefits and other items related to year-end bonuses. As a result, we estimate our first quarter comp to revenue ratio to be approximately 30% before stepping down over the course of the year and landing within the 26% to 28% overall guidance range. Our discretionary spending guidance is forecasted to range from $80 million to $86 million compared to $71 million this past year. Primary drivers of the increase include incremental marketing spend, higher sales and distribution-related expenses as well as the impact of the Ceres acquisition and additional factors. Our gross margin guidance is estimated to range from 82% to 83% compared to 81.9% this past year. This range reflects revenue based on current AUM levels and the positive impact of Ceres on our gross margin, partially offset by incremental costs associated with the anticipated product launches. As AUM continues to grow, we would expect gross margins to trend higher. Third-party distribution expense is anticipated to range from $17 million to $19 million compared to $16 million this past year, driven by higher AUM on these platforms. Interest expense is forecasted to be approximately $40 million this year, taking into consideration the retirement of a substantial portion and potentially all of our convertible notes maturing in June of 2026. Interest expense should be approximately $10.5 million for each of the first and second quarter, declining to roughly $9.5 million per quarter in the second half of the year. Interest income is estimated to be approximately $8 million in 2026 driven by the magnitude of our interest-earning assets and forecasted interest rates. We expect those assets to decline in the second half of the year following the retirement of our 2026 notes. Our estimated adjusted tax rate is anticipated to be approximately 24% aligned with our tax rate this past year. And we anticipate our weighted average diluted shares to range from $152 million to $157 million as compared to $145 million this past year. This guidance contemplates approximately $7 million to $12 million of incremental shares associated with our convertible notes, assuming a stock price approximating recent levels. As a reminder, an illustration is included within our earnings presentation to assist and quantifying the incremental shares associated with our convertible notes going forward. That's all I have. I will now turn the call over to Jarrett. Robert Lilien: All right. Thanks, Bryan, and good morning, everyone. 2025 was another strong year for WisdomTree and more importantly, a year that reinforced the core premise we've been building for several years that consistent organic growth paired with disciplined execution drives margin expansion and meaningful earnings growth. As Bryan mentioned, we delivered $8.5 billion in net flows, translating to an organic growth rate of approximately 8% for the year. And that puts us ahead of many of our public peers but just as importantly, it came through volatile markets and shifting macro conditions. Our growth held across risk on rallies, interest rate uncertainty and equity rotations and Q4 reinforce that momentum. From a profitability standpoint, we expanded operating margins by nearly 300 basis points. We've maintained tight expense discipline while continuing to invest in growth, demonstrating that margin expansion and investment are not mutually exclusive and that balance remains a defining strength of our model. We saw especially strong momentum in our metal strategies, including both physical and overlay products with AUM up 83% and more than $1 billion in net inflows across the suite. Importantly, this traction showed up in both Europe and the U.S., reflecting a global reallocation towards real assets and we believe there is a multiyear growth story unfolding in metals, which currently represents 28.5% of our global AUM as investors continue to seek inflation-sensitive and alternative exposures and our lineup is well positioned to capture that demand. In Europe, we're now seeing the results of years of investment coming fully into view. What began as a diversification effort has become a true growth engine. Our European Defense Fund was one of the most successful launches in firm history and among the top-performing launches industry-wide in 2025, but the story is broader than any single product. Product development remains a core strength of the firm. We launched more than 30 new strategies last year across commodities, thematics and tactical exposures with successful launches in areas such as rare earths, quantum computing and nuclear energy. These are not one-off outcomes, they reflect our ability to identify themes early, execute across the platform and sustain momentum across market cycles. As we look to 2026, our focus remains on delivering differentiated products that perform and persist. Our portfolio solutions business, models and SMAs continues to be another major growth engine. Model AUA grew to over $6 billion, up from $3.8 billion at the end of '24, driven by both new users and deeper adoption. We're also seeing strong growth in custom model mandates, which enhance stickiness and deepen client relationships. The expansion of our SMA capabilities through Quorus is unlocking a larger and more complex adviser opportunity set. These solutions are helping to stabilize flows in volatile markets and embed us more deeply into adviser workflows. It's no longer about selling a single ticker, it's about portfolio construction, and we're winning in that space. In digital assets, we moved from infrastructure build-out to early monetization. Tokenized AUM reached $770 million by year-end, up from essentially zero just 12 months ago and that reflects real adoption and growing client trust. Our institutional platform, WisdomTree Connect scaled from 4 onboarded institutions to 29 and the number of wallets holding WisdomTree assets now totals more than 3,500 with engagement steadily improving. The infrastructure is built. The products are live and the focus is now on scaling. Finally, in private markets, our acquisition of Ceres Partners added a long duration diversifying revenue stream to the firm. And since closing in early October, AUM has grown to about $1.9 billion including 8% annualized organic growth in the fourth quarter. It's a strong early outcome and one that's already expanding the types of conversations and clients that we're engaging with. So stepping back across public markets, digital assets and private markets, we're building a broader and more powerful business. As we enter 2026, several growth engines are already in motion. Our ETF platform continues to deliver consistent organic growth. Europe has scaled into a meaningful contributor, models and SMAs are embedded deeper into adviser workflows, tokenization is generating real flows and private markets are expanding our reach and revenue mix. We're seeing broad-based traction across asset classes, delivery channels and client segments, and that balance creates durability and durability is what compounds over time. we are clearly executing against the strategy that is working. And with that, I'll turn it over to Jono. Jonathan Steinberg: Thank you, Jarrett. Hello, everyone. I'll be brief today. You've heard the story today from both Bryan and Jarrett: strong results, improving guidance, clear vision and disciplined execution. What you're seeing is our strategy playing out as intended. Organic growth and operating discipline working in tandem having delivered margin expansion, higher earnings per share and sustained momentum across market regimes. WisdomTree is the strongest it's ever been. We've reached new levels of scale, not just in AUM, but in capabilities, in client reach and in delivery. We're diversified across asset classes, geographies and channels, and that diversification is powering resilience and growth at the same time. Europe, models, tokenized assets and private markets, these aren't experiment anymore. They are real businesses contributing real flows and creating real value for shareholders. With strong and improving guidance from Bryan, it's clear that we're entering 2026, not just with confidence, but with conviction and momentum. We are building something durable and something compoundable. Today's results speak for themselves, but still, I'd characterize it anyway as the beginning of the next chapter at WisdomTree. With that, I want to thank you for your attention today. Operator, let's open up the call for questions. Operator: [Operator Instructions] And our first question comes from the line of Mike Grondahl with Northland Securities. Mike Grondahl: Congratulations on the December quarter and January so far, too. One question. When you look at Slide 5, what do you see as the biggest maybe one or two opportunities for WisdomTree in '26 and '27? Like what's the low-hanging fruit for some market share you should be taking on that slide? Jonathan Steinberg: Thanks, Mike. Market share, I guess I'll turn it over to Jarrett or to Jeremy to make initial comments. Jeremy Schwartz: From one of the places we are seeing incredible success. I'm sitting in Milan right now and Team Europe has taken leadership in a number of different areas from commodities as the franchise, but thematics generally, when you look at where we've done the sort of blockbuster European Defense Fund raised where one of the most successful funds is bleeding into other thematics. You see the interest in industrial metals and rare earths as a key geopolitical spot. We have a rare earth fund rare that was $100 million in November. Today, it's at $700 million and 3 of our rare earth and strategic metals funds, about $1.4 billion. They've had market-leading performance and like the most important themes for the market of the geopolitical tension and to rare earth supply chains. And so we're incredibly bullish on the leadership position in thematics. The thematic lineup within Europe is growing. And we have -- in just January alone, we've taken 25% of all the flows to thematics, and we see that continue to be a very ripe place for market share gains out of Europe. And back in the U.S. on the commodity run that we've seen, our capital fishing family is a very efficient family for unique exposures. You've seen this big move in gold and silver over the last months and people have been under allocated to gold. We see finding ways to help people add more of these precious metals portfolio as very useful. And Jarrett referred to the $1 billion that's been in our capital fishing gold portfolios in the U.S. Those are big market share, very innovative new strategies when the typical U.S. investor has 2% in commodities when being neutral to commodities is, in gold in particular, will be a 12% allocation. So the U.S. investors have been very under-allocated there. We think there's more to come, and we've got a lot of creative solutions there. Robert Lilien: And I'd just jump in, this is Jarrett, just adding additional thoughts. I mean, really, look back, we continue to successfully execute against what's been a multiyear strategy that's working. We've got a differentiated asset mix. But in that, we've got an ETF product suite that is really broad. It's very deep, and we think has the ability to win share and win business in any market environment. We've got the models business, SMAs, direct indexing, we're gaining share there. We look to gain share in tokenization in private markets. And as we said in the prepared remarks, we've got a growth engine that's firing on many different cylinders, and really gaining share across the board, but this isn't a one-quarter event. This has been a multiyear event, and we just keep doing it quarter after quarter. Mike Grondahl: Yes, you're definitely on a roll. I mean, just look at the AUM. Second question is just, hey, that discretionary spending $80 million to $86 million, what are the major categories that's going to? Can you kind of help us think about those investments? Bryan Edmiston: Yes. So it's Bryan. I would say it's largely driven by marketing and sales-related expenses. It's really tied into our growth initiatives. We're looking to accelerate momentum on the back of our record AUM, our 8% organic growth and a strong start to 2026. The number is up versus last year, but we continue to manage our expenses with an eye towards maintaining incremental margins north of 50%. So notwithstanding the increase in guidance, we should see further margin expansion versus 2025. Operator: The next question comes from the line of George Sutton with Craig-Hallum. George Sutton: Great job on the margins. So I wanted to ask you, Bryan, when we look at the $0.29 for the quarter, and we obviously look out to Q1 where the comp ratio may be a little higher. But truth be told, we did not have $0.29 quarter on our bingo card for the next two years. So can you just give us a sense, are we talking about a higher start base pretty consistently going forward? Bryan Edmiston: Yes, I would say so, absolutely. What drove, I think, our beat versus where the analysts were the comp ratio was one main component there. Our comp ratio came in at 28% this past quarter. And again, our range is 26% to 28% going into next year. So that's a 1 to 2 percentage point downward shift versus where maybe the Street was and versus where our comp guide was -- where our comp was in the fourth quarter. Other revenue is another one. I think last quarter, we were at about $11 million per quarter. We're doing $13 million now, and that's on the back of higher AUM in Europe, but also there's higher turnover that we're seeing as well generates more transaction fees. And so that's helpful to the revenue base. I think some of the beat this quarter may have been Ceres' performance fee, that's a wildcard. I think as it relates to our internal expectations, the number was maybe $2 million higher than kind of what our baseline was. But all in, I would say that our guidance and where we sit today with our AUM at about $160 billion positions us for more quarters to come like the ones that we just experienced. Robert Lilien: It's Jarrett, just jumping in one more time. When I look at consensus estimates over the last number of years, we leave it up to the Street, to the analysts to come up with their own growth forecast, but we always seem to be underestimated on our flow growth and once again, looking back at last consensus, I think there was sort of $5 billion of net inflow growth where we've already gotten $2 billion this year. So just another area where we're consistently underestimated. George Sutton: Jarrett, one question for you specifically. So the tokenization trend is becoming massive and you've been way in front of that. You mentioned it is now time for us to scale. Just curious how you do plan to scale, particularly in the light of many other folks sort of joining the party? Are some of them going to join you from a partner/customer perspective? Or how do we think forward there? Robert Lilien: Well, let's let Will have a shot at that one first. Will, do you want to take it? William Peck: Yes, sure. It's Will here. So yes, we absolutely do expect to scale going forward. I'd say to your questions, we see distribution through really three channels: one is direct to retail, which for us would be WisdomTree Prime; the second would be WisdomTree Connect direct to business; and the third, which is really evolving is more of a platform sale, also a sale to self-hosted wallets. So as a lot of people are entering the space, we're in a lot of active conversations with whether it's other fintech apps, whether it's kind of software service providers, broker-dealers around making our products and services available through their platforms as well. And that's some of the beauty of how we've built this, right? We actually have the capacity to serve retail, which a lot of the other firms in the tokenization space just do not have that capacity. They've been focused on offshore exempt products that have like really high minimums, some north of $1 million. The minimum R&R in money market funds the dollar. So we're really well served to serve retail especially, including through these platform relationships. And that's part of why we've kind of shifted how we're disclosing funded account metrics. So we're talking about funded wallets now. I mean the vast majority of that is WisdomTree Prime-funded wallets. But especially in 2026 and going forward, we expect that mix to evolve where a lot of the wallets are going to be holding our products are going to come through other channels and other platforms. So all told, we think that gives us an opportunity to scale really quickly going forward. It is just kind of a nice reflection of the way we've built our infrastructure. Jonathan Steinberg: Let me just -- one thing. In the old days, sometimes going back 10 or 15 years, the analysts would ask me like what's the next top fund? And if I were to go out on a limb and make a prediction, I wouldn't be surprised if over the next 3 years, our tokenized money market fund isn't the largest fund within WisdomTree's Empire. But I'm sorry to interrupt you, George, you keep coming. George Sutton: Well, actually, I do have a specific last question for you. I was a little stunned at the price paid for Innovator Capital. They had $30 billion in assets and got paid $2 billion for them, not terribly distant from where you trade on a substantially larger asset base. And I'm just wondering if part of the growth strategy for you may look into this outcome-based ETF/Modern Alpha, I know you've got a couple of funds there, but what is the plan in that market specifically? Jonathan Steinberg: So the -- as Jarrett said, we have a very ambitious fund launch strategy in the year ahead. We do have a number of option-based strategies that are performing very well. We should be able to drive significant more adoption through those already. But we definitely have an eye towards building out more within that space for sure. We see it as a big opportunity as well as do others. Jeremy, is there anything you'd want to add to that? Jeremy Schwartz: Yes. I mean the WTPI is our equity premium income fund in the U.S. a $400 million fund. We've taken steps to improve performance and distribution and characteristics. We think that fund does have a lot of potential. But I would say, like Jono said, very aggressive plan for that space, and we're going to do a lot more. Operator: The next question comes from the line of [indiscernible] with Raymond James. Unknown Analyst: Does the macroeconomic volatility generally benefit WisdomTree's business as most products are diversified across asset classes? Or is it more dependent on specific themes that are present, such as gold and commodity prices, which we've seen this year? Jonathan Steinberg: Jeremy, do you want to start there? Jeremy Schwartz: Yes. I think a large theme you've heard is just the breadth of funded exposures and how well diversified we've become. If you go back 10 years ago, currency hedged Europe and Japan, where 80% of the business. I know it was a very concentrated world where only a strong dollar in Europe and Japan in favor were your key drivers. Now you have a very, very broad cross-section. You had growth in value. I talked about the thematics that are a growing range for us that are really some of the biggest growth companies out there. We launched a Quantum computing fund, and it's raised $150 million in a short amount of time, but also things like AI, we have big expansion plans for more thematic, but also our traditional value fund from small cast to quality and a lot of -- really all marketing environment type funds. So I think we're as well positioned for a strong dollar and weak dollar environment as you can get. And the commodity -- the macro uncertainty, which has led to the big moving commodities, there's really no firm better position for that environment. So I think we are proud of the diversification that we've achieved. Robert Lilien: And I think that's another point that gets missed a lot is just how well diversified we are and how well suited we are for almost any market environment and again, we haven't just proven that in one quarter, that's been something you've been able to look at and witnessed over the last 5 to 10 years. Unknown Analyst: Is WisdomTree's approach to growing digital asset base, is it more about educating people about digital assets into accreditation? Is that a big part of the strategy? Or are you more focused on capturing clients that are already familiar with these types of assets and services? Jonathan Steinberg: Will? William Peck: Yes, it's really the latter right now. I mean I'd say we are serving people who have decided that they want to be operating on chain. So that would be retailer institutional people. And the universe of people who have made that decision is growing very rapidly. So you look GENIUS Act, I'd say, a real milestone in the U.S. for more and more people just having the regulatory clarity around stablecoins and the ability to use stablecoins and wallets going forward. So I'd say, to use our products well, you need a wallet. And as more and more people are starting to adopt wallet-based infrastructure for financial services to use stablecoins to access these tokenized funds, other real-world assets, that just grows the applicable universe of who we can serve. So WisdomTree Prime has got a great experience for allowing retail to kind of -- they can also fund with Fiat, but fund with stablecoins as well. We just pushed some new updates there where New York users, for the first time, can fund with stable coins. And that just allows more and more people to kind of access the products that we're bringing forward. Unknown Analyst: Okay. And if I could squeeze one more in. When building out new products, do you generally utilize existing expertise and staff members? Or do you tend to seek out more outside talent when looking to build on your strategies? Jonathan Steinberg: I'll take this. For the most part, there's tremendous leverage to the business. For the most part, it's all off of existing talent and we have a very strong research and product development team that spans truly every asset class. So I think it's the -- that we're really building off of the core strengths of the firm today. Actually, as you say that, I am reminded though, we do we are always investing in our capabilities. So Quorus was one of the investments that we made towards the end of last year, but one that seems to not get that much attention. We made an investment in the firm AlphaBeta, an Israeli AI firm that's helping us with product development and we have recently launched a fund based off of that. So it is a mix. There's no question. It is a mix, but it's very, very scalable. Our head count has remained very, very disciplined type. Operator: The next question comes from the line of Keith Housum with Northcoast Research. Keith Housum: It's been a quarter now with Ceres under your belt a little bit more on that. I guess perhaps you could talk a little bit about lessons learned so far through the acquisition and opportunities going forward to expand their distribution to help grow their AUM even further? Jonathan Steinberg: I'll start but Jarrett, please jump in. I mean we're -- this was one, we've proven over the last -- in our history that M&A has been very successful for us. This was a very specific acquisition, very determined in our desire for this particular asset class. The integration could not have gotten more smoothly, the employee base and the way we structured the transaction really seems to have made a lot of sense to both the seller and to WisdomTree. And so we're really -- it's been very, very easy integration. So I wouldn't say that's lessons learned, I would say that's added confidence in our ability to do strategic M&A. But Jarrett, is there something you would want to add or Jeremy? Robert Lilien: Yes. I guess I'd add, it's not so much lessons learned. So far, it's confirmation of what we thought. What a great business, what a great fit with us, what a great team. They've averaged 6% to 7% net inflows over the past 10 years. They've had zero years of net outflows in almost 20 years where they've been operating. We see definite synergies both with distribution and product. We don't give out growth forecast, but we believe that we should be able to do better than the historical averages because of that confirmation of just what a great business and what a great fit this is for us. Keith Housum: Great. And a second question for you. In terms of the digital asset strategy, nice growth in the third-party WisdomTree Connect users from the beginning of year to the end of the year. Can you just give us an example of perhaps who some of those users would be just in terms of the type of businesses? So that we can better kind of visualize who the end customer is here. Jonathan Steinberg: Will? William Peck: Yes, absolutely. So really seeing kind of four main types of use cases right now. Specific to the money market fund, that's a eligible reserve asset under the GENIUS Act for stablecoin reserves. So we do have stablecoin issuer clients, and we think that's going to be one that continues to grow. We're using WTGXX as part of the reserves. The second and kind of related is really around businesses that are using stablecoins as part of their treasury management workflows. And then they can invest in WTGXX as kind of a yield-bearing asset within treasury management. The third is really as a collateral instrument. So people talk a lot about collateral mobility in tokenization, the ability to move collateral around much more quickly. So we are seeing use cases of investors holding WTGXX as a collateral instrument. And I'd say the fourth is really just around broadly on chain investing, right? So there are lots of investors in the crypto DeFi space who are looking for access to real-world assets, looking to use those as part of their investing strategy, use them in DeFi. And that's where we're actually very well served to service them. we've got a wide range of exposures beyond just the money market funds. So if they want equity exposure, they can -- their private credit exposure, they can do that through our platform. So it's really those four use cases that we're seeing to date. Operator: This will conclude the question-and-answer session. I'd like to -- and I would like to turn the call back over to Mr. Steinberg for closing remarks. Jonathan Steinberg: Thank you. as I said earlier, it does feel that WisdomTree is entering a new chapter in our history, new scale and new capabilities that are investments that we've been making over the last to 7 years are really starting to drive shareholder momentum. I'd also like to turn that more into a conversation about valuation. It does feel that WisdomTree is underappreciated in the market. We have certain elements that I'd really like to bring your attention to. The first is the diverse AUM mix, which -- the mix of our assets makes WisdomTree more resilient than other asset managers, we're showing the upside in a market in the recent -- in January or year-to-date. But we're also -- it really gives us downside protection, the breadth of the commodities, the short duration fixed income with the upside of digital assets as well as just sheer equities and the thematics that Jarrett spoke about earlier. And our record of strong organic growth and margin expansion, it really should start showing up, I think, in multiple expansion, WisdomTree trading at, if you would update your numbers, if the analysts will update their numbers for AUM with today's guidance, it looks like we're trading at 7 or 8 terms below the S&P 500. And it just doesn't feel like with the outlook that we have with the footprint that we have that we should be trading as -- at a lower multiple to the market, WisdomTree's footprint in global ETFs, a leader in tokenization, an emerging player in differentiated private assets, it really feels that we have barely tapped into what we're capable of doing. And I think going forward, we expect to be able to drive significant valuation. Over the last 5 years, we've been a leader, if not the leader, in stockholder total return within our base of -- our category of traditional assets. So for the last 5 years, really driving substantial improvement over relative to the other asset managers. And as we start to scale our market cap to $2.5 million and beyond, I hope we'll be able to pick up more analysts. To help us tell the story, it does feel that we are an underappreciated story within the marketplace. Within digital assets, there are a number of firms that are sort of pure plays that have come to market with extraordinary valuations. And I'm not saying their valuations are right. But as someone who has a vertically integrated digital asset business, not just the funds, but our tokenization platform, our digital TA, we really have this fully integrated platform, which I believe is being fully underappreciated by the market today. And as I did say earlier, I wouldn't be surprised if our tokenized money market fund doesn't emerge as the largest fund within WisdomTree if that growth, which started in 2025 where we went from almost nothing to $700 million of AUM. If it continues, I hope that we'll be able to really drive investor attention into how successful and well positioned we are within the digital asset story. So with all that, I just would say, I hope that our shareholders fully appreciate what we're doing. And to the analysts, I think you should focus even more closely on the WisdomTree story. It feels like the best is yet to come. So thank you, everybody. Operator: Thank you. This concludes today's conference. You may disconnect your lines at this time, and we thank you for your participation.
Operator: Good morning, ladies and gentlemen, and welcome to Standex International Fiscal Second Quarter 2026 Financial Results Conference Call. [Operator Instructions] I would now like to turn the conference call over to Chris Howe. Please go ahead. Huang Howe: Thank you, operator, and good morning. Please note that the presentation accompanying management's remarks can be found on the Investor Relations portion of the company's website at www.standex.com. Please refer to Standex's safe harbor statement on Slide 2. Matters that Standex management will discuss on today's conference call include predictions, estimates, expectations and other forward-looking statements. These statements are subject to risks and uncertainties that could cause actual results to differ materially. You should refer to Standex's most recent annual report on Form 10-K as well as other SEC filings and public announcements for a detailed list of risk factors. In addition, I'd like to remind you that today's discussion will include references to the non-GAAP measures of EBIT, which is earnings before interest and taxes; adjusted EBIT; EBITDA, which is earnings before interest, taxes, depreciation and amortization; adjusted EBITDA; EBITDA margin; and adjusted EBITDA margin. We will also refer to other non-GAAP measures, including adjusted net income, adjusted operating income, adjusted net income from continuing operations, adjusted earnings per share, adjusted operating margin, free operating cash flow and pro forma net debt to EBITDA. Adjusted measures exclude the impact of restructuring, purchase accounting, amortization from acquired intangible assets, acquisition-related expenses and onetime items. These non-GAAP financial measures are intended to serve as a complement to results provided in accordance with accounting principles generally accepted in the United States. Standex believes that such information provides an additional measurement and consistent historical comparison of the company's financial performance. On the call today is Standex's Chairman, President and Chief Executive Officer, David Dunbar; and Chief Financial Officer and Treasurer, Ademir Sarcevic. David Dunbar: Thank you, Chris. Good morning, and welcome to our Fiscal Second Quarter 2026 Conference Call. I am very pleased to present results that demonstrate our years-long efforts to build a growth engine at Standex are now reading through in top line results. We recorded 6.4% organic growth and a book-to-bill ratio of 1.04, led by our Electronics segment, which grew 11.1% organically with a book-to-bill ratio of 1.08. The contributions from sales into fast growth markets, new product sales and the improving general industrial markets are now evident in our results. As such, the company is well positioned to deliver mid- to high-single-digit organic growth in the fiscal third quarter and remains on track to the fiscal 2026 sales outlook. I would like to thank our employees, our executives and the Board of Directors for their efforts and continued dedication and support that drove our solid fiscal second quarter 2026 results. Now let's look at the results beginning on Slide 3. In the second quarter, sales increased 16.6% year-on-year. Contributing to this growth were new product sales and sales into fast-growth markets. New product sales grew approximately 13% to $16.3 million. Sales into fast-growth markets were approximately $61 million or 28% of total sales. These results have been literally years in the making as we began our focus on new product development in fiscal year 2021 by increasing our R&D spending from 1% of sales to the current 3%. In the same year, we began directing our efforts to win more applications with customers serving fast growth markets. In our August earnings call, we said that we believe both efforts were reaching an inflection point and would deliver organic growth this fiscal year. These results show they are paying off. Orders of approximately $231 million were the highest quarterly intake ever, showing our growth engine continues to accelerate and setting us up nicely for the balance of the year. In the second quarter, sales increased 6.4% organically with book-to-bill of 1.04, highlighted by the Electronics segment that grew 11.1% organically with book-to-bill of 1.08. In addition, the engraving segment grew 10.3% organically. Adjusted gross margin of 42.1% was up 120 basis points year-on-year. Adjusted operating margin of 19% was up 30 basis points year-on-year. We paid down approximately $10 million of debt and reduced our net leverage ratio to 2.3x. We are reiterating our fiscal year 2026 sales outlook. Barring unforeseen economic global trade or tariff-related disruptions, we expect revenue to grow by over $110 million from 2025. The drivers of this increase are the strong momentum we are seeing from new product sales and sales into fast-growth markets and the full year impact of last year's acquisitions. In fiscal year 2026, we expect new product sales to contribute approximately 300 basis points of incremental sales growth and have increased our expected sales from new products to $85 million from $78 million. We launched 4 new products in the second quarter and remain on track to release more than 15 new products in fiscal 2026. Sales from fast-growth markets are expected to grow over 45% year-on-year and exceed $270 million. On a year-on-year basis, in fiscal third quarter '26, we expect significantly higher revenue driven by mid- to high-single-digit organic growth from higher sales into fast growth end markets and increased new product sales and slightly higher adjusted operating margin due to higher volume and favorable product mix, partially offset by growth investments and higher medical costs. On a sequential basis, we expect slightly to moderately higher revenue driven by higher contributions from fast growth end markets and new product sales and slightly to moderately higher adjusted operating margin due to higher volume and pricing and productivity initiatives, partially offset by growth investments. I will now turn the call over to Ademir to discuss our financial performance in greater detail. Ademir Sarcevic: Thank you, David, and good morning, everyone. Let's turn to Slide 4, second quarter 2026 summary. On a consolidated basis, total revenue increased approximately 16.6% year-on-year to $221.3 million. This reflected organic growth of 6.4%, 9.4% benefit from acquisitions and 0.8% benefit from foreign currency. Second quarter 2026 adjusted operating margin increased 30 basis points year-on-year to 19%. Adjusted earnings per share increased 8.9% year-on-year to $2.08. Net cash provided by operating activities was $20.7 million in the second quarter of fiscal 2026 compared to $9.1 million a year ago. Capital expenditures were $7.7 million compared to $7 million a year ago. As a result, we generated fiscal second quarter free cash flow of $13 million compared to $2.2 million a year ago. Now please turn to Slide 5, and I will begin to discuss our segment performance and outlook, beginning with Electronics. Segment revenue increased 20.6% year-on-year to a record $115.7 million, driven by organic growth of 11.1%, acquisition benefit of 9.1% and 0.4% benefit from foreign currency. Organic growth was driven by sales in the fast-growth markets and increased new product sales. Adjusted operating margin of 28.8% in fiscal second quarter 2026 increased 120 basis points year-on-year due to higher volume, pricing initiatives and product mix. Our book-to-bill in fiscal second quarter was 1.08, with orders of approximately $125 million. This marks the sixth consecutive quarter with book-to-bill near or above 1. As mentioned before, due to the customized nature of our products, the conversion cycle is longer, but with higher sustainable margins. The healthy order funnel is now being realized in our organic growth results. Sequentially, in fiscal third quarter 2026 we expect slightly to moderately higher revenue, reflecting higher sales into fast growth end markets and increased new product sales. We expect similar adjusted operating margin, primarily due to product mix and continued strategic growth investments. Please turn to Slide 6 for a discussion of Engineering Technologies and Scientific segments. Engineering Technologies revenue increased 35.3% to $30.6 million driven by 33.4% benefit from recent McStarlite acquisition, organic growth of 1.2% and 0.6% benefit from foreign currency. Organic growth was suppressed by delays in customer project timing. Adjusted operating margin of 18.9% increased 260 basis points year-on-year, primarily due to higher volume. Sequentially, we expect moderately to significantly higher revenue due to growth in new product sales and more favorable project timing. We expect slightly to moderately higher adjusted operating margin due to higher volume. Scientific revenue increased 5.5% to $19.5 million due to acquisition benefit of 8.1%, partially offset by organic decline of 2.6%, primarily due to lower demand from academic and research institutions affected by NIH cuts. Adjusted operating margin of 24.2% decreased 270 basis points year-on-year due to organic decline and product mix. Sequentially, we expect similar revenue and slightly lower adjusted operating margin due to product mix, investments in research and development and tariff costs, partially offset by pricing and productivity initiatives. Now turn to Slide 7 for a discussion of the Engraving and Specialty Solutions segment. Engraving revenue increased 13.6% to $35.7 million, driven by organic growth of 10.3% from improved demand in Europe and North America and 3.3% benefit from foreign currency. Adjusted operating margin of 19.2% in fiscal second quarter 2026 increased 490 basis points year-on-year due to higher sales and realization of previously executed restructuring actions. In the next -- in our next fiscal quarter, on a sequential basis, we expect similar revenue and slightly lower adjusted operating margin due to project and regional mix. Specialty Solutions segment revenue of $19.8 million decreased 7.2% year-on-year. Operating margin of 10.7% decreased 600 basis points year-on-year. Sequentially, we expect moderately to significantly higher revenue and operating margin. Next, please turn to Slide 8 for a summary of Standex's liquidity statistics and capitalization structure. Our current available liquidity is approximately $213 million. At the end of the second quarter, Standex had net debt of $437.7 million compared to net debt of $413.2 million at the end of fiscal second quarter 2025. Our net leverage ratio currently stands at 2.3x. We paid down our debt by approximately $10 million during the fiscal second quarter 2026. In fiscal third quarter 2026, we expect interest expense between $7 million and $7.5 million. Standex's long-term debt at the end of fiscal second quarter 2026 was $534.7 million. Cash and cash equivalents totaled $97 million. We declared our 246th quarterly consecutive cash dividend of $0.34 a share, an approximately 6.3% increase year-on-year. In fiscal 2026, we expect capital expenditures between $33 million and $38 million. Relative to our debt leverage, we will continue to focus on paying down debt and anticipate that our leverage ratio will further decline through fiscal year 2026. I will now turn the call over to David for concluding remarks. David Dunbar: Thank you, Ademir. Please turn to Slide 9. I I'm very pleased to see the inflection in organic growth in the second quarter as new product sales grew 13% and as fast growth markets contributed 28% of revenue. Organic growth was driven by our Electronics, Engineering Technologies and Engraving segments. The year-on-year organic growth reflects actions and investments since fiscal year 2021. During this time, we ramped up new product development across our businesses and further positioned ourselves in fast growth end markets like Grid, commercialization of Space and Defense. We will continue to align our organic and inorganic growth investments around secular end markets and new products that expand our presence and deepen our customer relationships. This continued momentum in fast-growth markets and from new product sales helped support a record order book in the fiscal second quarter. We are reiterating our sales outlook for fiscal 2026 and remain on track to achieve our fiscal 2028 long-term targets. We will now open the line for questions. Operator: [Operator Instructions] Your first question is from Chris Moore from CJS Securities. Christopher Moore: Congratulations on another solid quarter. Maybe we just start with one on the -- on the purchase accounting side, the $17.98 million redeemable noncontrolling interest redemption value. I know that relates to the 10% that you could not acquire of Amran, Narayan. Maybe you could just kind of walk us through the math there and how that works? Ademir Sarcevic: Yes. Sure. It's Ademir here. So it's a bit of a technical answer. So we -- and we anticipated this question, so we prepared a few remarks. So let me try to explain. So kind of in general, whenever we acquire the business, our goal is to ensure full alignment in objectives and incentives between owners of the business and Standex and in many cases, actually owners and team management of the acquired business stay on board with us not only to ensure successful integration, but also, frankly, to help us grow the business in the future. And that's been our key success with our prior acquisitions has been really strong, strategic, financial and cultural fit. So last year, when we negotiated agreement to acquire Amran and Amran is actually a U.S. legal entity and Narayan, which is an Indian legal entity, our goal is essentially the same, to ensure common goals and incentives between owners of the business and Standex. So in order to achieve this goal, we acquired 85% of Amran in cash and 15% with Standex shares. And then we also acquired 90% of Narayan in cash, and our plan was to acquire the remaining 10% of Narayan, an Indian entity, with Standex shares. This acquisition actually of the remaining 10% of Narayan with Standex shares was not possible at the time of acquisition because it was subject of approval by Indian government as Indian nationals have restrictions on owning foreign equity. And since we didn't have this approval at the time of Narayan acquisition, we included in the purchase agreement, an alternative method to acquire the remaining 10% with cash, using the same 12x trailing 12-month EBITDA multiple which is measured at future points in time. So now after 1 year, the India government approval was not obtained. And at this point, this approval is unlikely. And based on the original purchase agreement, minority owners of Narayan now have the right to sell us 1/3 of their remaining 10% interest in Narayan. And as a result of these 2 facts, per accounting rules we had to record the increased value of remaining 10% of Narayan based on trailing 12 months Narayan EBITDA as of end of fiscal Q2 FY '26 applying the same 12x multiple to frankly represent what it would cost Standex to acquire in cash, the remaining 10% stake of Narayan as of today as per the purchase agreement. So really, Chris, it just shows the increased value of this business since the acquisition and just frankly, a phenomenal performance that this business has had as part of Standex grid. Hopefully, that helps. I mean I can read you the explanation from the Q, which is even more tactical, but hopefully, this helps clarify. Christopher Moore: No, it does. That was perfect. Very helpful. All right. So on to the business. So maybe just continue with Amran or Grid. So OEMs such as Schneider Electric, Siemens, GE, all found it more efficient to outsource the low to medium voltage transformers that Grid is providing much of the engineering that they had done in-house. So maybe just a question or 2 here. How would you characterize the competitive environment here? I'm just trying to understand if -- do most of these OEMs have multiple relationships with companies like Amran? Or are you sole sourcing or how does it work now? And what's your expectation moving forward? David Dunbar: Well, Chris, this is a great example of a customer intimacy market. And the idea of customer intimacy is that as customers design their next generation platforms, they've got their engineers focused on the most critical functionality within that platform, but there are other elements that are very important that must be custom designed and they need partners to do that. So over the years, instrument transformers have moved into that category and Amran Narayan is quickly becoming a valued partner to the global equipment OEMs. If you zoom out and look at the global market for instrument transformers, about 40% of the instrument transformers are made by the electrical equipment OEMs, by the GE, Siemens, by Schneider Eaton. They are outsourcing more and more of that, but not all of it. The other 60%, there are different suppliers in every region of the world. And I would -- they're not small family shops. These are businesses about the size of Amran and Narayan, but there are a lot of suppliers out there around the regions of the world, and we feel that we stack up well against all of them. Christopher Moore: Got it. And very helpful. And maybe just the last 1 for me, maybe just bigger picture. India and EU just signed a trade deal? Just wondering any thoughts there? David Dunbar: Well, yes. Well, first of all, clarity in trade is good. Clarity and consistency, so we can make our investment, make our plans. Now if you think about the Croatia site that we've started up and now ramping up, we're installing machinery now there, that makes that Croatia site even more viable long term because that's there to serve the European market and leverages the India supply chain. So we don't know fully what the implications are, but it can only be good. Operator: Your next question is from Ross Sparenblek from William Blair. Ross Sparenblek: On the electronics, can you maybe just help parse out the sales and order growth for the grid business versus the legacy? Ademir Sarcevic: Yes. I mean, again, our book-to-bill for the electronics in total was over 1 with the Grid business being at about 1.2 book-to-bill and the core business being at about 1.03, 1.04. I think even kind of more of an info is that our orders in the Electronics business have been strong over the past 2 quarters or a few quarters. And as you know, Ross, it takes us a little while to convert some orders into sales. So we are pretty pleased with what we are seeing in the overall order book, both in the core business and especially what we are seeing on the grid business because the demand is very strong. David Dunbar: I just -- there's 3 big pieces of our electronics business, the grid business continues to grow kind of as it has in the last few years. Our switches and sensor business with reed switches and relays is growing upper-single digits and the magnetics business, which is primarily North American business, is less than that. So our core electronics business, mid-single digit growth. Ademir Sarcevic: Yes, correct. Yes, yes. David Dunbar: And then that grid business. Ademir Sarcevic: So yes, in the quarter, right, that's a good point. In the quarter, Ross, the grid business kind of got that organic growth rate because we lapsed the year, got the organic growth rate for the whole total segment over 10% with the core growing at about mid-single digits organically. Ross Sparenblek: Okay. So I mean you get the sense on the legacy side that you're starting to hit an inflection here. That's how it seemed to indicate. But I mean we kind of think through the end markets and the drivers, I mean, is there anything really to call up there? I mean I know EVs was a story for a bit. You won some new content, Aerospace and Defense, just what's helping sustain that legacy? David Dunbar: Yes. On the legacy side, it's -- right, it's primarily the switches and the relays, Asia is very strong. There's a lot of economic activity in Asia, we're seeing a pickup in Europe. North America is still flat. So if you look at the geographies. The end markets, our relay business is growing with test and measurement, sales relays into test and measurement equipment, and that's tied to electrification, grid and data centers. Those are kind of things that stick out. Ross Sparenblek: Yes. Okay. And then can you maybe help us bridge the second half walk to the $270 million of fast growth sales, but we comped over the Amran acquisition and kind of my math, it seems like the biggest 2 bucks are probably commercial space and grid, and then we also have capacity coming online there, too, that might be inhibiting that the next quarter or two, on the grain side? David Dunbar: Well, yes. So last year, our sales in fast growth of $184 million and that included a partial year of the grid business. This year, we're saying $270 million plus, and that's a full year of the grid business. Within that, our sales into defense in North America are up $15 million to $20 million, space about $10 million. EV is about $5 million, and the rest is the grid growth, which is primarily the Amran Narayan acquisition, but there's some sales into grid from our legacy magnetics. Ross Sparenblek: Okay. I mean that's kind of what you're baking in for the year, that's what you've already seen in the first half. David Dunbar: No, we're seeing that. Yes, yes. Ross Sparenblek: Okay. I'm just trying to understand there's going to be a bigger mix shift towards the grid since it is higher margin or what the timing look like there? David Dunbar: Well, it is higher margin. But... Ademir Sarcevic: Yes. No, no, you're right. The grid business has higher margins. So just 1 thing, Ross, that's important is we're also investing in growth and capacity expansion in grid. So there's going to be some cost to set up our Croatia site to expand in Mexico to get the -- to get the Houston, Texas capacity expansion. So we do expect the margins kind of to continue to be very strong, but there's some investments we need to make now to continue to sustain this exceptional growth, frankly, on the grid side. Operator: Your next question is from Matthew Koranda from ROTH Capital Partners. Matt Koranda: Maybe just continuing on the electronics chain of questioning here. Maybe could you just run us through the state of play with the capacity expansion projects you have for Amran Narayan between Houston, Mexico, Croatia, just the status there and how that sort of informs the segment profit guidance that you've laid out for us? David Dunbar: Yes. Let me first kind of zoom out and talk about capacity expansion. Since we acquired the business, we've increased the capacity about 50%, and that's largely through the addition of additional ships, with work on lean, a little bit of automation. Now we're bringing on new sites. The Croatia site is now ramping up. We're moving machinery into our Mexico plant. So now if you zoom out over 5 years, let's say within 3 to 5 years, we'll more than double the capacity with the addition of the Croatia site, the expansion in New Mexico. We will move into a larger site in Houston. That should be up and running in about 18 months, expansion in India. And then just continued automation and lean work, we'll more than double the capacity in 3 to 5 years. Matt Koranda: Okay. Got it. Helpful on the capacity side. Just wondering, maybe Ademir can chime in on how that creates a little bit of a near-term drag on segment profitability. Just wanted to understand how that informs the guidance. Ademir Sarcevic: Yes, yes. No, for sure, Matt. So initially, obviously, to get -- for example, to get the Croatia site up and running, you have the set up the site, you have to hire a general manager, you have to hire people, sales and marketing, production, et cetera. So there is some cost that's going to be incurred before we get to ramp up the production. So we don't expect electronics margins to decline in subsequent quarters. But I would probably tell you that I wouldn't expect them to increase in subsequent quarters as well. David Dunbar: Yes. I guess a good way to say that is we are adding resource, project management resource, expertise in bringing up these new sites because it is so important. And we are doing that with the growth. We're paying for that through the business and increasing margin, margin would be higher right now if we didn't make those investments, but it would compromise the capacity growth. Ademir Sarcevic: That's right. Matt Koranda: Okay. That makes total sense. Okay. And then on ETG, I think you guys mentioned maybe there was some organic growth that was held back by customer timing issues and guessing just based on the guidance that, that slides into the third quarter, but maybe just talk a little bit about some of the puts and takes there. David Dunbar: Yes, absolutely. For long-time followers of Standex, this comes up pretty regularly in that business. And whether the customer, whether it's aviation space or defense, these are large shipments, they sometimes carry over from 1 quarter to the next, and it's really just a matter of timing. There's -- maybe they couldn't get in -- there's a lot of reasons that could happen, they couldn't schedule a final inspection. But these things slip from 1 quarter to the next all the time. The backlog remains healthy and growing. Yes, no. Ademir Sarcevic: Yes, Matt. I mean it could be -- yes, and really for ETG business, you kind of got to look at it over a 12-month period, to normalize for some of these ebbs and flows. But David is right, it could be a change in production on the customer side, change in timing when they need a product, it obviously affects when we work on the product, et cetera, et cetera. But over kind of 4 quarters, it all equalizes out. But you're right, we do at some of the shifts from Q2 to happen this quarter. Matt Koranda: Understood. Okay. Maybe just 1 more if I could sneak 1 in. On the sort of the M&A front, just given where leverage is, it's coming down to a healthy place. It looks like line of sight is to under 2 at some point in the near future. Where are you focusing your efforts now just given sort of the balance sheet looks like it's in order to maybe get larger stuff done potentially? Just curious how -- where your head is at on that? David Dunbar: Yes. We are -- we've had extensive discussions about this recently. We're obviously looking for opportunities in grid and building up a funnel of opportunities in grid, a, to help even accelerate the capacity expansion. Based on earlier questions, there are other companies out there that make instrument transformers, so we can expand the instrument transformer business. Our grid customers are asking us to expand the products we sell them. So we have some ideas from our customers, like Schneider and Eaton about companies we could look at. So we're building up that pipeline. In our legacy electronics business, we know that every time we work with a customer and we customize a switch, relay or a sensor, there are other products that we could work on if we had a broader offering in that components and modules area. So you think about expanding our sensor and switch business into other related technologies, we're building up a pipeline there. So don't be surprised if in the future, you see us building that business out, so we can offer a broader customer set. I guess the final area, we're just -- we feel pleased we have so many great end markets to look at. Space, the space market is becoming a bigger and bigger opportunity. It is not just putting satellites in orbit anymore. If you look at the long-term plan some people have for space, there's going to be a lot going on up there with different kinds of vehicles requiring different pieces of equipment. So we're also building up a funnel in kind of emerging capabilities in the space market. Matt Koranda: Okay. Sounds like a target rich environment, I'll leave it there. David Dunbar: Yes, yes. Operator: Your next question is from Gary Prestopino from Barrington Research. Gary Prestopino: David, your new product sales to date, how many products have you introduced? I think you did 4 this quarter? What is it to date? David Dunbar: Yes. So today, once you do 4, 5, we're 9 to date. Gary Prestopino: Okay. So you're going to do greater than 15 this year, right? David Dunbar: Yes, Yes. Gary Prestopino: Are there any new products that you put out that you would have considered more wildly successful than you initially thought as you were developing them? David Dunbar: Well, I tell you, a lot of our sales in the commercialization of space are new products, and these are -- every year, we seem to take up our expectations of those. So the Engineering Technologies business with the Spincraft business have been very successful with their new products. Gary Prestopino: Okay. So that's where the new products are really hitting. Okay. And then are you at liberty to say if your fast growth markets are going to do $270 million of sales this year, I would assume a lot of that jump year-over-year is due to what you're doing in the grid. So what percentage of your sales are going to the grid right now or out of that $270 million, what percentage of your sales would be the grid? David Dunbar: Yes. I kind of ran through those numbers earlier to another question. And it's just over half of that is into the grid, 50%, 52% or something like that. And that was the run rate we saw these last couple of quarters because we've got Amran Narayan fully in our numbers. And the rest, as I mentioned before, defense and space are the biggest pieces with a little bit of EV and renewable energy. Gary Prestopino: Okay. And then just lastly, in terms of the Amran acquisition, is there any more residual carryover from -- that would impact the next 2 quarters in terms of -- from the acquisition such as it would impact the income statement as it did this quarter? Ademir Sarcevic: Gary, are you talking about this noncontrolling interest adjustment? Gary Prestopino: Yes. Yes, the noncontrolling. Ademir Sarcevic: Yes, we will have -- I mean, obviously, it will not be this sizable because this was the annual true-up based on the 2 factors that kind of led us to have to book it this time. But yes, I mean, it will have to be adjusted on a quarterly basis going forward because the trailing 12-month EBITDA for which the multiple is applied is going to change. David Dunbar: Yes. I'm going to say a word about that. We are delighted that we had to make that large an adjustment because that means that business is doing great. And this incentive, this 10% of that Indian remaining in the hands of the owners really completely aligns our incentives. I mean I'm delighted at the cultural integration and the cooperation we're getting from the teams. And so this is an accounting and a technical matter, but it's playing out the way we had hoped. Gary Prestopino: No, I understand that, but what I'm just trying to get at is because they still own 10%, we're going to have this going forward for the next couple of quarters? I mean does this ever end? Ademir Sarcevic: Well, it would obviously end when the 10% is executed and either sold, even we repurchased the 10% then. But as long as -- I'm sorry. Gary Prestopino: Go ahead, I'm sorry. No, no, go ahead. I'm sorry. Ademir Sarcevic: No, no. At the point when those 10% shares transferred back to us, and we purchase them, obviously, then this would go away. But as long as there is some portion of the minority interest that's owned by the prior owners in India, there will be minority interest that has to stay on the balance sheet and a liability that we would have to pay for the remaining part at some point. Actually, in the contract, we have put and call options the way that this agreement was structured by which, for the first 3 years, the owners have the right to essentially sell us their shares and then we get the right to repurchase starting in year 4. Operator: Your next question is from Michael Shlisky from D.A. Davidson. Michael Shlisky: I want to follow up on your last answer there. I'm also just trying to make sure I get my hands around this. Does the eventual sale of the shares or purchase of the shares has to be approved by the Indian government? And could that be an issue? And will you be just consistently revaluating this every quarter until they approve it? Ademir Sarcevic: Yes. So to come back to the original agreement we had, we actually -- the original objective was to purchase 10% of the Indian entity in Narayan with Standex shares. And the India government needs to approve an Indian national to own equity of a foreign company. So if you're buying it with shares, there needs to be a government approval. If you're paying it with cash, obviously, there is no government approval that's needed. That's a pretty straightforward transaction. David Dunbar: And that's what we're doing. Ademir Sarcevic: And that's, I think, where we're going to end up at some point in time over the next few years. Michael Shlisky: No approvals. Got it. I know it's not your biggest segment, but I did notice the substantial margin decline in Specialty Solutions. I was wondering if you could maybe share what was behind that? I know you mentioned one of the Engineering Technologies Group, but how about that one? Ademir Sarcevic: Yes, it's been just a very, very difficult end market in North America, Mike, in terms of where the Specialty Solutions is playing and it's all North America. And we do expect this quarter to get better. We are seeing some order intake improvement in both businesses that make up the Specialty Solutions segment and we do expect those margins to improve this quarter as the general market conditions improve. But it's market driven. Michael Shlisky: Okay. Okay. And similarly, I wanted to touch on the Engraving business as well, a little bit of a nice comeback coming here after a very long period of waiting. Can you just talk a little bit about what the pipeline of business looks like in Engraving? Does it go beyond a couple of quarters here? David Dunbar: Yes. I mean we -- like we've said in the last few quarters, we think that in North America and Europe, that activity bottomed out, and we were in the kind of in the trough in the last year. We do see that North America is still kind of at similar levels. Europe is starting to pick up. We anticipate programs will be launched in America that will lead to work for us later in the summer and the fall. So we do see a pickup in that general -- in our traditional business there. And another thing we're quite excited about is the increase in our new product sales for the year is actually out of the Engraving business. You might remember in the summer, we talked about a new win they had making these differentiated parts using kind of some proprietary knowledge we have of the soft trim process. So we're producing these parts. That is a new product for us. And the $8 million increase in new products is almost -- is largely from that business. So we think there's a pickup from that, we'll see in the -- late this quarter and into Q4. Ademir Sarcevic: But we are still -- we are still cautious about the overall market in Engraving, the auto market. Operator: Your next question is from Ross Sparenblek from William Blair. Ross Sparenblek: Just quickly on the capacity. I mean you've spoken there were $60 million roughly in Croatia. But can you maybe just remind us of where that stood when you acquired the asset on a dollar basis? David Dunbar: Zero. It was -- there were only -- the Croatia was just a request from customers to install the capacity. Ross Sparenblek: I mean, the capacity of Amran. I mean, you weren't [indiscernible] move to expand there. David Dunbar: Yes. So the capacity at the time of acquisition was basically in line with the sales. It was about $100 million. We have increased that capacity of that -- of the existing capacity about 50%. And then we've got these other sites coming online. Ross Sparenblek: And then just want to clarify, we think through doubling that, are we doubling it off the original base or where we stand today? David Dunbar: No, no, no, no. No, in fact, we're more than doubling it with -- based on -- they're at $150 million now, we will more than double that in the next 3 to 5 with Croatia, Mexico, Houston, new expansion in India, and lean and automation. Ross Sparenblek: Okay. And then just on Amran and just kind of a qualitative and the competitive landscape. Can you say elaborate on the right to win there? Is it the scale, the relationships? Or is it just kind of the prototyping and technical capabilities? David Dunbar: I didn't understand the question, Amran. Ross Sparenblek: Sorry. Yes, on Amran, on the grid business. I mean we're expanding globally. There's a lot -- it's a fragmented market, regional players. I mean what truly is kind of the right to win there for that business? David Dunbar: Well, customers are asking us to expand. They have earned a privileged position with the largest electrical equipment OEMs through great service levels. When we announced the acquisition and in previous quarters, we've explained, they have an advantage, the way their business model works, they can turn around prototypes faster. They can deliver faster than internal teams and a lot of our customers and from our competitors. They have a great track record for quality. And they've got a great supply chain in India that gives them a cost advantage as well. So they win on a lot of fronts, all the expansion plans we're talking about are really at the request of customers. We don't have to go prospecting for business. Customers are very open with us about their long-term plans, what they want us to do. So this is a very collaborative effort to expand this capacity. Ross Sparenblek: Okay. And then maybe just 1 final 1 here. Do we think like the delta of the mid- to high-single, can you put a finer point on those ranges and what could go wrong, what could go right? I know you guys have better visibility in some markets than others, but it feels like the cyclical pieces are pretty -- pretty much a trough at this point. Ademir Sarcevic: Yes. I mean, I think, yes. I mean, that's right. I mean, we feel from a kind of an overall economic environment and when the global markets, we feel we are -- we bottomed out for sure, and now we are starting to recover and see some increased demand. David Dunbar: In terms of what can go wrong, the reason -- back in August, we said that there's a lot of positive energy in the company because we feel we're reaching an inflection point where the new products and the fast-growth markets are overcoming weakness in some other general industry markets. North America is still pretty weak. You heard about it in Specialty. That's kind of a weaker spot in our legacy electronics business. So in terms of what could go wrong, if we don't see a pickup in North America, that would be kind of a... Ademir Sarcevic: Yes, definitely. Ross Sparenblek: Okay. So more macro related, it's not timing of -- or any watch items regarding like the A350 or SpaceX or something like that. David Dunbar: No, no. Ademir Sarcevic: No. Operator: There are no further questions at this time. I will now hand the call back over to David Dunbar for the closing remarks. David Dunbar: I want to thank everybody for joining us for the call. We enjoy reporting on our progress at Standex. Thank you also to our employees and shareholders for your continued support and contributions. I'm excited about the company's potential in fiscal year 2026 and look forward to speaking with you again in our fiscal third quarter 2026 call. Operator: Thank you. Ladies and gentlemen, the conference has now ended. Thank you all for joining. You may all disconnect your lines.